Question 1

According to the monetary unit assumption, inflation is ignored in accounting and only transactions that can be expressed as an amount of money are recorded.

Accepted Answer

The monetary unit assumption states that only transactions measurable in monetary terms are recorded, and it assumes a stable currency, ignoring inflation.

Question 2

The basic objective of financial reporting is to provide useful information to investors and creditors to make decisions

Accepted Answer

The primary goal of financial reporting is to supply relevant and reliable information to investors, creditors, and other stakeholders to aid in decision-making regarding the allocation of resources.

Question 3

Private companies have a choice of whether to follow ASPE or IFRS.

Accepted Answer

Private companies in Canada can choose to follow either Accounting Standards for Private Enterprises (ASPE) or International Financial Reporting Standards (IFRS) for their financial reporting.

Question 4

According to the cost principle, assets should be reported at their replacement cost, not their original cost.

Accepted Answer

The cost principle states that assets should be recorded at their original cost, not their replacement cost.

Question 5

An expense paid with cash would result in an equal decrease in liabilities and owner's equity

Accepted Answer

An expense paid with cash decreases assets (cash) and owner's equity, not liabilities.

Question 6

Liabilities represent the ownership claim on total assets.

Accepted Answer

Liabilities represent the obligations or debts of a company, not the ownership claim. The ownership claim on total assets is represented by equity.

Question 7

The going concern assumption assumes that a company will liquidate in the near future

Accepted Answer

The going concern assumption assumes that a company will continue its operations into the foreseeable future, not liquidate.

Question 8

In a proprietorship, owner's equity increases when:
A) the owner withdraws money for personal use.
B) money is borrowed from the bank.
C) cash is collected from a customer who had previously been billed for services.
D) a service is provided to a customer on account.

Accepted Answer

Owner's equity increases when a service is provided to a customer on account because it represents revenue earned, which increases the owner's equity through increased net income.

Question 9

A company has a profit when:
A) assets exceed liabilities for the period.
B) investments exceed drawings for the period.
C) revenues exceed expenses for the period.
D) revenues exceed liabilities for the period.

Accepted Answer

A company has a profit when its revenues exceed its expenses for the period, indicating that it has earned more than it has spent.

Question 10

Owner's Equity is not:
A) existing debts and obligations of the company.
B) the owner's claim on total assets.
C) assets minus total liabilities.
D) often called residual equity.

Accepted Answer

Owner's Equity is not existing debts and obligations of the company; it represents the owner's claim on the company's assets after all liabilities have been deducted.

Question 11

A payment of accounts payable would:
A) decrease liabilities and increase owner's equity.
B) decrease assets and decrease liabilities.
C) decrease liabilities and decrease owner's equity.
D) increase assets and increase liabilities.

Accepted Answer

A payment of accounts payable decreases liabilities because the obligation to pay is settled, and it decreases assets because cash or another asset is used to make the payment.

Question 12

The financial statement that reports the assets, liabilities, and owner's equity at a specific date is the:
A) income statement.
B) statement of owner's equity.
C) balance sheet.
D) cash flow statement.

Accepted Answer

The balance sheet is the financial statement that reports a company's assets, liabilities, and owner's equity at a specific point in time.

Question 13

Define and give an example of each of the following terms. Assume that you are the proprietor of a house painting business.
a) Assets
b) Liabilities
c) Expenses

Accepted Answer

The answer of Define and give an example of each...

Question 14

How is profit calculated?

Accepted Answer

The answer of How is profit calculated?...

Question 15

Bob Manor is the proprietor of Manor Accounting. For each of the following transactions, indicate the effects on the company's assets, liabilities, and owner's equity. Indicate the dollar amount and whether it is an increase (+) or a decrease (-).

Accepted Answer

The answer of Bob Manor is the proprietor of Manor...

Question 16

State the basic accounting equation

Accepted Answer

The answer of State the basic accounting equation...

Question 17

What are the four basic financial statements?

Accepted Answer

The answer of What are the four basic financial statements?...

Quiz 1: Accounting in Action

According to the monetary unit assumption, inflation is ignored in accounting and only transactions that can be expressed as an amount of money are recorded.

The basic objective of financial reporting is to provide useful information to investors and creditors to make decisions

Private companies have a choice of whether to follow ASPE or IFRS.

According to the cost principle, assets should be reported at their replacement cost, not their original cost.

An expense paid with cash would result in an equal decrease in liabilities and owner's equity

Liabilities represent the ownership claim on total assets.

The going concern assumption assumes that a company will liquidate in the near future

In a proprietorship, owner's equity increases when:

A company has a profit when:

Owner's Equity is not:

A payment of accounts payable would:

The financial statement that reports the assets, liabilities, and owner's equity at a specific date is the:

Define and give an example of each of the following terms. Assume that you are the proprietor of a house painting business. a) Assets b) Liabilities c) Expenses

How is profit calculated?

Bob Manor is the proprietor of Manor Accounting. For each of the following transactions, indicate the effects on the company's assets, liabilities, and owner's equity. Indicate the dollar amount and whether it is an increase (+) or a decrease (-).

State the basic accounting equation

What are the four basic financial statements?