Chapter 2: accounting quiz

XYZ Company provides $2,000 worth of services to customers and will receive payment within 30 days. How should this transaction be recorded?

Increase accounts receivable; increase service revenue; Revenue can be recognized even when cash is not collected. In this instance, XYZ Company provided $2,000 worth of services to customers and must record that amount as receivable - to be collected in 30 days.

Assets on the balance sheet are listed in order of:

Liquidity; Liquidity is the ease with which an asset may be converted into cash. Cash is always the first asset listed.

The account used to record the amount of owner's equity including owner's contributions is called:

Owner's capital; Owner's capital is used to keep track of owner's equity and owner contributions. The owner's drawings account is used to reduce the equity if the owner takes assets out of the company for personal use.

In business accounts, net worth is formally referred to as:

Owner's equity

Net income for a business is equivalent to the following personal accounting item:

Surplus; Net income is equivalent to a surplus (increases net worth or owner's equity) and a net loss is equivalent to a deficit (decreases net worth or owner's equity).

Liquidity is defined as:

The ease at which an asset may be converted to cash.

Which of the following is true when a company incurs an expense that is to be paid later?

The expense account should be increased along with accounts payable; A liability must be recorded because the company has to pay in the future for an expense that has already been incurred.

True or False: Owner's drawings refer to cash or assets withdrawn from the business for the owner's personal use.

True; Owner's withdrawals decrease the business' assets and the value of owner's equity.

When an owner withdraws cash for personal use the transaction is recorded by:

this transaction would decrease cash and increase the owner's drawings account (which decreases owner's equity).