True/False
Indicate whether the sentence or statement is true
or false.
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1.
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The
accounting equation is most often stated as: Assets + Liabilities = Owner's Equity.
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2.
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After
each transaction, the accounting equation must remain in balance.
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3.
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Total
assets are the amount the owner has invested in the business.
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4.
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When
two asset accounts are changed in a transaction, there must be an increase and a
decrease.
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5.
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Asset
accounts are listed on the right side of the accounting equation.
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6.
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When
items are bought and paid for at a future date, another way to state this is to say these items are
bought on account.
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7.
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A
balance sheet has three major sections--Assets and Liabilities are on the left side and Owner's
Equity is on the right side.
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8.
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When
financial records for a business and for its owner's personal belongings are not mixed, this is an
application of the business entity accounting concept.
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9.
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The
accounting equation must be in balance to be correct.
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10.
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The
capital account is the owner's liability account.
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11.
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Asset
accounts are listed on the left side of the accounting equation.
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12.
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When
cash is paid for supplies, assets increase and liabilities decrease.
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13.
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When
an account on one side of the accounting equation is increased, there must also be an increase on the
other side to keep the equation in balance.
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14.
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Accounting is the language of business.
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15.
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Keeping personal and business records separate is an application of the business
entity concept.
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16.
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Assets such as cash and supplies have value because they can be used to acquire other
assets or to operate a business.
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17.
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The
relationship among assets, liabilities, and owner's equity can be written as an
equation.
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18.
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The
accounting equation does not have to be in balance to be correct.
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19.
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The
sum of the assets and liabilities of a business always equals the investment of the business
owner.
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20.
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Recording business costs in terms of hours required to complete projects and sales in
terms of dollars is an application of the unit of measurement concept.
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21.
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The
capital account is an owner's equity account.
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22.
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If
two amounts are recorded on the same side of the accounting equation, the equation will no longer be
in balance.
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23.
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When
a company pays insurance premiums in advance to an insurer, it records the payment as a liability
because the insurer owes future coverage.
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24.
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When
cash is paid on account, a liability is increased.
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25.
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The
going concern accounting concept affects the way financial statements are prepared.
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26.
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On a
balance sheet, a single line means that amounts are to be added or subtracted.
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27.
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Summary reports of financial activities are used by the owners and managers of a
business to make business decisions.
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28.
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A
business that performs an activity for a fee is a service business.
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29.
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A
proprietorship is also known as a sole proprietorship.
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30.
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Anything of value that is owned is a liability.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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31.
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Recording and reporting a business's financial information separately from the owner's
financial information is an application of the accounting concept ____. a. | unit of
measurement | c. | going
concern | b. | business entity | d. | separation of records | | | | |
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32.
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The
amount remaining after the value of all liabilities is subtracted from the value of all assets is
____. a. | the fair market
value of the business | c. | a financial
report | b. | owner's equity | d. | a transaction | | | | |
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33.
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The
accounting equation is most often stated as ____. a. | assets = liabilities | c. | assets = liabilities + owner's equity | b. | cash =
assets | d. | liabilities +
assets = owner's equity | | | | |
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34.
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In
the United States, recording business transactions in dollars is an application of the accounting
concept ____. a. | unit of
measurement | c. | going
concern | b. | business entity | d. | separation of records | | | | |
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35.
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The
account used to summarize the owner's equity in a business is ____. a. | equity | c. | capital | b. | owner's equity | d. | a liability | | | | |
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36.
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If
cash is increased by $2,000.00 when the owner invests cash in the business, then capital is
____. a. | increased by
$2,000.00 | c. | increased by
$1,000.00 | b. | decreased by $2,000.00 | d. | not changed | | | | |
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37.
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When
a transaction changes both sides of the accounting equation, ____. a. | an increase on
the right side must offset a decrease on the left side | b. | an increase on
the left side must equal an increase on the right side | c. | neither side of
the equation changes | d. | none of the above | | |
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38.
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When
a business pays cash for supplies, ____. a. | liabilities increase | c. | assets and liabilities decrease | b. | assets and
liabilities increase | d. | assets increase
and assets decrease | | | | |
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39.
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When
cash is decreased and supplies are increased by an equal amount, ____. a. | there is an
increase in liabilities | c. | there is a
decrease in liabilities | b. | there is an increase in owner's
equity | d. | liabilities and
capital are not changed | | | | |
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40.
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When
a transaction changes only one side of the equation, if one account is increased, the other account
on the same side must ____. a. | increase | c. | not change | b. | decrease | d. | none of the
above | | | | |
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41.
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Prepaid Insurance is ____. a. | an asset account. | c. | an owner's equity account. | b. | a liability
account. | d. | none of the
above | | | | |
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42.
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Buying items and paying for them at a future date is ____. a. | not
recommended | c. | illegal | b. | not a common business practice | d. | a common business practice | | | | |
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43.
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When
a business buys supplies on account, assets ____. a. | increase | c. | decrease | b. | increase and
liabilities decrease | d. | decrease and
liabilities increase | | | | |
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44.
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When
supplies are bought on account, the business to whom money is owed is ____. a. | an asset
account | c. | an equity
account | b. | a liability account | d. | a capital account | | | | |
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45.
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When
cash is paid on account, ____. a. | two assets are changed | b. | one asset and
owner's equity are changed | c. | one liability and owner's equity are
changed | d. | one asset and one liability are
changed | | |
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46.
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A
balance sheet is a financial statement that reports assets, liabilities, and owner's equity
____. a. | for a period of
time | c. | for the business
and the owner together | b. | on a specific date | d. | at current selling values | | | | |
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47.
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Preparing financial statements with the expectation that a business will remain in
operation indefinitely is an application of the accounting concept ____. a. | unit of
measurement | c. | going
concern | b. | business entity | d. | separation of records | | | | |
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48.
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Assets are ____. a. | listed on the right side of the balance
sheet | b. | listed on the left side of the balance
sheet | c. | listed on both sides of the balance
sheet | d. | not listed on the balance sheet | | |
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49.
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Liabilities are ____. a. | listed on the right side of the balance
sheet | b. | listed on the left side of the balance
sheet | c. | listed on both sides of the balance
sheet | d. | not listed on the balance sheet | | |
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50.
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Owner's equity is ____. a. | listed on the right side of the balance
sheet | b. | listed on the left side of the balance
sheet | c. | listed on both sides of the balance
sheet | d. | not listed on the balance sheet | | |
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51.
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Total
assets are $22,000.00. Supplies are bought on account for $1,500.00. The total assets are now
____. a. | $22,000.00 | c. | $20,500.00 | b. | $23,500.00 | d. | $25,000.00 | | | | |
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52.
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Total
assets are $19,500.00. Cash is paid for $1,500.00 of supplies. The total assets are now
____. a. | $19,500.00 | c. | $18,000.00 | b. | $21,000.00 | d. | $22,500.00 | | | | |
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53.
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To
start a business, the owner invested $8,000.00, bought $1,500.00 of supplies, insurance coverage of
$500.00, and bought an additional $300.00 of supplies on account. Total assets are
____. a. | $5,700.00 | c. | $6,000.00 | b. | $7,000.00 | d. | none of the above | | | | |
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54.
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A
business has total cash of $30,000.00. Then the business pays $1,000.00 on account, buys insurance
coverage of $750.00, buys supplies for $1,200.00, and pays $300.00 more on account. The balance of
the cash account is now ____. a. | $25,750.00 | c. | $28,700.00 | b. | $26,750.00 | d. | none of the
above | | | | |
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55.
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A
business has total assets of $30,000.00. Then the business pays $1,000.00 on account, buys insurance
coverage of $750.00, buys supplies for $1,200.00, and pays $300.00 more on account. Total assets are
now ____. a. | $25,750.00 | c. | $28,700.00 | b. | $26,750.00 | d. | none of the above. | | | | |
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