Chapter 2 (“Analyzing Business Transactions”)

Question 1

When the owner writes a company check to pay the firm’s electric bill,:

assets and owner’s equity increase.
assets decrease and expenses increase.
assets and liabilities decrease.
expenses increase and owner’s equity increases.

Answer 1

assets decrease and expenses increase.

Question 2

When cash is paid to a creditor, the firm’s liabilities decrease.

True
False

Answer 2

True

Question 3

When equipment is purchased for cash,:

assets decrease and expenses increase.
one asset increases and another asset decreases.
assets and owner’s equity increase.
assets increase and liabilities decrease.

Answer 3

one asset increases and another asset decreases.

Question 4

The income statement is also known as the profit and loss statement.

True
False

Answer 4

True

Question 5

Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080.

True
False

Answer 5

True

Question 6

The financial statement that is prepared first is:

up to the accountant.
the income statement.
the balance sheet.
the statement of owner’s equity.

Answer 6

income statement

Question 7

The income statement shows:

the financial position of a business on a specific date.
revenue and owner’s equity.
the results of operations for a period of time.
the total value of the business.

Answer 7

the results of operations for a period of time.

Question 8

For statements prepared on plain paper, dollar signs are placed with the first amount in each column and with each total.

True
False

Answer 8

False

Question 9

Revenue is recorded when cash is collected from charge-account clients.

True
False

Answer 9

False

Question 10

If there is an excess of expenses over revenues, the excess represents a profit.
True
False

Answer 10

False