Accounting Chapter 7 True & False

Financial ratios on an income statement are calculated by dividing sales and total expenses by net income.

False

Information needed to prepare a statement of owner's equity is obtained from the balance sheet.

False

Internal users of accounting information include company managers, officers, and creditors.

False

On the balance sheet, the current capital amount is taken from the work sheet.

False

The Full Disclosure accounting concept is applied when a company always prepares financial statements at the end of each monthly fiscal period.

False

The income statement for a service business has five sections: heading, Revenue, Expenses, Net Income or Net Loss, and Capital.

False

The net income on an income statement is verified by checking the balance sheet.

False

Information needed to prepare an income statement comes from the Account Title column and the income Statement columns of a work sheet.

True

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.

True

The income statement's account balances are obtained from the work sheet's Income Statement columns.

True

The position of the total asset line on the balance sheet is determined after the Equities section is prepared.

True

The statement of owner's equity reports changes in the capital account for a period of time.

True

When a business has two different sources of revenue, both revenue accounts are listed on the income statement.

True

An amount written in parentheses on a financial statement indicates an estimate

false

An income statement reports information for a specific date indicating the financial progress of a business in earning a net income or a net loss.

false

If a business has a net loss for the period, expenses should be reported before revenues on the income statement.

false

The area of accounting that focuses on reporting information to external users is called managerial accounting.

false

The current owner's capital amount reported on a statement of owner's equity is calculated as capital account balance less drawing account balance less net income.

false

The formula for calculating the total expenses ratio is total expenses divided by net income.

false

The net income calculated for the income statement and the net income on the work sheet can be different because of adjusting entries.

false

When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.

false

For a service business, the revenue reported on an income statement is often compared to two items: total expenses and net income.

true

Return on sales (ROS) is the ratio of net income to total sales.

true

The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.

true

The area of accounting that focuses on reporting information to internal users is called managerial accounting.

true

The calculation and interpretation of a financial ratio is called ratio analysis.

true

The formula for calculating the net income ratio is net income divided by total sales.

true

When a business has a net loss, the current capital amount will be less than the capital account balance.

true

a balance sheet reports financial info for a specific date

true

vertical analysis is reporting an amount on a financial statement as a percentage of another idem on the same financial statement

true

An income statement reports information on a specific date indicating the financial condition of a business.

False

A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.

True

A financial ratio is a comparison between two components of financial information.

True

An amount written in parentheses on a financial statement indicates a negative amount.

True

Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct.

True

Double lines ruled across both amount columns of an income statement indicate that the amount has been verified.

True