Deck 2: The Accounting Equation and Transaction Analysis

Question 1

The performance of services for cash increases total assets and total owner's equity.

Answer 1

True

Question 2

The effect of an investment by the owner has the opposite impact on the accounting equation of a withdrawal by the owner.

Answer 2

True

Question 3

The collection of an accounts receivable increases total assets.

Answer 3

False

Question 4

Owner's drawings are an expense of the business.

Question 5

Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.

Question 6

External transactions involve economic events between the company and some other enterprise or party.

Question 7

Accountants record both internal and external transactions.

Question 8

The purchase of office equipment on credit increases total assets and total liabilities.

Question 9

The purchase of supplies on credit increases total assets and total liabilities.

Question 10

Expenses are the costs incurred in the process generating revenue.

Question 11

The withdrawal of cash from the business by the owner decreases assets and owner's equity.

Question 12

In order to possess future service potential, an asset must have physical substance.

Question 13

The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.

Question 14

When a company borrows money from the bank, the transaction increases total assets and total liabilities.

Question 15

The basic accounting equation states that Assets = Liabilities.

Question 16

Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.

Question 17

Both owner investments and revenues increase total assets and owner's equity.

Question 18

The purchase of store equipment for cash reduces assets and owner's equity by equal amounts.

Question 19

The payment of rent expense reduces owner's equity.

Question 20

Revenues result from the delivery of goods, the performance of services and owner investments.

Question 21

If Beringer Company's liabilities are $18,000 and its owner's equity is $12,000, the company's assets total

A) $6,000.
B) $30,000.
C) $18,000.
D) $12,000.

Question 22

Which of the following accounts is not an asset?

A) Accounts Payable
B) Accounts Receivable
C) Cash
D) Supplies

Question 23

If assets are $20,000 and owner's equity is $11,000, then liabilities are

A) $9,000.
B) $11,000.
C) $31,000.
D) indeterminable with just the facts given.

Question 24

If Doane Company's liabilities are $28,000 and its owner's equity is $20,000, then the company's assets total

A) $8,000.
B) $20,000.
C) $48,000.
D) indeterminable with just the facts given.

Question 25

Which of the following decreases owner's equity?

A) Revenues and expenses
B) Investments by owners and revenues
C) Drawings and expenses
D) Investments by owners and drawings

Question 26

Rights or claims against resources by owners are

A) assets.
B) liabilities.
C) owner's equity.
D) transactions.

Question 27

Rights or claims against resources by creditors are

A) assets.
B) liabilities.
C) owner's equity.
D) transactions.

Question 28

If assets are $20,000 and liabilities are $8,000, then owner's equity is

A) $12,000.
B) $20,000.
C) $8,000.
D) indeterminable with just the facts given.

Question 29

Blue Ridge Company has assets of $22,000 and liabilities of $16,000. Owner's equity is

A) $8,000.
B) $38,000.
C) $6,000.
D) $22,000.

Question 30

All of the following accounts are assets except

A) Owner's Capital
B) Accounts Receivable
C) Cash
D) Equipment

Question 31

All of the following accounts are liabilities except

A) Notes Payable
B) Accounts Payable
C) Utilities Payable
D) Accounts Receivabe

Question 32

Which of the following accounts is not a liability?

A) Sales Tax Payable
B) Accounts Payable
C) Accounts Receivable
D) Ultilities Payable

Question 33

If OPI Company's assets are $30,000 and its liabilities are $18,000, then the company's owner's equity is

A) $12,000.
B) $30,000.
C) $18,000.
D) $48,000.

Question 34

Which one of the following items decreases owner's equity?

A) Revenues
B) Investments by owners
C) Drawings
D) Purchase of equipment

Question 35

Which of the following accounts is not an asset?

A) Accounts Receivable
B) Service Revenue
C) Equipment
D) Supplies

Question 36

The resources a business owns are

A) assets.
B) liabilities.
C) owner's equity.
D) transactions.

Question 37

Which of the following items increases owner's equity?

A) Revenues and expenses
B) Investments by owners and revenues
C) Drawings and expense
D) Investments by owners and drawings

Question 38

Which of the following accounts is a liability?

A) Accounts Payable
B) Owner's Capital
C) Accounts Receivable
D) Owner's Drawings

Question 39

Big Bite Diner received a bill of $800 from the Blackstone Advertising Agency. The owner, K. Lang, is postponing payment of the bill until a later date. The effect on specific items in the basic accounting equation is

A) a decrease in Cash and an increase in Accounts Payable.
B) a decrease in Cash and an increase in Owner's Capital.
C) an increase in Accounts Payable and a decrease in Owner's Capital.
D) a decrease in Accounts Payable and an increase in Owner's Capital.

Question 40

Which one of the following increases owner's equity?

A) Revenues
B) Expenses
C) Owner drawings
D) Purchase of supplies

Question 41

The Crying Fish has a transaction. It cannot involve

A) two accounts.
B) three accounts.
C) two, or three, accounts.
D) only one account.

Question 42

As of June 30, 2020, Little Giantz Company has assets of $100,000 and owner's equity of $60,000. What are the liabilities for Little Giantz Company as of June 30, 2020?

A) $40,000
B) $60,000
C) $100,000
D) $160,000

Question 43

Grey Company received a bill of $2,800 from the Sloan Advertising Agency. The owner is postponing payment of the bill until a later date. The effect on the basic accounting equation is

A) a decrease in Cash and an increase in Accounts Payable.
B) a decrease in Cash and an increase in Owner's Capital.
C) an increase in Accounts Payable and a decrease in Owner's Capital.
D) a decrease in Accounts Payable and an increase in Owner's Capital.

Question 44

The basic accounting equation cannot be restated as

A) Assets - Liabilities = Owner's Equity.
B) Assets - Owner's Equity = Liabilities.
C) Owner's Equity + Liabilities = Assets.
D) Assets + Liabilities = Owner's Equity.

Question 45

Liabilities of a company would not include

A) notes payable.
B) accounts payable.
C) salaries and wages payable.
D) cash.

Question 46

A payment for which is an expense?

A) both advertising and supplies
B) advertising but not supplies.
C) supplies but not advertising.
D) neither supplies nor advertising.

Question 47

Liabilities

A) are future economic benefits.
B) are existing debts and obligations.
C) possess service potential.
D) are things of value used by the business in its operation.

Question 48

Odom Company compiled the following financial information as of December 31, 2020: $\begin{array}{lr}\text { Revenues } & \$ 840,000 \\\text { Owner's Capital }(1 / 1 / 20) & 170,000 \\\text { Equipment } & 330,000 \\\text { Expenses } & 740,000 \\\text { Cash } & 40,000 \\\text { Owner's Drawings } & 50,000 \\\text { Supplies } & 20,000 \\\text { Sales Tax Payable } & 10,000 \\\text { Accounts payable } & 50,000 \\\text { Notes payable } & 200,000 \\\text { Accounts receivable } & 90,000\end{array}$ Odom's assets on December 31, 2020 are

A) $150,000.
B) $370,000.
C) $390,000.
D) $480,000.

Question 49

Michelle Boisclair Company compiled the following financial information as of December 31, 2020: $\begin{array}{lr}\text { Revenues } & \$ 440,000 \\\text { Owner's Capital }(1 / 1 / 20) & 140,000 \\\text { Equipment } & 180,000 \\\text { Expenses } & 340,000 \\\text { Cash } & 100,000\\\text { Owner's Drawings } & 20,000 \\\text { Supplies } & 20,000 \\\text { Accounts payable } & 60,000 \\\text { Notes payable } & 100,000 \\\text { Accounts receivable } & 80,000\end{array}$ Michelle Boisclair's liabilities on December 31, 2020 are

A) $160,000.
B) $260,000.
C) $360,000. d $480,000.

Question 50

Owner's equity can be described as

A) creditorship claim on total assets.
B) ownership claim on total assets.
C) benefactor's claim on total assets.
D) debtor claim on total assets.

Question 51

Odom Company compiled the following financial information as of December 31, 2020: $\begin{array}{lr}\text { Revenues } & \$ 840,000 \\\text { Owner's Capital }(1 / 1 / 20) & 170,000 \\\text { Equipment } & 330,000 \\\text { Expenses } & 740,000 \\\text { Cash } & 40,000 \\\text { Owner's Drawings } & 50,000 \\\text { Supplies } & 20,000 \\\text { Sales Tax Payable } & 10,000 \\\text { Accounts payable } & 50,000 \\\text { Notes payable } & 200,000 \\\text { Accounts receivable } & 90,000\end{array}$ Odom's liabilities on December 31, 2020 are

A) $60,000.
B) $260,000.
C) $300,000. d $450,000.

Question 52

As of December 31, 2020, Cancon Company has assets of $42,000 and owner's equity of $22,000. What are the liabilities for Cancon Company as of December 31, 2020?

A) $22,000
B) $20,000
C) $42,000
D) $64,000

Question 53

Liabilities of a company are owed to

A) debtors.
B) benefactors.
C) creditors.
D) underwriters.

Question 54

Capital is

A) an owner's permanent investment in the business.
B) equal to liabilities minus owner's equity.
C) equal to assets minus owner's equity.
D) equal to liabilities plus drawings.

Question 55

Bethel Company reported the following financial information as of December 31, 2020: $\begin{array}{lr}\text { Revenues } & \$ 320,000 \\\text { Owner's Capital }(1 / 1 / 20) & 130,000 \\\text { Equipment } & 180,000 \\\text { Expenses } & 220,000 \\\text { Cash } & 90,000 \\\text { Owner's Drawings } & 10,000 \\\text { Supplies } & 20,000 \\\text { Accounts payable } & 60,000 \\\text { Notes Payable } & 100,000 \\\text { Accounts receivable } & 90,000\end{array}$ Bethel's assets on December 31, 2020 are

A) $180,000.
B) $200,000.
C) $380,000. d $480,000.

Question 56

Mirah Company compiled the following financial information as of December 31, 2020: $\begin{array}{lr}\text { Revenues } & \$ 340,000 \\\text { Owner's Capital }(1 / 1 / 20) & 140,000 \\\text { Equipment } & 80,000 \\\text { Expenses } & 240,000 \\\text { Cash } & 90,000 \\\text { Owner's Drawings } & 20,000 \\\text { Supplies } & 20,000 \\\text { Accounts payable } & 40,000 \\\text { Accounts receivable } & 70,000\end{array}$ Mirah's assets on December 31, 2020 are

A) $190,000.
B) $260,000.
C) $360,000. d $480,000.

Question 57

The common characteristic possessed by all assets is

A) long life.
B) great monetary value.
C) tangible nature.
D) future economic benefit.

Question 58

The basic accounting equation may be expressed as

A) Assets - Owner's Equity = Liabilities.
B) Assets - Liabilities = Owner's Equity.
C) Assets = Liabilities + Owner's Equity.
D) All of these answer choices are correct.

Question 59

Owner's equity is best depicted by the following:

A) Assets = Liabilities.
B) Liabilities + Assets.
C) Residual equity + Assets.
D) Assets - Liabilities.

Question 60

When an owner withdraws cash or other assets from a business for personal use, these withdrawals are termed

A) depletions.
B) consumptions.
C) drawings.
D) a credit line.

Question 61

Accountants refer to an economic event as a

A) purchase.
B) sale.
C) transaction.
D) change in ownership.

Question 62

The purchase of equipment for cash

A) decreases total assets.
B) increases total liabilities.
C) increases total assets.
D) has no effect on total assets.

Question 63

If total liabilities decreased by $40,000 and owner's equity decreased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

A) $70,000 decrease
B) $10,000 decrease
C) $10,000 increase
D) $70,000 increase

Question 64

Mellon Company purchases $1,500 of equipment from Standard Office Equipment Inc. for cash. The effect on the components of the basic accounting equation of Mellon Company is

A) an increase in assets and liabilities.
B) a decrease in assets and liabilities.
C) no change in total assets.
D) an increase in assets and a decrease in liabilities.

Question 65

Owner's equity is increased by

A) drawings.
B) revenues.
C) expenses.
D) liabilities.

Question 66

Which of the following events is not a business transaction?

A) Investment of cash by the owner
B) Interviewed prospective employees
C) Incurred utility expenses for the month
D) Earned revenue for services provided

Question 67

If total liabilities decreased by $60,000 and owner's equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

A) $90,000 decrease
B) $30,000 decrease
C) $30,000 increase
D) $90,000 increase

Question 68

If total liabilities increased by $6,000, then

A) assets must have decreased by $6,000.
B) owner's equity must have increased by $6,000.
C) assets must have increased by $6,000, or owner's equity must have decreased by $6,000.
D) assets and owner's equity each increased by $3,000.

Question 69

If total liabilities decreased by $40,000 and owner's equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

A) $50,000 decrease
B) $10,000 decrease
C) $10,000 increase
D) $50,000 increase

Question 70

If total liabilities decreased by $30,000 and owner's equity decreased by $15,000 during a period of time, then total assets must change by what amount and direction during that same period?

A) $45,000 decrease
B) $15,000 decrease
C) $15,000 increase
D) $45,000 increase

Question 71

If an individual asset is increased, then

A) there may be an equal decrease in a specific liability.
B) there may be an equal decrease in owner's equity.
C) there may be an equal decrease in another asset.
D) All of these answer choices are possible.

Question 72

Collection of a $1,500 Accounts Receivable

A) increases an asset $1,500; decreases an asset $1,500.
B) increases an asset $1,500; decreases a liability $1,500.
C) decreases a liability $1,500; increases owner's equity $1,500.
D) decreases an asset $1,500; decreases a liability $1,500.

Question 73

The accounting equation for Cineo Enterprises is as follows: $\frac{\text { Assets }}{\$ 120,000}=\frac{\text { Liabilities }}{\$ 60,000}+\frac{\text { Owner's Equity }}{\$ 60,000}$ If Cineo purchases office equipment on account for $\$ 15,000$ , the accounting equation will change to

Question 74

Which of the following statements is not true?

A) The basic accounting equation must remain in balance.
B) At least two account balances will change as the result of each transaction.
C) When only one side of the equation is involved, there needs to be an increase and a decrease on that side of the equation.
D) Each transaction must have a either a single or dual effect on the accounting equation.

Question 75

If total liabilities increased by $9,000 during a period of time and owner's equity decreased by $25,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

A) $34,000 decrease.
B) $16,000 decrease.
C) $16,000 increase.
D) $34,000 increase.

Question 76

Owner's equity is decreased by all of the following except

A) owner's investments.
B) owner's withdrawals.
C) expenses.
D) owner's drawings.

Question 77

Sources of increases to owner's equity are

A) additional investments by owners.
B) purchases of merchandise.
C) withdrawals by the owner.
D) expenses.

Question 78

Meile Company purchases $500 of supplies from Best Supply Company on credit. The effect on the basic accounting equation of Meile Company is

A) an increase in assets and an increase in liabilities.
B) a decrease in assets and a decrease in liabilities.
C) no change in total assets.
D) an increase in assets and a decrease in liabilities.

Question 79

Which of the following is an internal transaction?

A) Purchase of supplies
B) Use of supplies to help perform services
C) Response to emails
D) Payment of an account payable

Question 80

Revenues would not result from

A) sale of merchandise.
B) initial investment of cash by owner.
C) performance of services.
D) rental of property.