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Account

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An individual accounting record of increases and decreases in specific asset, liability, stockholders' equity, revenue or expense items. -An account is an individual accounting record of increase and decrease in a specific asset, liability or stockholders equity item. -A company will have separate accounts for such items as cash, salaries expense, account payable and so on.

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Accounting information system

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The system of collecting and processing transaction data and communicating financial information to decision makers. -Collects and processes transaction data -Communicates financial information to decision makers

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Accounting transactions

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Events that require recording in the financial statements because they affect assets, liabilities, or stockholders' equity.

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Chart of accounts

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A list of a company's accounts.

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Credit

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The right side of an account. The act of entering an amount on the right side of the account is called crediting the account. When the credit amounts exceed the debit, an account has a credit balance. -Decreased assets -Increased Liabilities

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Debit

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The left side of an account. The act of entering an amount on the left side of the account is called debiting the account. When the debit amounts exceed the credits, an account has a debit balance. -Increased assets -decreased liabilities

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Double-entry system

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A system that records the two-sided effect of each transaction in appropriate accounts. -In a double entry system, equal debits and credits are made in the account for each transaction. -Thus, the total debits will always equal the total credits and the accounting equation will always stay in balance.

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General journal

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The most basic form of journal. - The journal shows the debit and credit effects on a specific accounts for each transaction. Every company has a general journal.

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General ledger

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A ledger that contains all asset, liability, stockholders' equity, revenue, and expense accounts. -A general ledger contains all the assets, liabilities, and stockholders' equity accounts.

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Journalizing

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The procedure of entering transaction data in the journal. -Entering transaction data in the journal is known as journalizing. - Separate journal entries are made each transaction. -A complete entry consists of: 1) the date of the transaction 2) the accounts and amounts to be debited and credited, and a brief explanation of the transaction.

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Journal

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An accounting record in which transactions are initially recorded in chronological order. -Transactions are initially recorded in chronological order in a journal before being transferred to the accounts. -The journal shows the debit and credit effects on a specific accounts for each transaction. -The journal makes several significant contributions to the recoding process: 1) It disclose in one place the complete effect of a transaction. 2) It provides a chronological record of transactions. 3) It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared.

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Ledger

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The group of accounts maintained by a company. -The entire group of accounts maintained by a company is called ledger.

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Posting

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The procedure of transferring journal entry amounts to the ledger accounts. -Transferring journal entries to the ledger accounts is called posting -Posting accumulates the effects of journalized transactions into individual accounts.

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T account

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The basic form of an account. The alignment of these parts in an form of account resembles the letter T and therefore the account form is called a T Account.

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Trial balance

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A list of accounts and their balances at a given time. -A trial balance is a list of accounts and their balances at a given time. -The primary purpose of the trial balance is to prove the mathematical equality of debits and credits after posting. -A trial balance may uncover errors in journalizing and posting. -A trial balance is useful in the preparation of financial statements.

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Transactions

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Events that must be recorded in the financial statements

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Transaction Analysis

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The process of considering the transaction or event that has taken place and identify how transaction is going to impact the accounting equation.

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Expanded accounting equation

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Assets= Liabilities + Stockholders Equity ->(Common Stock)+(Retained earnings)-> (Revenues)-(Expenses)-(Dividends)

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Basic form of account

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In its simples form, an account consists of 1) the title of the account 2) left or a debit side 3) right or a credit side

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Normal Balance

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-Every account classification has a normal balance, whether it is a debit or credit. -For that particular account, the opposite side entries should never exceed the normal balance.

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Normal balance for each of the following Items

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Common Stock- Credit Revenues- Credit Assets- Debit Dividends- Debit Expenses- Debit Liabilities- Credit

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Basic Steps in the recording process

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1)Analyze each transactions for its effect on the accounts 2) Enter transaction in information in a Journal 3) Transfer journal information to the appropriate accounts in the ledger

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General Ledger (Individual Assets)

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Equipment, land, supplies, cash

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General Ledger (Individual Liabilities)

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Interest payable, salaries payable, accounts payable, Notes payable

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General Ledger (Individual Stockholders equity)

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Salaries Expense, servies revenue, common stock, retained earnings

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Purpose of a Ledger

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Information in the Ledger provides management with the balances in various accounts.

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Chart of accounts

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Accounts in the general ledger are listed in the chart of accounts. *Assets- cash, account receivable, advertising supplies, prepaid insurance, office equipment, accounted depreciation- office equipments *Liabilities- Notes payable, Accounts payable, Interest Payable, Unlearned servies revenue, Salaries payable * Stockholders Equity- Common stock, retained earning, dividends, income summary *Revenues- Service Revenue *Expense- Salaries Expense, supplies expense, rent expense, insurance expense, interest expense, depreciation expense

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Limitation Of Trial Balance

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-A trial balance is limited in that it will balance and therefore not uncover errors when: 1) A transaction is not journalized 2) a correct journal entry is not posted 3) a journal entry is posted twice 4) incorrect accounts are used in journalizing and posting 5) offsetting errors are made in recording the amount of a transaction.

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Liquidity may be defined as:

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The ability to pay debts of the company as they fall due.

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Profitability may be defined as:

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The ability to increase the value of retained earnings.

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The principle of adequate disclosure means that a company should dislclose;

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Any financial facts that a reasonable informed person would consider necessary for the proper interpretation of the financial statements.

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Joe Blow Wholesale Dress Co. sold dresses to Flow Glow Retail Shoppe. Floe., the owner, said she would pay for them at a later which Joe Blow Dress Co. agreed to. Joe Blow Dress Co. is considered:

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A creditor

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Owner's equity in a business may increase by:

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Earnings from profitable operation of the business.

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Owner's equity in a business may decrease by

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Losses from unprofitable operation of the business.

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Which one of the following is not considered one of three primary financial statements?

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Statement of business activities.

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Financial statements are designed primarily to:

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Provide people outside the business organization with information about the company's financial position and operating results.

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Which of the following is descriptive of the proper form of a balance sheet?

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Liabilities are listed before owners' equity.

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A balance sheet is designed to show:

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The assets, liabilities, and owners' equity in the business at the particular date.

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The way in which financial statements relate is known as:

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Articulation

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If total assets equal $120,000 and total liabilities equal $90,000, the total owners' equity must equal:

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$ 30,000

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The nature of an asset is best described as:

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An economic resource owned by a business and expected to benefit future operations.

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To appear in a balance sheet of a business entity, an asset need not:

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Have a ready market value.

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If total assets equal $210,000 and total owners' equity equal $60,000, then total liabilities must equal:

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$150,000

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A balance sheet:

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Shows the assets, liabilities, and owners' equity of a business entity, values in conformity with generally accepted accounting principles.

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If a company purchases equipment for $60,000 cash:

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Total assets will remain the same.

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From an accounting viewpoint, when is a business considered an entity separate from its owner(s)?

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In each of the above situations, the business is an accounting entity separate from the activities of the owner(s).

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If a company purchases equipment for $40,000 by issuing a note payable:

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Total assets will increase by $40,000.

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The valuation of assets in the balance sheet is based primarily upon:

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Cost, because cost is usually factual and verifiable.

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The proprietorship form of business organization.

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Generally receives favorable tax treatment relative to a corporation.

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A business organized as a corporation

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is owned by its stockholders

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The partnership form of business organization

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is a common form of organization for service-type businesses.

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Which of the following is not one of the three forms of business organization?

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investors

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Most business enterprises in the United States are

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proprietorships and partnerships

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A business organized as a separate legal entity is a

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corporation

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Which of the following is not an advantage of the corporate form of business organization?

answer

Favorable tax treatment

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An advantage of the corporate form of a business is that

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its ownership is easily transferable via the sale of shares of stock.

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Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

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Reduced legal liability for investors.

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A corporation has which of the following set of characteristics?

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Easier to transfer ownership and raise funds, no personal liability

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A small neighborhood barber shop is operated by its owner would likely be organized as a

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proprietorship.

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A local retail shop has been operating as sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?

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the prestige of operating as a corporation.

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Which of the following is the most appropriate and modern definition of accounting?

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The information system that identifies, records, and communicates through the economic events of an organization to interested users.

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Which of the following would not be considered an internal user of accounting data for the XYZ Company?

answer

President of the employees' labor union.

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Which of the following groups uses accounting information primarily to ensure the entity is operating within prescribed rules?

answer

Taxing authorities

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The group of users accounting information changed with achieving the goals of the business is its

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managers

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Which of the following groups uses accounting information to determine whether the company can pay its obligations?

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Creditors

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Which of the following groups uses accounting information to determine whether the company's net income will result in a stock price increase?

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Investors in common stock

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Which of the following groups uses accounting information to determine whether a marketing proposal will be cost effective?

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Marketing managers

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Which of the following would not be considered an external user of accounting data for the XYZ Company?

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Management

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Which of the following would not be considered an internal user of accounting data for a company?

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Creditor of a company

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Which of the following is a primary user of accounting information with a direct financial interest in the business?

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Creditor

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Which of the following is a user of accounting information with an indirect financial interest in a business?

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A financial adviser

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Which type of corporate information is readily available to investors?

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Amount of net income retained in the business

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Which of the following statements concerning users of accounting information is incorrect?

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Regulatory authorities are considered internal users.

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External users want answers to all of the following questions except.

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Will the company be able to afford employee pay raises this year?

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Which type of corporate information is not available to investors.

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forecast of cash needs for the upcoming year

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The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)

answer

account payable

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The right to receive money in the future is called a(n)

answer

account receivable

question

Which of the following is not a principal type of business activity?

answer

Delivering

question

The proprietorship form of business organization.

answer

Generally receives favorable tax treatment relative to a corporation.

question

A business organized as a corporation

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is owned by its stockholders

question

The partnership form of business organization

answer

is a common form of organization for service-type businesses.

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Which of the following is not one of the three forms of business organization?

answer

investors

question

Most business enterprises in the United States are

answer

proprietorships and partnerships

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A business organized as a separate legal entity owned by stockholders is a partnership,

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False

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Corporate stockholder generally pay higher taxes but have no personal liability.

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True

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The liability of corporate stockholders is limited to the amount of their investment.

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True

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The majority of U.S. business is transacted by proprietorships.

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False

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Proprietorships in the United States generate more revenue than the other two forms of business enterprise.

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False

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Owners of business firms are the only people who need accounting information.

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False

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Management of a business firms are the only people who need accounting information.

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False

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External users of accounting information are managers who plan, organize, and run a business.

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False

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The information needs and questions of external users vary considerably.

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True

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Accounting communicates financial information about a business to both internal and external users.

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True

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Two primary external users of accounting information are investors and creditors.

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True

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Financing activities for corporations include borrowing money and selling shares of their own stock.

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True

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Investing activities involve collecting the necessary funds to support the business.

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False

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The purchase of equipment is an example of a financing activity.

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False

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Assets are resources owned by a business and provide future services or benefits to the business.

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True

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Payments to the owners are operating activities.

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False

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The economic resources that are owned by a business are called stockholders' equity.

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False

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Operating activities involve putting the resources of the business into action to generate a profit.

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True

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A business is usually involved in two types of activity -financing and investing.

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False

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Net income for the period if determined by subtracting total expenses and dividends from revenues.

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False

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A different set of financial statements usually is prepared for each user.

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False

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The heading for the income statement might include the line "As of December 31, 20xx."

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False

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Net income is another term for revenue.

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False

question

Cash is another term for Stockholders' Equity.

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False

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The primary purpose of statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.

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True

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The balance sheet reports assets and claims to those assets at a specific point in time.

answer

True

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A business entity is regarded as separate from the personal activities of its owners whether it is a sole proprietorship, a partnership, or a corporation.

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True

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Assets must always have physical characteristics such as buildings, machinery or inventory.

answer

False

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Notes payable and accounts payable are written promises to pay an amount owed by a certain date. Note payable generally have interest by accounts payable do not.

answer

True

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A net loss results from having more liabilities than revenues.

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False

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The sale of additional shares of capital stock will cause net income to increase.

answer

False

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Articulation between the financial statements mean that they relate closely to each other.

answer

True

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Limited liability means that owners of a business are only liable for the debts of the business up to the amounts they can afford.

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False

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In a business organized as a corporation, it is necessary to list the equity of each stockholder on the Statement of Cash Flows.

answer

False

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Total assets always equal total liabilities plus total owner's equity.

answer

True

question

A balance sheet reports financial activities for a specific time period such as one month or one year.

answer

False

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Any business event that might affect the future probability of a business should be reported in its balance sheet.

answer

False

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Total assets less total liabilities always equal total owners' equity.

answer

True

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The practice of showing assets on the balance sheet at their cost rather than at their current market value is explained in part by the fact that cost is supported by objective evidence that can be verified by independent experts.

answer

True

question

The cost principle states that the activities of an entity should be kept separate from those of its owner.

answer

False

question

The entity principle states that the affairs of the owner's are an important part of the financial operations of a business entity and cannot be separated.

answer

False

question

The accounting equation can be stated as "assets plus liabilities equal owners' equity."

answer

False

question

A transaction that causes a decrease in an asset may also cause an increase in another asset, a decrease in a liability, or a decrease in owners' equity.

answer

True

question

The collection of an account receivable will cause total assets to increase.

answer

False

question

The payment of a liability causes an increase in owners' equity.

answer

False

question

When a business borrows money from a bank, the immediate effect is an increase in total assets and owners' equity.

answer

False

question

The purchase of an asset such as office equipment, either for cash or on credit, causes no change in the owners' equity.

answer

True

question

The owner of a sole proprietorship is personally liable for the debts of the business, whereas the stockholders of a corporation are not personally liable for the debts of the business.

answer

True

question

If a company purchases equipment for cash, its total assets will decrease.

answer

False

question

A business is an accounting entity separate from its owners, regardless of whether it is a sole proprietorship, a partnership, or a corporation.

answer

True

question

If a company purchases equipment by issuing a note payable, its total assets will increase.

answer

True

question

It is not unusual for an entity to report a significant increase in cash from operating activities, but a decrease in the total amount of cash.

answer

True

question

The income statement provides a link between two balance sheets by showing how net income (or loss) has changed owners' equity from one balance sheet date to the next.

answer

True

question

The going concern principle assumes that the business will not continue indefinitely.

answer

False

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