Accounting Chapter 7 Study Guide Part 1

1. The Full Disclosure accounting concept is applied when a company always prepares financial statements at the end of each monthly fiscal period. (p. 190)
False

Internal users of accounting information include company managers, officers, and creditors. (p. 190)
False

3. An income statement reports information on a specific date, indicating the financial condition of a business. (p. 192)
False

4. The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period. (p. 192)
True

5. Information needed to prepare an income statement comes from the Account Title column and the Income Statement columns of a work sheet. (p. 192)
True

6. The income statement for a service business has five sections: heading, Revenue, Expenses, Net Income or Net Loss, and Capital. (p. 192)
False

7. The income statement’s account balances are obtained from the work sheet’s Income Statement columns. (p. 192)
True

8. The net income on an income statement is verified by checking the balance sheet. (p. 194)
False

9. Double lines ruled across both amount columns of an income statement indicate that the amount has been verified. (p. 194)
True

10. A financial ratio is a comparison between two components of financial information. (p. 195)
True

11. Financial ratios on an income statement are calculated by dividing sales and total expenses by net income. (p. 195)
False

12. No company should have a vertical analysis ratio for total expenses higher than 48.0%. (p. 196)
False

13. When a business has two different sources of revenue, both revenue accounts are listed on the income statement. (p. 197)
True

14. An amount written in parentheses on a financial statement indicates a negative amount. (p. 197)
True

15. A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner’s equity. (p. 199)
True

16. A balance sheet reports information about the elements of the accounting equation. (p. 201)
True

17. The owner’s capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance less net income. (p. 202)
False

18. The position of the total asset line on the balance sheet is determined after the Equities section is prepared. (p. 202)
True

19. Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct. (p. 202)
True

20. The Owner’s Equity section of a balance sheet is the same for all businesses. (p. 203)
False