Practice

Distinguish between profitability and liquidity.

Profitability is the ability to earn enough income to attract and hold investment capital, whereas liquidity means having enough funds on hand to pay debts when they fall due.

Distinguish between bookkeeping and management information systems

Bookkeeping is the process of recording financial transactions and keeping financial records. It is mechanical and repetitive and is usually handled by computers whereas, management information systems (MIS) consist of the interconnected business subsystems, including accounting, that provide the information needed to run a business.

How does the statement of owner's equity relate to the income statement and balance sheet?

The statement of owner's equity provides a link between the income statement and the balance sheet. Specifically, it takes the net income or loss figure from the income statement and uses it (along with investments and withdrawals) to arrive at the owner's capital balance to be presented on the balance sheet.

At the beginning of the year, Shannon Company's assets were $150,000 and its owner's equity was $100,000. During the year, assets decreased $30,000 and liabilities increased $15,000. What was the owner's equity at the end of the year?

[($150,000 - $30,000) - (50,000 + $15,000)] = $55,000

At the beginning of the year, Aqua assets were $700,000 and its owner's equity was $119,000. During the year, assets decreased $19,000 and liabilities increased $75,000. What was the owner's equity at the end of the year?

[(700,000-19,000) - (581,000+75,000) = 25,000

The best definition of owner's equity: a. the claims by the owner of a business to the assets of the business; sometimes said to equal net assets b. economic resources that are expected to benefit the company's future operations c. a business's obligations to pay cash, transfer assets, or provide services to other entities in the future d. is an information system that measures, processes, and communicates financial information about a business or other economic entity.

a

Which of the following is the correct accounting equation? a. Assets = Liabilities + Owner's Equity b. Assets + Owner's Equity = Liabilities c. Assets = Liabilities - Owner's Equity d. Assets + Liabilities = Owner's Equity

a

The best definition of liabilities: a. the concept that a business organization is distinct from its owners, creditors, and customers b. the concept that all business transactions are recorded in terms of money c. measuring business activities by recording data about them for future use d. a business's obligations to pay cash, transfer assets, or provide services to other entities in the future

d

Following are the total assets and liabilities at the beginning and end of the year for Hagedorn Company: (Beginning of the year) Assets: $70,000 Liabilities: $45,000 (End of the year) Assets: 108,000 Liabilities: 40,000 a. The owner made no investments in the business and no withdrawals were made during the year. Net income or Loss = b. The owner made an investment of $20,000 and withdrew $12,000 during the year. Net Income or Loss =

a. [($108,000-$40,000) - ($70,000-$45,000)] = $43,000 b. [($108,000 -$40,000) - ($70,000 - $45,000) - $20,000 + $12,000] = $35,000

Following are the total assets and liabilities at the beginning and end of the year for WinterWolf Company: (Beginning of the year) Assets: $119,000 Liabilities: $95,000 (End of the year) Assets: 260,000 Liabilities: 125,000 a. The owner made no investments in the business and no withdrawals were made during the year. Net income or Loss = b. The owner made an investment of $50,000 and withdrew $19,000 during the year. Net Income or Loss =

a. [(260,000-119,000) - (125,000-95,000)] = 111,000 b. [(260,000-119,000) - (125,000-95,000) - 50,000 + 19,000 = 80,000

The best definition of assets is the: a. cash owned by the company b. resources belonging to a company having future benefit to the company c. collection of resources belonging to the company and the claims on these resources d. owner's investment in the business

b

Which of the following represents the proper order of financial statement preparation? a. statement of cash flows, balance sheet, income statement, statement of owner's equity b. statement of owner's equity, income statement, statement of cash flows, balance sheet c. balance sheet, statement of cash flows, statement of owner's equity, income statement d. income statement, statement of owner's equity, balance sheet, statement of cash flows

d