Accounting 1: Chapter 7 Test A
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
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
The amount of net income calculated of an income statement is correct if
A. it is the same as the net income shown on the work sheet.
The formula for calculating the net income ratio is
A. net income divided by total sales
The date on a monthly income statement prepared on April 30 is written as
B. For Month Ended April 30, 20--
An income statement reports a business's financial
B. progress over a specific period of time.
Information needed to prepare a balance sheet's Assets section is obtained from a work sheet's Account Title column and
C. Balance Sheet Debit column
Preparing financial statements at the end of each monthly fiscal period is an application of the accounting concept
D. Accounting Period Cycle
When preparing a statement of owner's equity, the amount of current owner's capital is calculated using amounts obtained from
D. the work sheet
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 are of accounting focuses on reporting information to external users is called managerial accounting.
False
The current owner's capital amount reported on a statement of owner's equity is calculated as capital account balance less drawing account balance less net income.
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 work sheet 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 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 statement of owner's equity reports information for a period of time.
True
Vertical analysis is reporting an amount on a financial statement as a percentage of another item on the same financial statement.
True