Question 1

The accounting equation implies that: Assets + Liabilities = Equity.

Accepted Answer

The answer of The accounting equation implies that: Assets +...

Question 2

The accounting equation can be restated as: Assets - Equity = Liabilities.

Accepted Answer

The answer of The accounting equation can be restated as:...

Question 3

The Retained earnings is increased when cash is received from customers in payment of previously recorded accounts receivable.

Accepted Answer

The answer of The Retained earnings is increased when cash...

Question 4

A net loss arises when revenues exceed expenses.

Accepted Answer

A net loss arises when expenses exceed revenues, not the other way around.

Question 5

Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits and in planning activities.

Accepted Answer

Return on assets (ROA) is a financial ratio that measures the profitability of a company relative to its total assets. Decision makers can use ROA to evaluate management's effectiveness in generating profits with the resources at their disposal. ROA can also be used to analyze and forecast profits, as well as to plan activities such as investments and expansion.

Question 6

Owner financing refers to resources contributed by creditors or lenders.

Accepted Answer

Owner financing refers to when the seller of a property acts as the lender and finances the purchase for the buyer. It does not involve external creditors or lenders.

Question 7

Expenses decrease retained earnings and are the costs acquired to earn revenues.

Accepted Answer

Expenses are necessary costs incurred to generate revenue, and they are subtracted from revenue to calculate net income. Retained earnings is the portion of net income that a company chooses to keep and reinvest in the business instead of distributing as dividends to shareholders. Therefore, expenses decrease retained earnings.

Question 8

Reebok's net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%.

Accepted Answer

Net income divided by average assets results in a return on assets of 8.5%.

Question 9

An owner's investment in a business always creates an asset (cash), a liability (note payable) and an equity (common stock).

Accepted Answer

The answer of An owner's investment in a business always...

Question 10

The three major activities of a business are operating, investing and financing.

Accepted Answer

Operating involves the day-to-day activities of the business, investing involves the acquisition of assets with the intention of making a profit, and financing involves obtaining and managing funds for the business.

Question 11

Investing activities are the acquiring and selling of resources that an organization uses in its everyday operations.

Accepted Answer

Investing activities include acquiring and selling long-term assets such as property, plant, and equipment, as well as investments in stocks, bonds, and other securities. These activities are not used in day-to-day operations but are necessary for the growth and sustainability of the organization.

Question 12

Planning refers to defining an organization's ideas, goals and actions.

Accepted Answer

Planning is the process of setting organizational goals, defining strategies to achieve those goals, and developing plans to coordinate activities.

Question 13

Revenues are increases in retained earnings from a company's earnings activities.

Accepted Answer

Revenues are a type of income that increases a company's retained earnings.

Question 14

Every business transaction should leave the accounting equation in balance.

Accepted Answer

The accounting equation represents the fundamental relationship between assets, liabilities, and equity in a business. Every business transaction should affect at least two of these elements and leave the accounting equation in balance. This principle is a cornerstone of double-entry bookkeeping, which ensures accuracy and consistency in financial reporting.

Question 15

Risk is the amount of uncertainty about the return we expect to earn in the future.

Accepted Answer

Risk refers to the level of unpredictability or uncertainty associated with the potential returns from an investment. Therefore, the statement that "Risk is the amount of uncertainty about the return we expect to earn in the future" is true.

Question 16

The four basic financial statements include the balance sheet, income statement, statement of retained earnings and statement of cash flows.

Accepted Answer

The balance sheet, income statement, statement of retained earnings and statement of cash flows are the four basic financial statements that companies use to communicate their financial information to stakeholders.

Question 17

The balance sheet shows whether or not the firm achieved its primary objective of earning a profit.

Accepted Answer

The income statement, not the balance sheet, shows whether or not the firm achieved its primary objective of earning a profit. The balance sheet shows the firm's financial position at a specific point in time.

Question 18

Assets are the resources owned or controlled by a business.

Accepted Answer

Assets refer to the resources owned or controlled by a business, which can include tangible items like property and equipment, as well as intangible items like patents and trademarks.

Question 19

Dividends are expenses of a business.

Accepted Answer

Dividends are not expenses of a business but rather a distribution of profits to the shareholders. They are not recorded as an expense on the income statement but rather appear in the statement of changes in equity.

Question 20

The legitimate claims of a business's creditors take precedence over the claims of its stockholders.

Accepted Answer

According to the hierarchy of claims, creditors hold priority over stockholders in terms of repayment in the event of a business's bankruptcy or insolvency.

Quiz 1: Introducing Accounting in Business