ACCT. Test 1 T/F CH.1 – Flashcards
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The accounting equation can be expressed as Assets-Liabilities=Owner's Equity
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Cash withdrawals by owners decrease assets and increase equity.
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Proper ethical conduct implies that you only consider what's in your best interest.
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An account receivable is typically classified as a revenue.
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The primary financial statements of a proprietorship are the income statement, statement of owner's equity, and the balance sheet.
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Some of the major fraudulent acts by senior executives started as what they considered to be small ethical lapses which grew out of control.
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Proprietorships are owned by one owner and provide only services to their customers.
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The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities.
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If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total $300,000.
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Generally accepted accounting principles regulate how and what financial information is reported by businesses.
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The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing entities.
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The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles.
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Net income and net profit do not mean the same thing.
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The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners.
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An account receivable is a claim against a customer resulting from a sale on account.
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An example of a general-purpose financial statement would be a report about projected price increases related to transportation costs.
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A statement of owner's equity reports the changes in the owner's equity for a period of time.
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Receiving payments on an account receivable increases both equity and assets.
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The excess of revenue over the expenses incurred in earning the revenue is called capital.
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If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the same period, the period's change in total liabilities was a $65,000 increase.
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A business is an organization in which basic resources or inputs, like materials and labor, are assembled and processed to provide outputs in the form of goods or services to customers.
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Assets that are used up during the process of earning revenue are called expenses.
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The balance sheet represents the accounting equation.
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If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same period, the period's change in total owner's equity was a $200,000 increase.
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If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer would record the building at $85,000.
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Two factors that typically lead to ethical violations are relevance and timeliness of accounting information.
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The unit of measurement concept requires that economic data be recorded in dollars.
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No significant differences exist between the accounting standards issued by the FASB and the IASB.
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Purchasing supplies on account increases liabilities and decreases equity.
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A corporation is a business that is legally separate and distinct from its owners.
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Managerial accounting information is used by external and internal users equally.
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If net income for a proprietorship was $50,000, the owner withdrew $20,000 in cash and the owner invested $10,000 in cash, the capital of the owner increased by $40,000.
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Paying an account payable increases liabilities and decreases assets.
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The financial statements of a proprietorship should include the owner's personal assets and liabilities.
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An example of an external user of accounting information is the federal government.
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The role of accounting is to provide many different users with financial information to make economic decisions.
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The basic difference between manufacturing and merchandising companies is the completion level of the products they purchase for resale to customers.
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The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
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Revenue is earned only when money is received.
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The owner's rights to the assets rank ahead of the creditors' rights to the assets.
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Accounting information users need reports about the economic activities and condition of businesses.
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The cost concept is the basis for entering the purchase price into the accounting records
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Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the companies where they work.
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Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to the management.
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Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
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An income statement is a summary of the revenues and expenses of a business as of a specific date.
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About 90% of the businesses in the United States are organized as corporations.
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The main objective for all business is to maximize unrealized profits.
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