Deck 15: Basic Accounting: Concepts, Techniques, and Conventions

Question 1

Accounting information only helps assess past financial performance.

Answer 1

False

Question 2

The balance sheet shows a company at only one point in time.

Answer 2

True

Question 3

The income statement measures performance over a given period, not to exceed one year.

Answer 3

True

Question 4

Owners' equity is the excess cash that the company has made.

Question 5

Stockholders' equity is composed of paid-in capital and retained earnings.

Question 6

When a company purchases inventory for cash, total assets decrease.

Question 7

Amounts due from customers are called accounts payable.

Question 8

Increases in revenues do not affect stockholders' equity.

Question 9

Assets and owners' equity are presented on the right side of the balance sheet.

Question 10

A corporation is not a separate legal entity.

Question 11

A cash payment of accounts payable does not affect stockholders' equity.

Question 12

Each item in a financial statement is an account.

Question 13

Excess of revenues over expenses results in a profit.

Question 14

Liabilities are the entity's economic obligation to owners.

Question 15

Revenue and expense accounts are permanent stockholders' equity accounts.

Question 16

Entries for expiration of unexpired costs and realization earning) of unearned revenues are usually made before the related cash flows.

Question 17

For a corporation, assets must equal liabilities and paid-in capital.

Question 18

There is no direct relationship between the income statement and balance sheet.

Question 19

Source documents give evidence of both explicit and implicit transactions.

Question 20

Liabilities are economic resources.

Question 21

Revenues and expenses are associated with stockholders' equity, therefore, revenues and expenses appear on the balance sheet.

Question 22

An example of an implicit transaction is cash received on account.

Question 23

Companies must write off research costs as expenses immediately.

Question 24

Examples of accrued expenses include property taxes and interest on borrowed money.

Question 25

The accrual basis recognizes the impact of transactions on the financial statements in the periods when revenues and expenses occur instead of when cash is received or disbursed.

Question 26

Unearned revenue decreases stockholders' equity.

Question 27

The cash basis of accounting does not match expenses with the revenues they help generate.

Question 28

Land is depreciated using a very long estimated useful life.

Question 29

Retained earnings indicate the amount of cash available for distribution to shareholders.

Question 30

Accounts receivable is omitted when using the cash basis of accounting

Question 31

Nonprofit organizations do not use balance sheets.

Question 32

Assets are normally bundles of future revenue.

Question 33

Unexpired costs are expenses.

Question 34

When depreciating an asset, the residual value is not a prediction.

Question 35

Depreciation applies to assets such as accounts receivable and equipment.

Question 36

Accrue means to pay off a payable.

Question 37

Dividends paid are considered an expense on the income statement.

Question 38

When an asset is depreciated, owners' equity decreases.

Question 39

If one party to a contract has a prepaid expense, the other must have unearned revenue.

Question 40

Rent paid in advance would be regarded as a prepaid expense by the renter and as unearned revenue by the building owner.

Question 41

Historical costs are used on the balance sheet because these costs are verifiable and objective.

Question 42

A company's top management decides when to pay dividends and how much to pay.

Question 43

Recognition occurs before realization.

Question 44

The matching convention attempts to match revenues and expenses to a particular period.

Question 45

Retained earnings are a specific claim against particular assets.

Question 46

Gross profit is the excess of sales over all expenses.

Question 47

Materiality is not subjective.

Question 48

A "multiple-step" income statement includes a subtotal for gross profit.

Question 49

Any event that affects the financial position of an organization and requires recording is called an)_____.

A)transaction
B)account
C)posting
D)accounting change

Question 50

A sole proprietorship is a business organized as a separate legal entity and owned by its stockholders.

Question 51

Financial statements for proprietorships and partnerships rarely make distinctions between paid-in capital and retained earnings.

Question 52

American generally accepted accounting principles GAAP) are largely the work of the International Accounting Standards Committee IASC).

Question 53

Dividends reduce stockholders' equity.

Question 54

The _____ is also called the statement of financial position.

A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows

Question 55

The cost recovery concept carries asset balances forward because their costs are expected to be recovered in future periods.

Question 56

The Financial Accounting Standards Board FASB) has the ultimate responsibility for specifying generally accepted accounting principles GAAP) for United States companies.

Question 57

Dividends must be paid in cash.

Question 58

Asset values may not be written down.

Question 59

A company uses the going concern convention when it is in a severe, near-bankrupt situation.

Question 60

An audit guarantees that there are absolutely no mistakes in the financial statements.

Question 61

The acquisition of inventory for cash will _____.

A)leave total assets unaffected
B)increase liabilities and decrease stockholders' equity
C)decrease assets and decreases liabilities
D)have no effect on the accounting equation

Question 62

The ownership claim arising from reinvestment of previous profits is called _____.

A)retained earnings
B)net assets
C)stockholders' equity
D)reinvestment income

Question 63

Identify which one of the following statements is always true.

A)An increase in an asset account must increase a liability or owners' equity account.
B)An increase in an asset account must decrease another asset account.
C)A decrease in an asset account must increase a liability or owners' equity account.
D)None of these answers is correct.

Question 64

To be recorded in a period's accounting record, revenue must be _____.

A)earned and collected
B)earned and collectible
C)rendered and collected
D)earned and rendered

Question 65

For a corporation, the excess of the assets over the liabilities is called _____.

A)retained earnings
B)paid-in capital
C)common stock
D)owners' equity

Question 66

Cash payment on accounts payable will _____.

A)increase assets and liabilities
B)increase liabilities and decrease stockholders' equity
C)decrease assets and decrease liabilities
D)have no effect on the accounting equation

Question 67

Identify which one of the following statements is false.

A)Owners' equity solely represents the profits made by an organization in the current period.
B)Assets are economic resources that are expected to benefit future cash inflows or reduce future cash outflows.
C)Liabilities are economic obligations or claims against the assets of an organization by outsiders.
D)Assets must always equal the sum of liabilities and owners' equity.

Question 68

The ownership claim arising from funds contributed by the owners of the business is called _____.

A)liabilities
B)paid-in capital
C)retained earnings
D)stockholders' equity

Question 69

The following information was extracted from the accounting records of Plum Company: $$\begin{array} { l r } \text { Beginning Paid-In Capital } & \$ 87,000 \\\text { Beginning Retained Earnings } & \$ 211,000 \\\text { Beginning Assets } & \$ 455,000\end{array}$$ During the period assets increased by $150,000, revenues were $200,000, and expenses were $165,000.The owners made no additional investments. The amount of Plum Company's liabilities at the end of the period is _____.

A)$157,000
B)$272,000
C)$150,000
D)$ 45,000

Question 70

Identify which one or more of the following equations is not correct.

A)Revenues - Expenses = Gross Profit
B)Stockholders' Equity = Paid-in Capital + Retained Earnings
C)Assets - Liabilities = Stockholders' Equity
D)All of these answers are correct.

Question 71

_____ are ownership claims from delivering goods or services.

A)Revenues
B)Expenses
C)Profits
D)Assets

Question 72

_____ are decreases in ownership claims from delivering goods or services or using up assets.

A)Revenues
B)Expenses
C)Profits
D)Assets

Question 73

_____ is are) economic resources that are expected to benefit future activities.

A)Stockholders' equity
B)Liabilities
C)Assets
D)Retained earnings

Question 74

Identify which one of the following statements is false.

A)A transaction can increase the balance in one account and decrease the balance in another account.
B)A transaction can increase the balance in two accounts.
C)A transaction can increase the balance in two accounts and decrease the balance in one account.
D)A transaction must increase and decrease the same number of accounts.

Question 75

_____ are sections of the balance sheet.

A)Revenues, assets, and liabilities
B)Assets, liabilities, and expenses
C)Expenses, revenues, and owners' equity
D)Assets, liabilities, and owners' equity

Question 76

The _____ discloses the economic resources of the organization and the claims against those resources.

A)balance sheet
B)income statement
C)statement of cash flows
D)statement of retained earnings

Question 77

The _____ is not one of the three major financial statements.

A)statement of cash flows
B)income statement
C)balance sheet
D)statement of equity position

Question 78

The acquisition of inventory on open account will _____.

A)increase assets and liabilities
B)increase liabilities and decrease stockholders' equity
C)decrease assets and decrease liabilities
D)have no effect on the accounting equation

Question 79

The following information was extracted from the accounting records of Ernest Company: $$\begin{array} { l r } \text { Beginning Paid-In Capital } & \$ 90,000 \\\text { Beginning Retained Earnings } & \$ 210,000 \\\text { Beginning Assets } & \$ 455,000\end{array}$$ During the period assets increased by $150,000, revenues were $200,000, and expenses were $165,000.The owners made no additional investments. The amount of Ernest Company's liabilities at the beginning of the period is _____.

A)$545,000
B)$155,000
C)$300,000
D)$245,000

Question 80

The entity's economic obligations to nonowners isare) called _____.

A)owners' equity
B)liabilities
C)assets
D)retained earnings