Question 1

For statements prepared on plain paper, dollar signs are placed with the first amount in each column and with each total.

Accepted Answer

This is generally true for financial statements prepared on plain paper, such as balance sheets and income statements. The dollar sign is typically placed with the first amount in each column and with each total to indicate that the figures are expressed in dollars. However, there may be exceptions depending on the specific format and requirements of the statement.

Question 2

If the owner takes cash out of the business for personal use, the withdrawal should be recorded as an expense of the business.

Accepted Answer

The withdrawal of cash by the owner for personal use should not be recorded as an expense of the business. Instead, it should be recorded as a reduction in the owner's equity or as a drawing account.

Question 3

When cash is collected from accounts receivable, the total amount of assets increases.

Accepted Answer

When cash is collected from accounts receivable, one asset (cash) increases while another asset (accounts receivable) decreases by the same amount, leaving the total amount of assets unchanged.

Question 4

When cash is paid to a creditor, the firm's liabilities decrease.

Accepted Answer

When a firm pays cash to a creditor, it reduces its outstanding debt, resulting in a decrease in liabilities.

Question 5

Withdrawals by the owner are reported on the income statement.

Accepted Answer

Withdrawals by the owner are not reported on the income statement. Instead, they are reported on the statement of owner's equity or the balance sheet as a reduction in the owner's equity.

Question 6

A withdrawal of funds by the owner for personal use is considered a business expense.

Accepted Answer

A withdrawal of funds by the owner for personal use is not considered a business expense. It is considered as personal expense and not deductible in business income tax returns.

Question 7

The entire process of analyzing, recording, and reporting business transactions is based on the fundamental accounting equation.

Accepted Answer

The fundamental accounting equation (Assets = Liabilities + Equity) forms the basis of all accounting processes and helps in the preparation of financial statements.

Question 8

A business transaction is a financial event that affects the resources of a business.

Accepted Answer

A business transaction involves the exchange of goods, services or money that affects the financial resources of a business. It could include receiving payment, purchasing inventory or paying salaries.

Question 9

The statement of owner's equity is prepared before the balance sheet so that the ending capital balance is available.

Accepted Answer

The statement of owner's equity reports changes in the owner's capital during the accounting period and provides the ending capital balance, which is then used to prepare the balance sheet. Therefore, the statement of owner's equity is prepared before the balance sheet.

Question 10

Revenue is recorded when cash is collected from charge-account clients.

Accepted Answer

Revenue is recorded when the goods or services have been provided, regardless of whether cash has been collected or not. This is known as accrual accounting.

Question 11

The expenses for a period are reported on the balance sheet.

Accepted Answer

Expenses are not reported on the balance sheet but on the income statement. The balance sheet reports assets, liabilities, and equity at a specific point in time.

Question 12

When using the fundamental accounting equation, an accountant must make sure that total assets are always equal to total liabilities and owner's equity.

Accepted Answer

The fundamental accounting equation is Assets = Liabilities + Owner's Equity, and this equation must always balance. Therefore, total assets must always be equal to total liabilities and owner's equity.

Question 13

A double line drawn under the figures in a money column shows that the computation is complete.

Accepted Answer

This is a common accounting practice to indicate the completion of a computation in a money column.

Question 14

A company has assets of $56,320 and liabilities of $29,500. The owner's equity is $85,820.

Accepted Answer

The sum of assets and liabilities should equal the owner's equity, so this cannot be correct. The owner's equity should equal $27,820.

Question 15

If there is an excess of expenses over revenues, the excess represents a profit.

Accepted Answer

If there is an excess of expenses over revenues, it represents a loss, not a profit.

Question 16

The amount of net income or net loss is needed to complete the statement of owner's equity.

Accepted Answer

The net income or net loss is one of the components needed to calculate the ending balance of owner's equity.

Question 17

If assets are $8,000 and liabilities are $2,000, owner's equity is $10,000.

Accepted Answer

The equation for the balance sheet is Assets = Liabilities + Owner's Equity. Using this equation, we can see that if assets are $8,000 and liabilities are $2,000, then Owner's Equity would be $6,000, not $10,000.

Question 18

Assets always equal debts of the business plus the financial interest of the owner.

Accepted Answer

This statement follows the basic accounting equation of Assets = Liabilities + Equity, where equity represents the financial interest of the owner. Therefore, the assets of a business must always equal its debts plus the owner's equity.

Question 19

Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080.

Accepted Answer

The purchase of the oven increased assets by $1,080 ($1,380 - $300). This transaction is recorded as a debit to the oven asset account and a credit to the cash account for the down payment. When the remaining balance is paid in 30 days, there will be a debit to the oven asset account and a credit to the accounts payable account.

Question 20

A creditor's claim against the firm's property lasts until the debt is paid.

Accepted Answer

A creditor's claim against the firm's property is known as a lien, and it lasts until the debt is paid. Once the debt is paid, the lien is released.

Quiz 2: Analyzing Business Transactions