Deck 2: Analyzing Transactions: the Accounting Equation

Question 1

An accounts payable is an unwritten promise to pay a supplier for assets purchased or services rendered.

Answer 1

True

Question 2

Any item a business owns that will provide future benefits is called owner's equity.

Answer 2

False

Question 3

Since supplies last for several months, they are recorded as assets.

Answer 3

True

Question 4

Liabilities represent an "inside" interest in a business.

Question 5

Expenses that are incurred in operating the enterprise increase owner's equity.

Question 6

The income statement provides information about events over a period of a month, year, or other period of time.

Question 7

The accounting equation shows the relationship among the three basic accounting elements-assets, expenses, and owner's equity.

Question 8

Expenses represent a decrease in liabilities.

Question 9

Revenues received during an accounting period increase owner's equity.

Question 10

If the revenue of a period exceeds the expenses, the excess represents a net loss.

Question 11

Any accounting period of twelve months' duration is usually referred to as a fiscal year.

Question 12

If owner's equity and liabilities increased during the period, then assets must also have increased.

Question 13

The accounting equation may be expressed as assets − liabilities = owner's equity.

Question 14

It is not necessary to measure a business transaction in dollars.

Question 15

Other terms used for owner's equity include net worth and capital.

Question 16

Recognizing the effects of transactions on assets, liabilities, owner's equity, revenue, and expenses of a business is the processing function.

Question 17

The terms "profit and loss statement" or "operating statement" are sometimes used as synonyms for the balance sheet.

Question 18

According to the business entity concept, a proprietor may include nonbusiness assets and liabilities in the business entity's accounting records.

Question 19

A business entity is an individual, association, or organization with control over economic resources and which engages in economic activities.

Question 20

Since insurance lasts for several months, it is recorded as owner's equity.

Question 21

Which phase of the accounting process involves recognizing the effect of transactions on assets, liabilities, owner's equity, revenue, and expenses of a business?

A) input
B) processing
C) output
D) summarizing

Question 22

The balance sheet reports assets, liabilities, and owner's equity on a specific date.

Question 23

Any accounting period of twelve months' duration is usually referred to as a(n)

A) fiscal year.
B) calendar year.
C) physical year.
D) operational year.

Question 24

The statement of owner's equity shows the state of the business on a specific date.

Question 25

The financial statement that shows the state of the firm's assets, liabilities, and owner's equity on a specific date is called a(n)

A) balance sheet.
B) statement of operations.
C) statement of owner's equity.
D) income statement.

Question 26

Increases to owner's equity may be from

A) expenses that are incurred.
B) expenses exceeding revenue for the period.
C) withdrawals of cash from the business by the owner.
D) revenue that is derived from sales of goods or services.

Question 27

Stephen purchased office supplies for $800 on account. This transaction would

A) increase assets and increase owner's equity.
B) increase one asset and decrease another asset.
C) increase assets and increase liabilities.
D) decrease assets and decrease liabilities.

Question 28

An example of an expense is

A) investments.
B) supplies consumed.
C) prepaid insurance.
D) withdrawals by the owner.

Question 29

An increase in a revenue account may also result in an increase in the accounts receivable account.

Question 30

Falana received $7,000 in cash from a client for professional services rendered. This transaction would

A) increase assets and increase owner's equity.
B) decrease assets and increase owner's equity.
C) increase liabilities and decrease owner's equity.
D) decrease assets and decrease owner's equity.

Question 31

Financial statements commonly prepared by businesses include an income statement, a statement of owner's equity, and a balance sheet.

Question 32

A decrease in owner's equity may result from a(n)

A) purchase of office supplies for cash.
B) withdrawal of cash from the business by the owner.
C) revenue that is derived from sales of goods or services.
D) investment of cash in the business by the owner.

Question 33

Jason purchased office equipment for $4,800 in cash. This transaction would

A) increase assets and increase owner's equity.
B) increase assets and increase liabilities.
C) increase one asset and decrease another asset.
D) decrease assets and decrease liabilities.

Question 34

Meghan started her business by investing $30,000 in cash. This transaction would

A) increase assets and increase owner's equity.
B) increase assets and increase liabilities.
C) increase one asset and decrease another asset.
D) decrease assets and decrease liabilities.

Question 35

Sue Lee paid $1,200 for her employees' salaries. This transaction would

A) increase assets and decrease owner's equity.
B) increase assets and increase liabilities.
C) decrease assets and decrease liabilities.
D) decrease assets and decrease owner's equity.

Question 36

Withdrawing cash from a business entity will result in an increase in owner's equity.

Question 37

The accounting equation may be expressed as

A) owner's equity = assets − liabilities.
B) revenue − expenses = net income.
C) revenue = net income − expenses.
D) liabilities − owner's equity = assets.

Question 38

Tyler paid $3,700 on account to the company from which equipment was purchased on credit. This transaction would

A) decrease assets and decrease liabilities.
B) increase assets and increase owner's equity.
C) increase assets and increase liabilities.
D) increase one asset and decrease another asset.

Question 39

The financial statement that should be completed first is the

A) balance sheet.
B) statement of financial position.
C) statement of financial condition.
D) income statement.

Question 40

The income statement and statement of owner's equity provide information covering a period of time.

Question 41

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
An unwritten promise to pay a supplier for assets purchased or services rendered.

Question 42

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
Consists of the three basic accounting elements: assets = liabilities + owner's equity.

Question 43

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
Items a business owns that will provide future benefits.

Question 44

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
An amount owed to a business by its customers as a result of the sale of goods or services.

Question 45

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
A formal written promise to pay a supplier or lender a specified sum of money at a definite future time.

Question 46

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
The excess of total revenues over total expenses for the period.

Question 47

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
Reports beginning capital, plus net income, less withdrawals to compute ending capital.

Question 48

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
Withdrawals that reduce owner's equity as a result of the owner taking cash or other assets out of the business for personal use.

Question 49

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
An individual, association, or organization that engages in economic activities and controls specific economic resources.

Question 50

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
A separate record used to summarize changes in each asset, liability, and owner's equity of a business.

Question 51

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
Reports the profitability of business operations for a specific period of time.

Question 52

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
The concept that nonbusiness assets and liabilities are not included in the business' accounting records.

Question 53

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
The amount by which the business assets exceed the business liabilities.

Question 54

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
The decrease in assets (or increase in liabilities) as a result of efforts to produce revenues.

Question 55

Dr. Etana Jenson is a podiatrist. As of December 31, Jenson owned the following assets related to the professional practice: As of that date, Jenson owed business suppliers as follows: Required:

Question 56

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
An economic event that has a direct impact on the business.

Question 57

Match the terms with the definitions.a.account
b.accounts payable
c.accounts receivable
d.accounting equation
e.assets
f.balance sheet
g.business entity
h.business entity concept
i.business transaction
j.drawing
k.expenses
l.income statement
m.liability
n.net income
o.net loss
p.notes payable
q.owner's equity
r.revenues
s.statement of owner's equity
Reports assets, liabilities, and owner's equity on a specific date.