LO 1-3 Identify the components of the accounting equation

Question 1

Which of the following is an accurate definition of the term asset?

• A resource that will be used to produce revenue
• an obligation that will be used to produce revenue
• a transfer of wealth form the business to its owners
• a sacrifice incurred from operating the business

Answer 1

A resource that will be used to produce revenue

Question 2

Sources of assets?

• creditors
• investors
• operations
• all of the above represent sources of assets

Answer 2

-all of the above represent sources of assets

Question 3

if total assets increase, then

• liabilities, common stock, or retained earnings must increase
• liabilities must decrease and retained earnings must increase
• common stock must increase and retained earnings must decrease
• liabilities, common stock, or retained earnings must decrease

Answer 3

liabilities, common stock, or retained earnings must increase

Question 4

Liabilities:

• represent obligations to pay debts,
• may increase when assets increase,
• are found on the claims side of the accounting equation
• all of the answers are characteristic of liabilities

Answer 4

all of the answers are characteristic of liabilities

Question 5

Which term describes assets earned from operations that have been reinvested into the business?

• liabilities
• retained earnings
• common stock
• dividends

Answer 5

retained earnings

Question 6

Which of the following is an accurate depiction of the accounting equation?

• assets = liabilities + common stock - expenses
• Assets = Liabilities + Common Stock + Retained Earnings
• Assets = liabilities + retained earnings -dividends
• Assets = liabilities. + common stock + dividends

Answer 6

Assets = Liabilities + Common Stock + Retained Earnings

Question 7

Which term describes a distribution of the Company’s assets back to the owners of the business?

• liability
• dividend
• retained earnings
• common stock

Answer 7

dividend

Question 8

Owners of the business who contribute money to the business take more risk than creditors who loan money to the business. This statement is

Answer 8

true - Owners of a business take more risk than creditors because they share both the gains and losses of a business.

Question 9

accounting equation is composed of three elements

Answer 9

assets
liabilities
stockholders equity (common stock and retained earnings)

Question 10

resources to conduct operations use money to make ______ from creditors

Answer 10

assets

Question 11

single entry system fails to

Answer 11

keep track of assets

Question 12

creditors

Answer 12

give money to business and businesses have obligations to pay back = liabilities

Question 13

stockholder’s equity

Answer 13

when you borrow money from investors (stakeholders) you commit to issue common stocks and grant ownership

Question 14

assets from operations

Answer 14

resources businesses use to make money

Question 15

net increase in assets from operations is

Answer 15

earnings/income

Question 16

net decrease in assets from operations is

Answer 16

losses

Question 17

claims

Answer 17

entitlement from investments and creditors for assets in business

Question 18

accounting equation

Answer 18

relationship between business assets and claims

breakdown:

assets = claims

assets = liabilities + stockholder’s equity

assets = liabilities + common stock + retained earnings

Question 19

as an investor. you are not able to see other ________

Answer 19

entities’ books

Question 20

double entry systems allows

Answer 20

to see who has claims to what assets

Question 21

assets are

Answer 21

claims

Question 22

liabilities are

Answer 22

debt to creditors

Question 23

stockholder’s equity is

Answer 23

debt to owners or stock holders

Question 24

common stock

Answer 24

how many assets invested into business by owners

Question 25

retained earnings

Answer 25

how many assets had business earned/made for owners