Accounting Chapter 1-True/False

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A transaction for the sale of goods or services results in a decrease in owner's equity

F

If two amounts are recorded on the same side of the accounting equation, the equation will no longer be in balance.

F

Recording business costs in terms of hours required to complete projects is an application of the unit of measurement concept.

F

The accounting equation does not have to be in balance to be correct.

F

The accounting equation is most often stated as: Assets + Liabilities = Owner's Equity.

F

The capital account is the owner's liability account.

F

The sum of the assets and liabilities of a business always equal the investment of the business owner.

F

Total assets are the amount the owner has invested in the business.

F

When a company pays insurance premiums in advance to an insurer, it records the payment as a liability because the insurer owes future coverage.

F

When a company receives cash from a customer for a prior sale, the transaction increases the cash account balance and increases the accounts receivable balance.

F

When cash is paid for expenses, the business has more equity.

F

When cash is paid on account, a liability is increased.

F

A sale for which cash will be received at a later date is called a charge sale.

T

A withdrawal decreases owner's equity.

T

Accounting is the language of business.

T

After each transaction, the accounting equation must remain in balance.

T

An expense is a decrease in owner's equity resulting from the operation of a business.

T

Assets such as cash and supplies have value because they can be used to acquire other assets or be used to operate a business.

T

Detailed information about changes in owner's equity is needed by owners and managers to make sound business decisions.

T

Keeping personal and business records separate is an application of the business entity concept.

T

The accounting concept Realization of Revenue is applied when revenue is recorded at the time goods or services are sold.

T

The capital account is an owner's equity account.

T

The relationship among assets, liabilities, and owner's equity can be written as an equation.

T

When an owner withdraws cash from the business, the transaction affects both assets and owner's equity.

T

When cash is received from a sale, the total amount of both assets and owner's equity is increased.

T

When financial records for a business and for its owner's personal belongings are not mixed, this is an application of the Business Entity accounting concepts.

T

When items are bought and paid for later this is referred to as buying on account.

T

When two assets accounts are changed in a transaction, there must be an increase and a decrease.

T

Withdrawals are assets taken out of a business for the owner's personal use.

T


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