Question 1

For an accounting equation to balance, a transaction must affect both the sides of the equation.

Accepted Answer

A) True 
 B)False  False

Question 2

By looking at a statement of owner's equity, the effect of withdrawals on the ending balance in owner's equity can be evaluated.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is an external user of a business' financial information?

Accepted Answer

A) customers 
B) cost accountant 
C) company manager 
D) the board of directors 
A) customers 
B) cost accountant 
C) company manager 
D) the board of directors A

Question 4

Financial statements are prepared after an entity's transactions are analyzed and recorded. Which of the following reports is one of the required financial statements?

Accepted Answer

A) Statement of cash flows 
B) Statement of return on assets 
C) Statement of withdrawals 
D) Expense statement 
A) Statement of cash flows 
B) Statement of return on assets 
C) Statement of withdrawals 
D) Expense statement

Question 5

As per the ________, the entity will remain in operation for the foreseeable future.

Accepted Answer

A) economic entity concept 
B) monetary unit assumption 
C) going concern assumption 
D) cost principle 
A) economic entity concept 
B) monetary unit assumption 
C) going concern assumption 
D) cost principle

Question 6

Land was originally purchased for $20,000. It is sold for $20,000 in cash. How does the sale affect the accounting equation?

Accepted Answer

A) Assets increase by $20,000; liabilities decrease by $20,000. 
B) Assets increase by $20,000; liabilities increase by $20,000. 
C) Assets increase by $20,000; equity increases by $20,000. 
D) Assets increase by $20,000; assets decrease by $20,000. 
A) Assets increase by $20,000; liabilities decrease by $20,000. 
B) Assets increase by $20,000; liabilities increase by $20,000. 
C) Assets increase by $20,000; equity increases by $20,000. 
D) Assets increase by $20,000; assets decrease by $20,000.

Question 7

A business settles a liability by making a payment in cash. How does paying this liability affect the accounting equation of the business?

Accepted Answer

A) Assets decrease; liabilities decrease. 
B) Liabilities decrease; equity increases. 
C) Assets increase; liabilities increase. 
D) Assets increase; equity decreases. 
A) Assets decrease; liabilities decrease. 
B) Liabilities decrease; equity increases. 
C) Assets increase; liabilities increase. 
D) Assets increase; equity decreases.

Question 8

The balance sheet shows whether or not a business is earning profits.

Accepted Answer

A) True 
 B)False

Question 9

The assets of Moon Company are $150,000 and liabilities are $90,000. The equity will be:

Accepted Answer

A) $180,000. 
B) $300,000. 
C) $240,000. 
D) $60,000. 
A) $180,000. 
B) $300,000. 
C) $240,000. 
D) $60,000.

Question 10

Sharon Samson owns Reliable Waterworks which provides plumbing service. Transactions of Reliable Waterworks during the first year of operations are given below:
A. Sharon contributed $14,000 into a new checking account for the business and recorded capital contribution.
B. Paid $2,000 for equipment to be used for plumbing repairs.
C. Borrowed $15,000 from a local bank and deposited the money in the checking account.
D. Paid $600 as rent for the year.
E. Paid $500 for plumbing supplies to be used on various jobs in the future.
F. Completed a plumbing repair project for a local lawyer and received $3,500.
Calculate the amount of total assets balance at the end of the first year.

Accepted Answer

A)  $2,500 
B)  $2,000 
C)  $29,000 
D)  $31,900 
A)  $2,500 
B)  $2,000 
C)  $29,000 
D)  $31,900

Question 11

In a limited-liability company (LLC), the members are personally liable for the debts of the business.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements would be most useful if an analyst wants to know the likelihood of repayment of his debts?

Accepted Answer

A) income statement 
B) balance sheet 
C) statement of owner's equity 
D) statement of cash flows 
A) income statement 
B) balance sheet 
C) statement of owner's equity 
D) statement of cash flows

Question 13

Scott's Camera Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott made no additional capital contributions during the year, but did make withdrawals of $60,000. Calculate Scott's net income for the year.

Accepted Answer

A) $50,000 
B) $120,000 
C) $70,000 
D) $80,000 
A) $50,000 
B) $120,000 
C) $70,000 
D) $80,000

Question 14

The statement of owner's equity informs users about how much of the earnings were kept and reinvested in the company.

Accepted Answer

A) True 
 B)False

Question 15

If a transaction increased an asset of a business. Which of the following can be an effect of the transaction for the accounting equation to balance?

Accepted Answer

A) There is an equal decrease in another asset. 
B) There is an equal decrease in equity. 
C) There is an equal decrease in a liability account. 
D) Both liabilities and equity decreases. 
A) There is an equal decrease in another asset. 
B) There is an equal decrease in equity. 
C) There is an equal decrease in a liability account. 
D) Both liabilities and equity decreases.

Question 16

Which of the following financial statements reports cash receipts and cash payments during a period of time?

Accepted Answer

A) statement of cash flows 
B) balance sheet 
C) cash receipts budget 
D) statement of owner's equity 
A) statement of cash flows 
B) balance sheet 
C) cash receipts budget 
D) statement of owner's equity

Question 17

The explanation of why the net income differs from the change in cash balance for the period is explained in the:

Accepted Answer

A) income statement. 
B) balance sheet. 
C) statement of owner's equity. 
D) statement of cash flows. 
A) income statement. 
B) balance sheet. 
C) statement of owner's equity. 
D) statement of cash flows.

Question 18

The formation of a partnership firm requires a minimum of:

Accepted Answer

A) four partners. 
B) three partners. 
C) one partner. 
D) two partners. 
A) four partners. 
B) three partners. 
C) one partner. 
D) two partners.

Question 19

The owner's claim to the assets of the business is called:

Accepted Answer

A) return on assets. 
B) expenses. 
C) equity. 
D) debt. 
A) return on assets. 
B) expenses. 
C) equity. 
D) debt.

Question 20

Any person or business to whom a business owes money is called the business's creditor.

Accepted Answer

A) True 
 B)False

Exam 1: Accounting and the Business Environment

For an accounting equation to balance, a transaction must affect both the sides of the equation.

By looking at a statement of owner's equity, the effect of withdrawals on the ending balance in owner's equity can be evaluated.

Which of the following is an external user of a business' financial information?

Financial statements are prepared after an entity's transactions are analyzed and recorded. Which of the following reports is one of the required financial statements?

As per the ________, the entity will remain in operation for the foreseeable future.

Land was originally purchased for $20,000. It is sold for $20,000 in cash. How does the sale affect the accounting equation?

A business settles a liability by making a payment in cash. How does paying this liability affect the accounting equation of the business?

The balance sheet shows whether or not a business is earning profits.

The assets of Moon Company are $150,000 and liabilities are $90,000. The equity will be:

In a limited-liability company (LLC), the members are personally liable for the debts of the business.

Which of the following statements would be most useful if an analyst wants to know the likelihood of repayment of his debts?

The statement of owner's equity informs users about how much of the earnings were kept and reinvested in the company.

If a transaction increased an asset of a business. Which of the following can be an effect of the transaction for the accounting equation to balance?

Which of the following financial statements reports cash receipts and cash payments during a period of time?

The explanation of why the net income differs from the change in cash balance for the period is explained in the:

The formation of a partnership firm requires a minimum of:

The owner's claim to the assets of the business is called:

Any person or business to whom a business owes money is called the business's creditor.

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

Filters