Chapter 7A Test

9. Assuring that financial statements contain all information necessary to understand a business's financial condition is an application of the accounting concept (A) Adequate Disclosure. (B) Going Concern. (C) Objective Evidence. (D) Accounting Period Cycle.

(A) Adequate Disclosure.

2. The amount of net income calculated on an income statement is correct if (A) it is the same as the net income shown on the work sheet. (B) debits equal credits. (C) it is the same as the net income shown on the balance sheet. (D) none of these.

(A) It is the same as the net income shown on the work sheet.

7. The formula for calculating the net income ratio is (A) net income divided by total sales. (B) total sales divided by total expenses. (C) total sales minus total expenses divided by net income. (D) none of these.

(A) net income divided by total sales.

5. An income statement reports a business's (A) financial condition over a specific period of time. (B) financial progress over a specific period of time. (C) financial condition on a specific date. (D) financial progress on a specific date.

(B) Financial progress over a specific period of time.

1. The date on a monthly income statement prepared on April 30 is written as (A) April 30, 20--. (B) For Month Ended April 30, 20--. (C) 20--, April 30. (D) none of these.

(B) For Month Ended April 30, 20--

8. Information needed to prepare a balance sheet's Assets section is obtained from a work sheet's Account Title column and (A) Income Statement Debit column. (B) Income Statement Credit column. (C) Balance Sheet Debit column. (D) Balance Sheet Credit column.

(C) Balance Sheet Debit column.

3. Preparing financial statements at the end of each monthly fiscal period is an application of the accounting concept (A) Adequate Disclosure. (B) Going Concern. (C) Objective Evidence. (D) Accounting Period Cycle.

(D) Accounting Period Cycle.

6. When preparing a balance sheet, the amount of owner's capital is calculated using amounts obtained from (A) the general ledger. (B) the income statement. (C) the journal. (D) none of these.

(D) None of these.

4. Information needed to prepare an income statement's Expense section is obtained from a work sheet's Account Title column and (A) Income Statement Debit column. (B) Income Statement Credit column. (C) Balance Sheet Debit column. (D) Balance Sheet Credit column.

A) Income Statement Debit column.

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

False

12. The formula for calculating the total expenses ratio is total expenses divided by net income.

False

16. 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

2. The net income calculated for the income statement and the net income on the work sheet can be different because of adjusting entries.

False

3. An amount written in parentheses on a financial statement indicates an estimate.

False

6. When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.

False

8. If a business has a net loss for the period, expenses should be reported before revenues on the income statement.

False

1. For a service business, the revenue reported on an income statement is often compared to two items: total expenses and net income.

True

11. A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.

True

13. A financial ratio is a comparison between two components of financial information.

True

14. The calculation and interpretation of a financial ratio is called ratio analysis.

True

15. A balance sheet reports financial information for a specific date.

True

17. The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.

True

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

True

19. 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

20. Return on sales (ROS) is the ratio of net income to total sales.

True

4. The formula for calculating the net income ratio is net income divided by total sales.

True

5. The area of accounting that focuses on reporting information to internal users is called managerial accounting.

True

7. 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

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

True