Ch 1. Introduction to Accounting and Business Test

The assets and liabilities of the company are $175,000 and $40,000, respectively. Owner's equity should equal

$135,000

If total liabilities increased by $20,000 during a period of time and owner's equity increased by $5,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is:

$25,000 increase

The form of balance sheet that resembles the basic format of the accounting equation, with assets on the left side and the liabilities and owner's equity sections on the right side.

Account Form

Assets = Liabilities + Owner's Equity

Accounting Equation

The liability created by a purchase on account.

Accounts Payable

A claim against the customer.

Accounts Receivable

A list of the assets, liabilities, and owner's equity as of a specific date , usually at the close of the last day of a month or a year.

Balance Sheet

An economic event or condition that directly changes an entity's financial condition or directly affects its results of operations.

Business Transaction

The amounts used in the process of earning revenue.

Expenses

The initials GAAP stand for

Generally Accepted Accounting Principles

A summary of the revenue and expenses for a specific period of time , such as a month or a year.

Income Statement

The rights of creditors that represent debts of the business.

Liabilities

A concept of accounting in which expenses are matched with the revenue generated during a period by those expenses.

Matching Concept

The rights of the owners.

Owner's Equity

Items such as supplies that will be used in the business in the future.

Prepaid Expenses

Owner's equity is increased by

Revenue

The amount a business earns by selling goods or services to its customers.

Revenue

A summary of the cash receipts and cash payments for a specific period of time , such as a month or a year.

Statement of Cash Flow

A summary of the changes in owner's equity that have occurred during a specific period of time , such as a month or a year.

Statement of Owner's Equity

A business paid $6,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was:

a decrease in an asset and a decrease in a liability

Which of the following is not one of the major sections of the statement of cash flows?

cash flows from marketing activities

The amounts for recording properties and services purchased by a business are determined using the:

cost concept

A type of business that changes basic inputs into products that are sold to individual customers.

manufacturing business

If revenue was $70,000, expenses were $59,000, and the owner's withdrawals were $25,000, the amount of net income or net loss was:

net income of $11,000

The accounting concept that requires economic data be recorded in dollars.

unit of measure concept