Deck 1: Accounting in Action

Question 1

According to the monetary unit assumption, inflation is ignored in accounting and only transactions that can be expressed as an amount of money are recorded.

Answer 1

True

Question 2

The basic objective of financial reporting is to provide useful information to investors and creditors to make decisions

Answer 2

True

Question 3

Private companies have a choice of whether to follow ASPE or IFRS.

Answer 3

True

Question 4

According to the cost principle, assets should be reported at their replacement cost, not their original cost.

Question 5

An expense paid with cash would result in an equal decrease in liabilities and owner's equity

Question 6

Liabilities represent the ownership claim on total assets.

Question 7

The going concern assumption assumes that a company will liquidate in the near future

Question 8

In a proprietorship, owner's equity increases when:

A) the owner withdraws money for personal use.
B) money is borrowed from the bank.
C) cash is collected from a customer who had previously been billed for services.
D) a service is provided to a customer on account.

Question 9

A company has a profit when:

A) assets exceed liabilities for the period.
B) investments exceed drawings for the period.
C) revenues exceed expenses for the period.
D) revenues exceed liabilities for the period.

Question 10

Owner's Equity is not:

A) existing debts and obligations of the company.
B) the owner's claim on total assets.
C) assets minus total liabilities.
D) often called residual equity.

Question 11

A payment of accounts payable would:

A) decrease liabilities and increase owner's equity.
B) decrease assets and decrease liabilities.
C) decrease liabilities and decrease owner's equity.
D) increase assets and increase liabilities.

Question 12

The financial statement that reports the assets, liabilities, and owner's equity at a specific date is the:

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

Question 13

Define and give an example of each of the following terms. Assume that you are the proprietor of a house painting business.
a) Assets
b) Liabilities
c) Expenses

Question 14

How is profit calculated?

Question 15

Bob Manor is the proprietor of Manor Accounting. For each of the following transactions, indicate the effects on the company's assets, liabilities, and owner's equity. Indicate the dollar amount and whether it is an increase (+) or a decrease (-).

Question 16

State the basic accounting equation

Question 17

What are the four basic financial statements?