Essentials of Accounting Chapter 2

Which of the following is not true regarding cash?

Cash minus current liabilities is equal to net assets.

The balance sheet equation:

must remain in balance after each transaction is recorded. can be expressed as A = L + SE is another term for the accounting equation.

The two main components reported on the statement of changes in stockholders' equity are:

paid-in capital and retained earnings

The balance sheet is sometimes called the:

statement of financial position

If the total liabilities is equal to $8,000 and the total stockholders' equity is equal to $4,000, then:

the total assets is equal to $12,000

A firm prepares comparative financial statement so that

the users of the data can easily spot changes in the firm's financial position and in its results of operations

The statement of changes in stockholders' equity reports:

total stockholders' equity at the end of the year net income for the year the year-end balance of retained earnings common stock issued during the year dividends for the year

Rearrange the following accounts or captions in the order in which they appear on the income statement: 1. Income before taxes 2. Net sales 3. Income from operations 4. Gross profit

2, 4, 3, 1

Which of the following statements is not true regarding accounts receivable?

Accounts receivable is recorded for the company's gross credit sales.

Which of the following statements are true regarding the statement of cash flows?

Depreciation expense is added back to net income in the operating activities section. Cash received from the sale of long-term debt is a financing activity, and the activity is a source of cash. Cash received from the sale of buildings or equipment is an investing activity, and the activity is a source of cash. The increase in accounts payable for the year is a source of cash and is shown as an operating activity.

Which of the following types of accounts are reported on the income statement?

Expenses Revenues Losses Gains

Which of the following statements is incorrect regarding retained earnings?

Retained earnings is increased each year by the entity's net income and dividends.

Assets include:

accounts receivable merchandise inventory cash equipment

The income statement reports all of the following account types except:

assets

The balance sheet equation:

can be expressed as A = L + SE

The two main components of paid-in capital are:

common stock additional paid-in capital

Financial statements that show a column for the current year and the prior year are known as

comparative statements

Revenues, expenses, gains, and losses are reported on the

income statement

Merchandise inventory:

is a current asset account

Income from operations:

is a subtotal on the income statement that is not affected by the firm's tax rate or by amount of interest expense incurred

Income from operations:

is a subtotal on the income statement that is not affected by the firm's tax rate or by the amount of interest expense incurred is frequently called operating income is frequently called earnings from operations

Income from operations:

is frequently called earnings from operations is frequently called operating income is a subtotal on the income statement that is not affected by the firm's tax rate or by the amount of interest expense incurred

Retained earnings:

is referred to as an accumulated deficit if cumulative losses and dividends exceed cumulative net income is increased each year by the entity's net income is reduced by any dividends paid to stockholders is the cumulative net income of the entity that has been retained for use in the business