Question 1

Many countries outside the United States use financial accounting standards issued by the

Accepted Answer

The International Accounting Standards Board (IASB) develops and issues International Financial Reporting Standards (IFRS) that are used by many countries outside of the United States. AICPA and FASB are accounting organizations within the United States, while the SEC is a regulatory body that oversees financial reporting in the United States.

Question 2

The initials GAAP stand for

Accepted Answer

GAAP stands for Generally Accepted Accounting Principles, which are a set of guidelines for financial accounting and reporting. These principles are widely recognized and adopted by accounting professionals and regulatory bodies to ensure consistency and transparency in financial reporting.

Question 3

If total liabilities decreased by $46,000 during a period of time and stockholders' equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a

Accepted Answer

Assets = Liabilities + Stockholders' Equity
Assets = -$46,000 + $60,000 = $14,000
Change in assets = +$14,000

Question 4

The monetary unit assumption

Accepted Answer

The monetary unit assumption requires economic data to be reported in the currency of the country where the financial statements are being prepared. Therefore, it requires that economic data be reported in yen in Japan or dollars in the United States.

Question 5

Cash dividends

Accepted Answer

Cash dividends result in a decrease in stockholders' equity because they represent a distribution of earnings to shareholders, reducing the company's retained earnings.

Question 6

Debts owed by a business are referred to as

Accepted Answer

Debts owed by a business are referred to as liabilities. Accounts receivables are the amounts owed to a business by its customers, expenses are the costs incurred in running a business, and stockholders' equity is the residual value of assets after liabilities are deducted.

Question 7

A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to

Accepted Answer

Assets = Liabilities + Stockholders' Equity
Asset (Cash) decreases by $7,000.
Liability (Accounts Payable) decreases by $7,000.

Question 8

The accounting equation may be expressed as

Accepted Answer

The accounting equation is Assets = Liabilities + Stockholders' Equity. By rearranging the equation, we get Assets - Liabilities = Stockholders' Equity.

Question 9

The assets and liabilities of a company are $128,000 and $84,000, respectively. Stockholders' equity should equal

Accepted Answer

Assets = Liabilities + Stockholders' Equity
$128,000 = $84,000 + Stockholders' Equity
Stockholders' Equity = $44,000

Question 10

Assets are

Accepted Answer

Assets are items of value that a business owns, which can be used to generate revenue. They can be financed through a combination of stockholders' equity (investments by owners) and creditors (loans or credit). Therefore, assets do not need to be lower than liabilities, and they are not the same as expenses because they can be acquired through means other than cash.

Question 11

The monetary value earned for selling goods or services to customers is called a(n)

Accepted Answer

Revenue is the monetary value earned for selling goods or services to customers. Assets are economic resources owned by a company, net income is the profit after deducting expenses from revenue, and capital refers to the financial resources used to start and operate a business. None of these options accurately describe the monetary value earned from selling goods or services to customers.

Question 12

Which of the following is not a business transaction?

Accepted Answer

A business transaction involves an exchange of value, such as goods, services, or money. Making a sales offer does not involve an exchange of value; it is merely a proposal.

Question 13

Which of the following is not true of accounting principles?

Accepted Answer

Accounting principles cannot be adopted with stockholders' approval. They are developed by authoritative bodies such as the Financial Accounting Standards Board (FASB) and enforced by regulatory agencies.

Question 14

Goods purchased on account for future use in the business, such as supplies, are called

Accepted Answer

Goods purchased on account for future use in the business are called prepaid expenses. This is because the business has paid for the goods in advance, and they will be consumed or used over time. This account represents an asset of the business until the expenses are eventually incurred and recorded as an expense in the accounting system.

Question 15

The asset created by a business when it makes a sale on account is termed

Accepted Answer

Accounts receivable is the asset created by a business when it makes a sale on account, meaning the customer does not pay immediately but instead agrees to pay at a later date. This asset represents the amount the customer owes the business and will be converted into cash when the customer pays the outstanding balance. Options A, B, and C do not relate to this transaction.

Question 16

Earning revenue

Accepted Answer

Earning revenue increases assets through an increase in cash or accounts receivable. When revenue is earned, it also results in an increase in stockholders' equity through an increase in retained earnings. Therefore, the correct choice is A.

Question 17

How does paying a liability in cash affect the accounting equation?

Accepted Answer

Paying a liability in cash decreases assets (cash goes out) and decreases liabilities (the obligation is reduced).

Question 18

If total assets decreased by $88,000 during a period of time and stockholders' equity increased by $71,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities is

Accepted Answer

Assets = Liabilities + Stockholders' Equity
-$88,000 = Liabilities + $71,000
Liabilities = -$159,000

Question 19

How does receiving a bill to be paid next month for services received affect the accounting equation?

Accepted Answer

Receiving a bill to be paid next month increases liabilities because it represents an obligation to pay in the future, and it decreases stockholders' equity as it reflects an expense incurred, reducing net income.

Question 20

The debt created by a business when it makes a purchase on account is referred to as an

Accepted Answer

When a business purchases on account, it owes money to the supplier or vendor. This debt is recorded as an account payable.

Quiz 1: Accounting and Business