Question 1

Liabilities are the resources owned by a business that are expected to provide future services or benefits.

Accepted Answer

Liabilities are obligations of a business that it is required to pay in the future, not resources owned by the business.

Question 2

The economic entity concept requires that an entity's business activities be combined with the activities of its owner for financial reporting purposes.

Accepted Answer

The economic entity concept requires that an entity's business activities be kept separate from the personal activities of its owner for financial reporting purposes.

Question 3

A private company is one that issues shares to the public.

Accepted Answer

A private company does not issue shares to the public and is owned by a relatively small number of shareholders.

Question 4

A balance sheet reports the assets, liabilities, and owner's equity at a specific date.

Accepted Answer

A balance sheet is a financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of the company's financial condition.

Question 5

A balance sheet presents the revenues and expenses, and the resulting profit or loss for a specific period of time.

Accepted Answer

A balance sheet shows a company's assets, liabilities, and shareholders' equity at a specific point in time, not the revenues, expenses, or profit/loss, which are reported on the income statement.

Question 6

Accounts payable is the asset created when a company sells services or products to customers who promise to pay cash in the future.

Accepted Answer

Accounts payable is a liability, not an asset, representing an obligation to pay off a short-term debt to its creditors or suppliers.

Question 7

Assets are current obligations, arising from past events, to make a future payment or to provide services.

Accepted Answer

Assets are resources controlled by an entity as a result of past events from which future economic benefits are expected to flow to the entity, not obligations.

Question 8

In Canada, the main standard setting board is the Accounting Standards Board.

Accepted Answer

In Canada, the main standard-setting body for financial reporting is the Accounting Standards Board (AcSB), which establishes accounting standards for both private and public entities.

Question 9

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

Accepted Answer

Creditors' claims on a business's assets take precedence over the owners' claims because creditors must be paid before equity owners in the event of liquidation or bankruptcy.

Question 10

Expenses are the costs of assets that are consumed or services used in the ordinary business activities.

Accepted Answer

Expenses represent the outflow of resources such as cash and other valuable assets that are used up or consumed by a company as part of its operations to generate revenue.

Question 11

An income statement will give the answer to the question - "where did all the cash get used during this month?"

Accepted Answer

An income statement shows the company's revenues and expenses during a particular period, not specifically how cash was used. A cash flow statement would provide details on how cash was used during the period.

Question 12

Publicly Traded Corporations can choose to report under either ASPE or IFRS.

Accepted Answer

Publicly traded corporations are generally required to report under International Financial Reporting Standards (IFRS) rather than Accounting Standards for Private Enterprises (ASPE), which is typically reserved for privately held companies.

Question 13

Companies incorporated under provincial legislation report under ASPE and companies incorporated under federal legislation report under IFRS.

Accepted Answer

The choice between reporting under Accounting Standards for Private Enterprises (ASPE) or International Financial Reporting Standards (IFRS) is not determined by whether a company is incorporated under provincial or federal legislation. Instead, the choice depends on the company's reporting requirements, such as whether it is publicly accountable or chooses to adopt a particular standard for its financial reporting.

Question 14

Both IFRS and ASPE are considered "principles-based" as opposed to "rules-based" standards.

Accepted Answer

Both IFRS (International Financial Reporting Standards) and ASPE (Accounting Standards for Private Enterprises) are considered principles-based because they provide broad guidelines and rely on professional judgment rather than detailed rules.

Question 15

GAAP stands for Generally Accepted Accounting Principles.

Accepted Answer

GAAP refers to a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.

Question 16

A cash flow statement is organized into three categories, operating, financing and investing activities of the company.

Accepted Answer

A cash flow statement is indeed organized into three main sections: operating activities (which reflect the cash generated or spent in the course of regular business operations), investing activities (which show the purchase and sale of long-term investments and property, plant, and equipment), and financing activities (which include transactions involving debt, equity, and dividends).

Question 17

Profit results when a company's expenses are higher than its revenues.

Accepted Answer

Profit results when a company's revenues are higher than its expenses.

Question 18

An obligation to pay cash to a supplier in the future is called accounts payable.

Accepted Answer

Accounts payable represents an entity's obligation to pay off a short-term debt to its creditors or suppliers.

Question 19

The going concern assumption is the assumption that a company will continue to operate in the foreseeable future.

Accepted Answer

The going concern assumption is an accounting principle that assumes a company will continue its operations into the foreseeable future and has no intention of liquidating its assets or ceasing operations.

Question 20

The owner's claim on the assets of the company is known as owner's equity.

Accepted Answer

Owner's equity represents the owner's claim on the assets of the company after all liabilities have been deducted. It is essentially the net worth of the company from the owner's perspective.

Quiz 1: Accounting in Action