Chapter 7 T/F

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 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 worksheet 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

A balance sheet reports financial information for a specific date.

True

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

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 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 Owner's Equity section of a balance sheet may report different kinds of details about owner's equity, depending on the need of the business.

True

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

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

The owner's capital amount reported on a balance sheet is calculated as capital account balance less drawing account balance plus net income.

True

Vertical analysis is reporting an amount on a financial statement as a percentage of another item on the same financial statement.

True