CFE: Accounting concepts questions.

According to the going concern disclosure requirements. If there is substantial doubt about a company's ability to fulfill its financial obligations over a reasonable period of time, it must be disclosed in the company's financial statements. T F

True. A company's management is required to provide disclosures when existing events or conditions indicate that it is more likely than not that the entity might be unable to meet its obligations within a reasonable period of time after the financial statements are issued. There is an assumption that an entity will continue as a going concern; that is, the life of the entity will be long enough to fulfill its financial and legal obligations. Any evidence to the contrary must be reported in the entity's financial statements. See pages 1.118 in the Fraud Examiner's Manual

Which of the following is the correct accounting model? A. Assets = Liabilities + Owners' Equity B. Assets + Liabilities = Owners' Equity C. Assets = Liabilities - Owners' Equity D. None of the above

A. Accounting is based on the following model or accounting equation: Assets = Liabilities + Owners' Equity. See pages 1.101 in the Fraud Examiner's Manual

Generally speaking, under U.S. GAAP, _________________ is the proper basis for recording a piece of equipment on a company's books. A. Historical cost B. Estimated replacement value C. Appraised value D. Current market value

A. Although some exceptions exist, under U.S. GAAP, historical cost is generally the proper basis for the recording of assets, expenses, equities, etc. For example, a piece of operational machinery should be shown on the balance sheet at initial acquisition cost (historical cost) and not at current market value, appraised value, or an estimated replacement value. See pages 1.116 in the Fraud Examiner's Manual

In double-entry accounting, every transaction in the accounting records will have both a debit and a credit side, and these sides will always be equal. A. True B. False

A. Entries to the left side of an account are debits, and entries to the right side of an account are credits. Debits increase asset and expense accounts, while credits decrease them. Conversely, credits increase liability, owners' equity, and revenue accounts; debits decrease them. Every transaction recorded in the accounting records will have both a debit and a credit, thus the term double-entry accounting. The debit side of an entry will always equal the credit side so that the accounting equation remains in balance. See pages 1.102 in the Fraud Examiner's Manual

Revenue should not be recognized for work that is to be performed in subsequent accounting periods, even though the work might currently be under contract. A. True B. False

A. In general, revenue is recognized or recorded when it becomes realized or realizable, and earned. According to the revenue recognition principle, revenue should not be recognized for work that is to be performed in subsequent accounting periods, even though the work might currently be under contract. In general, revenue should be recognized in the period in which the work is performed. See pages 1.117 in the Fraud Examiner's Manual

At the end of each fiscal year, the accounts reflected on the income statement are reduced to a zero balance. A. True B. False

A. The accounts reflected on the income statement are temporary; at the end of each fiscal year, they are reduced to a zero balance (closed), with the resulting net income (or loss) added to (or subtracted from) retained earnings on the balance sheet. See pages 1.108 in the Fraud Examiner's Manual

Assets, liabilities, and owners' equity are all items that appear on a company's balance sheet. A. True B. False

A. The balance sheet, or statement of financial position, shows a "snapshot" of a company's financial situation at a specific point in time, generally the last day of the accounting period. The balance sheet is an expansion of the accounting equation, Assets = Liabilities + Owners' Equity. That is, it lists a company's assets on one side and its liabilities and owners' equity on the other side. See pages 1.106 in the Fraud Examiner's Manual

David runs a local catering company. He keeps his books on a calendar year and uses the accrual basis of accounting. In December of Year 1, a customer placed an order with him to cater the food for a party that would take place in February of Year 2. The contract was signed and the balance was paid in full when the order was placed in December. When should David report the revenue from this party and the associated expenses of catering it? A. Both the revenue and expenses should be recorded in February. B. Both the revenue and expenses should be recorded in December. C. It doesn't matter; it is up to David to decide whether he reports the revenue and expenses in December or February. D. The revenue should be recorded in December when David received the cash, and the expenses should be recorded in February after the party takes place.

A. The matching principle requires that expenses be recorded in the same accounting period as the revenues they help generate. Estimates, accruals, and allocations are often needed to meet this requirement. When a sale is recorded, the appropriate charges for cost of goods sold, or other expenses directly corresponding to the sale, should be recorded in the same accounting period. In this example, since the expenses will not be incurred until David caters the event in February, the revenue David received should not be recorded until February as well. See pages 1.117 in the Fraud Examiner's Manual

As a sale is made, the appropriate charges for cost of goods sold or other expenses directly corresponding to the sale should be recorded in the same accounting period. A. True B. False

A. The matching principle requires that expenses be recorded in the same accounting period as the revenues they help generate. Estimates, accruals, and allocations are often required to meet this requirement. As a sale is made, the appropriate charges for cost of goods sold, or other expenses directly corresponding to the sale, should be recorded in the same accounting period. See pages 1.117 in the Fraud Examiner's Manual

Which of the following is an acceptable justification for a departure from generally accepted accounting principles (GAAP)? A. The literal application of GAAP would render the financial statements misleading B. Departing from GAAP would make the company appear more profitable C. Adhering to GAAP is significantly more expensive than using an alternative method D. None of the above

A. The question of when it is appropriate to stray from generally accepted accounting principles (GAAP) is a matter of professional judgment; there is no clear-cut set of circumstances that justify such a departure. However, the fact that complying with GAAP would be more expensive or would make the financial statements look weaker is not a reason to use a non-GAAP method of accounting for a transaction. It can be assumed that adherence to GAAP almost always results in financial statements that are fairly presented. However, the standard-setting bodies recognize that, upon occasion, there might be an unusual circumstance when the literal application of GAAP would render the financial statements misleading. In these cases, a departure from GAAP is the proper accounting treatment. Departures from GAAP can be justified in the following circumstances: • It is common practice in the entity's industry for a transaction to be reported a particular way. • The substance of the transaction is better reflected (and, therefore, the financial statements are more fairly presented) by not strictly following GAAP. • If a transaction is considered immaterial (i.e., it would not affect a decision made by a prudent reader of the financial statements), then it need not be reported. • There is concern that assets or income would be overstated (the conservatism constraint requires that when there is any doubt, one should avoid overstating assets and income). • The results of departure appear reasonable under the circumstances, especially when strict adherence to GAAP will produce unreasonable results and the departure is properly disclosed. See pages 1.126-1.127 in the Fraud Examiner's Manual

Which of the following statements is NOT true regarding the statement of cash flows? A. The statement of cash flows shows a company's financial position at a specific point in time. B. The statement of cash flows is often used in tandem with the income statement to determine a company's true financial performance. C. The statement of cash flows reports a company's sources and uses of cash during the accounting period. D. There are three types of cash flows: cash flows from operating activities, from investing activities, and from financing activities.

A. The statement of cash flows reports a company's sources and uses of cash during the accounting period. This statement is often used by potential investors and other interested parties in tandem with the income statement to determine a company's true financial performance during the period being reported. The statement of cash flows is broken down into three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. The balance sheet shows a company's financial position at a specific point in time. See pages 1.112-1.113 in the Fraud Examiner's Manual

Which of the following statements is TRUE with regard to gross margin? A. Gross margin is equal to net sales less cost of goods sold. B. Gross margin is another term for net income. C. Gross margin is equal to revenues less operating expenses. D. Gross margin is the top line of the income statement.

A. Two basic types of accounts are reported on the income statement—revenues and expenses. Revenues represent amounts received from the sale of goods or services during the accounting period. Most companies present net sales as the first line item on the income statement. The term net means that the amount shown is the company's total sales minus any sales refunds, returns, discounts, or allowances. From net sales, an expense titled cost of goods sold or cost of sales is deducted. Regardless of the industry, this expense denotes the amount a company spent (in past, present, and/or future accounting periods) to produce the goods or services that were sold during the current period. The difference between net sales and cost of goods sold is called gross margin, or gross profit, which represents the amount left over from sales to pay the company's operating expenses. See pages 1.109 in the Fraud Examiner's Manual

The ____________ details how much profit (or loss) a company earned over a particular period of time. A. Income statement B. Statement of cash flows C. Balance sheet D. Statement of changes in owners' equity

A. Whereas the balance sheet shows a company's financial position at a specific point in time, the income statement, or statement of profit or loss and other comprehensive income, details how much profit (or loss) a company earned during a period of time, such as a quarter or a year. The statement of changes in owners' equity details the changes in the total owners' equity amount listed on the balance sheet. The statement of cash flows reports a company's sources and uses of cash during a particular period of time. See pages 1.108, 1.111-1.112 in the Fraud Examiner's Manual

Debits increase asset and liability accounts. A. True B. False

B Entries to the left side of an account are referred to as debits, and entries to the right side of an account are referred to as credits. Debits increase asset and expense accounts, whereas credits decrease these accounts. On the other side of the equation, credits increase liabilities, revenue, and owners' equity accounts. Conversely, debits decrease liabilities, revenues, and owners' equity. While debits do in fact increase assets, they reduce liabilities.

The statement of cash fows indudes the following categories: cash flows from strategic activities, cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. A True B. False

B. The statement of cash flows reports a company's sources and uses of cash during the accounting period. This statement is often used by potential investors and other interested parties in tandem With the income statement to determine a company's true financial performance during the period being reported. The statement of cash flows is broken down into three sections: • cash nows from operating acUvities • Cash flows from investing actMties • Cash nows from financing activities

Entries to the left side of an account are referred to as credits, while entries to the right side of an account are debits. A. True B. False

B. Entries to the left side of an account are referred to as debits, and entries to the right side of an account are referred to as credits. Asset and expense accounts are increased with debits and decreased with credits, while liabilities, owners' equity, and revenue accounts are increased with credits and decreased with debits. See pages 1.102 in the Fraud Examiner's Manual

When looking at a set of financial statements, on which statement would you find notes payable, current assets, retained earnings, and accumulated depreciation? A. Income statement B. Balance sheet C. Statement of changes in owners' equity D. Statement of cash flows

B. Notes payable, current assets, retained earnings, and accumulated depreciation can all be found on the balance sheet. The balance sheet is an expansion of the accounting equation, Assets = Liabilities + Owners' Equity. That is, it lists a company's assets on one side and its liabilities and owners' equity on the other side. Assets are classified as either current or noncurrent. Current assets consist of cash or other liquid assets that are expected to be converted to cash, sold, or used up, usually within a year or less. Current assets listed on the balance sheet include cash, accounts receivable, inventory, supplies, and prepaid expenses. Following the current assets are the long-term assets, or those assets that will likely not be converted to cash in the near future, such as fixed assets and intangible assets. A company's fixed assets are presented net of accumulated depreciation, an amount that represents the cumulative expense taken for wear-and-tear on a company's property. Liabilities are presented in order of maturity. Like current assets, current liabilities are those obligations that are expected to be paid within one year, such as accounts payable (the amount owed to vendors by a company for purchases on credit), accrued expenses (e.g., taxes payable or salaries payable), and the portion of long-term debts that will come due within the next year. Those liabilities that are not due for more than a year are listed under the heading long-term liabilities. The most common liabilities in this group are bonds, notes, and mortgages payable. See pages 1.106-1.108 in the Fraud Examiner's Manual

If compliance with generally accepted accounting principles (GAAP) would be significantly more expensive than a different method that isn't GAAP, use of an alternative method is permitted. A. True B. False

B. The question of when it is appropriate to stray from generally accepted accounting principles (GAAP) is a matter of professional judgment; there is no clear-cut set of circumstances that justify such a departure. However, the fact that complying with GAAP would be more expensive or would make the financial statements look weaker is not a reason to use a non-GAAP method of accounting for a transaction. See pages 1.126-1.127 in the Fraud Examiner's Manual

Which of the following statements is TRUE with regard to the statement of cash flows? A. There are four types of cash flows: cash flows from operating activities, from investing activities, from financing activities, and from revenue activities. B. The statement of cash flows shows a company's financial position at a specific point in time. C. Tne statement or cash flows shows a company's financial position at a specific point in lime. D. The statement of cash flows is not always necessary because most companies operate under cash-basis accounting rather than accrual accounting.

B. The statement of cash flows reports a company's sources and uses of cash during the accounting period. This statement is often used by potential investors and other interested parties in tandem with the income statement to determine a company's true financial performance during the period being reported. The nature of accrual accounting allows (and often requires) the income statement to contain many noncash items and subjective estimates that make it difficult to fully and clearly interpret a company's operating results. However, it is much harder to falsify the amount of cash that was received and paid during the year, so the statement of cash flows enhances the financial statements' transparency. The balance sheet shows a company's financial position at a specific point in time. See pages 1.112-1.113 in the Fraud Examiner's Manual

Which of the following statements is NOT true regarding the statement of changes in owners' equity? A. It serves a similar purpose to the statement of retained earnings. B. It lists the major company shareholders and the change in their ownership equity over the fiscal year. C. It shows how amounts on the income statement flow through to the balance sheet. D. It acts as the connecting link between the balance sheet and the income statement.

B. The statement of changes in owners' equity details the changes in the total owners' equity amount listed on the balance sheet. Because it shows how the amounts on the income statement flow through to the balance sheet, it acts as the connecting link between the two statements. The balance of the owners' equity at the beginning of the year is the starting point for the statement. The transactions that affect owners' equity are listed next and are added together. The result is added to (or subtracted from, if negative) the beginning-of-the-year balance, which provides the end-of-the-year balance for total owners' equity. The statement of changes in owners' equity is a summary overview of the effects of owner investment and company net income on the owners' equity balance. It does not name any shareholders or their individual ownership stake in the company. Some companies present a statement of retained earnings rather than a statement of changes in owners' equity. Similar to the statement of changes in owners' equity, the statement of retained earnings starts with the retained earnings balance at the beginning of the year. See pages 1.111 in the Fraud Examiner's Manual

Chapman Inc. has always used the last-in, first-out (LIFO) inventory valuation method when calculating its cost of goods sold. This is also the standard inventory valuation method for other comparable entities in Chapman's industry. Chapman's controller wants to the weighted average cost method because it will make Chapman's net income appear much larger than LIFO valuation will. After several years of poor performance, management would love to boost the company's appearance to potential investors. However, Chapman must continue to use the LIFO inventory valuation method. This is reflected in which of the qualitative characteristics of financial reporting? A. Going concern B. Comparability c. Valuation D. Relevance

B. Users of financial statements base their decisions on comparisons between different entities and I on similar information from a single entity ror another reporting period. comparability of the qualitative characteristics that enables users to identify and understand similarities and differences between such items. Consistency, although related to comparability, Is not the same. Consistency refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities. comparability is the goal; consistency helps to achieve that goal.

Which of the following is the best description of what is shown on a company's income statement? A. The company's sources and uses of cash during a particular period of time B. The changes in the total owners' equity amount listed on the balance sheet C. How much profit (or loss) the company earned over a particular period of time D. The company's financial position at a specific point in time

C. Whereas the balance sheet shows a company's financial position at a specific point in time, the income statement, or statement of profit or loss and other comprehensive income, details how much profit (or loss) a company earned during a period of time, such as a quarter or a year. The statement of changes in owners' equity details the changes in the total owners' equity amount listed on the balance sheet. The statement of cash flows reports a company's sources and uses of cash during a particular period of time. See pages 1.108, 1.111-1.112 in the Fraud Examiner's Manual

Which of the following statements is TRUE regarding the balance sheet? A. The balance sheet shows the financial performance of a company over a certain period oi time, such as a quarter or a year. B. Balance sheets are usually manipulated by understating assets or overstating liabilities. C. Assets are generally presented on the balance sheet in order of liquidity. D. The accounts that appear on the balance sheet include revenues and expenses.

C: The balance sheet, or statement of financial position, shows a snapshor of a company's financial situation at a specific point in time, generally the last day of the accounting period. The balance sheet is an expansion of the accounting equation, Assets = Liabilities + owners' Equity. That is, it lists a company's assets on one side and its liabilities and owners' equity on the other side. Assets are the resources owned by a company. Generally, assets are presented on the balance sheet in order of liquidity i.e., how soon they are expected to be converted to cash). Generally, in a financial statement fraud scheme, the balance sheet is manipulated to appear stronger by overstating assets and/or understating liabilities.

Julia runs a printing company and has an antique printing press that she uses in her business. She purchased the press ten years ago for $5,000. Similar presses are selling on the market today for about $8,000. Julia mentioned she's thinking about retiring and her friend offered to give Julia $9,000 for the press. According to U.S. GAAP, how much should the printing press be listed for on Julia's books? A. $8,000 B. $9,000 C. $3,000 D. $5,000

D. Although some exceptions exist, under U.S. GAAP, historical cost is generally the proper basis for the recording of assets, expenses, equities, etc. For example, a piece of operational machinery should be shown on the balance sheet at initial acquisition cost (historical cost) and not at current market value or an estimated replacement value. Some companies might try to fraudulently inflate their assets by marking them up to market value. While some might argue market value offers a more fair presentation, historical cost remains the generally accepted accounting principle. In this example, Julia should list the printing press on her balance sheet for the amount she originally purchased it for—$5,000. See pages 1.116 in the Fraud Examiner's Manual

Which of the following types of accounts are increased by credits? A. Owners' equity B. Liability C. Revenue D. All of the above

D. Entries to the left side of an account are referred to as debits, and entries to the right side of an account are referred to as credits. Debits increase asset and expense accounts, whereas credits decrease these accounts. On the other side of the equation, credits increase liabilities, revenue, and owners' equity accounts. Conversely, debits decrease liabilities, revenues, and owners' equity. See pages 1.102 in the Fraud Examiner's Manual

Which of the following could be used to balance the accounting equation if cash were stolen? A. Reducing a liability B. Reducing revenue C. Increasing another asset D. All of the above

D. The accounting equation, Assets = Liabilities + Owners' Equity, is the basis for all double-entry accounting. If an asset (e.g., cash) is stolen, the equation can be balanced by increasing another asset, reducing a liability, reducing an owners' equity account, reducing revenues (and thus retained earnings), or creating an expense (and thus reducing retained earnings). See pages 1.101-1.102 in the Fraud Examiner's Manual

If a fraudster wanted to conceal the removal of a liability from the books, which of the following actions would NOT balance the accounting equation? A. Increasing a different liability B. Increasing owners' equity C. Increasing revenue D. Increasing an asset

D. The accounting equation, Assets = Liabilities + Owners' Equity, is the basis for all double-entry accounting. Suppose that in order to make an organization appear that it has less debt, an accountant fraudulently removes a liability. This would leave the accounting equation unbalanced since the assets side would be greater than liabilities plus owners' equity. In this particular case, the equation can be balanced by decreasing an asset, increasing a different liability, increasing an owners' equity account, increasing revenues (and thus retained earnings), or reducing an expense (and thus increasing retained earnings). Increasing an asset would only make the equation further out of balance. See pages 1.101-1.102 in the Fraud Examiner's Manual

Which of the following appears on the balance sheet? A. Expenses B. Revenues C. Cost of goods sold D. Current assets

D. The balance sheet, or statement of financial position, is an expansion of the accounting equation, Assets = Liabilities + Owners' Equity. That is, it lists a company's assets on one side and its liabilities and owners' equity on the other side. Assets are classified as either current or noncurrent. Current assets consist of cash or other liquid assets that are expected to be converted to cash, sold, or used up, usually within a year or less. Current assets listed on the balance sheet include cash, accounts receivable, inventory, supplies, and prepaid expenses. Revenues, expenses, and cost of goods sold are all items that appear on a company's income statement. See pages 1.106-1.107, 1.109 in the Fraud Examiner's Manual

Which U.S. GAAP principle requires corresponding expenses and revenue to be recorded in the same accounting period? A. Full disclosure B. Conservatism C. Consistency D. Matching

D. The matching principle requires that expenses be recorded in the same accounting period as the revenues they help generate. Estimates, accruals, and allocations are often needed to meet this requirement. When a sale is recorded, the appropriate charges for cost of goods sold, or other expenses directly corresponding to the sale, should be recorded in the same accounting period. See pages 1.117 in the Fraud Examiner's Manual

It is considered acceptable practice to deviate from generally accepted accounting principles (GAAP) in which of the following circumstances? A. There is concern that assets or income would be overstated B. It is common practice in the industry to give particular transactions a specific accounting treatment C. Adherence to GAAP would produce misleading results D. All of the above

D. The question of when it is appropriate to stray from generally accepted accounting principles (GAAP) is a matter of professional judgment; there is no clear-cut set of circumstances that justify such a departure. It can be assumed that adherence to GAAP almost always results in financial statements that are fairly presented. However, the standard-setting bodies recognize that, upon occasion, there might be an unusual circumstance when the literal application of GAAP would render the financial statements misleading. In these cases, a departure from GAAP is the proper accounting treatment. Departures from GAAP can be justified in the following circumstances: • It is common practice in the entity's industry for a transaction to be reported a particular way. • The substance of the transaction is better reflected (and, therefore, the financial statements are more fairly presented) by not strictly following GAAP. • If a transaction is considered immaterial (i.e., it would not affect a decision made by a prudent reader of the financial statements), then it need not be reported. • There is concern that assets or income would be overstated (the conservatism constraint requires that when there is any doubt, one should avoid overstating assets and income). • The results of departure appear reasonable under the circumstances, especially when strict adherence to GAAP will produce unreasonable results and the departure is properly disclosed. See pages 1.126-1.127 in the Fraud Examiner's Manual

Which of the following types of accounts are decreased by debits? A. Revenue B. liabilities c. Owners' equity D. All of the above

Entries to the left side of an account are referred to as debits, and entries to the right side of an account are referred to as credits. Debits increase asset and expense accounts, whereas credits decrease these accounts. On the other side of the equation, credits increase liabilities, revenue, and owners' equity accounts. Conversely, debits decrease liabilities, revenues, and owners' equity.

The qualitative financial reporting characteristic of comparability prohibits any change in an accounting principle previously employed. A True B. False

b Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items. Information about a company is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date. Although a single economic occurrence can be faithfully represented in multiple ways, permitting alternative accounting methods for the same economic occurrence diminishes comparability. Consistency, although related to comparability, is not the same. Consistency refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities. Comparability is the goal; consistency helps to achieve that goal.

Delta, a Certified Fraud Examiner, was hired to serve as an expert accounting witness, in a case of alleged financial statement fraud. As part of her expert testimony, Delta explained how, under International Financial Reporting Standards management must make every effort to ensure that the company's financial statements are complete, neutral, and free from error. Delta was explaining the concept of: A Going concern B . Faithful representation C. Comparability D . None of the above

B. Financial information must faithfully represent tile economic data of the enterprise that it purports to represent. Every effort shall be made to maximize the qualities of perfectly faithful representation: complete, neutral and free from error. A complete depiction includes all information necessary to understand the data presented. A neutral depiction is Without bias in the selection or presentation of financial information. Free from error means there are no material errors or omissions in the financial reporting data, and the process used to produce the reported information has been selected and applied with no errors.

The assumption that a business will continue indefinitely is reflected in the accounting concept of: A. Cost B. Objective evidence C. Going concern D. Materiality

C. A company's management is required to provide disclosures when existing events or conditions indicate that it is more likely than not that the entity might be unable to meet its obligations within a reasonable period of time after the financial statements are issued. There is an assumption that an entity will continue as a going concern; that is, the life of the entity will be long enough to fulfill its financial and legal obligations. Any evidence to the contrary must be reported in the entity's financial statements. See pages 1.118 in the Fraud Examiner's Manual

If a fraudster wanted to conceal the misappropriation of cash, which of the following actions would NOT result in a balanced accounting equation? A. Decreasing a liability B. Creating an expense C. Decreasing another asset D. Reducing owners' equity

C. The accounting equation, Assets = Liabilities + Owners' Equity, is the basis for all double-entry accounting. If an asset (e.g., cash) is stolen, the equation can be balanced by increasing another asset, reducing a liability, reducing an owners' equity account, reducing revenues (and thus retained earnings), or creating an expense (and thus reducing retained earnings). See pages 1.101-1.102 in the Fraud Examiner's Manual

The statement of changes in owners' equity acts as the connecting link between which two financial statements? A. Income statement and statement of cash flows B. Statement of cash flows and balance sheet C. Income statement and balance sheet D. Balance sheet and statement of retained earnings

C. The statement of changes in owners' equity details the changes in the total owners' equity amount listed on the balance sheet. Because it shows how the amounts on the income statement flow through to the balance sheet, it acts as the connecting link between the two statements. The balance of the owners' equity at the beginning of the year is the starting point for the statement. The transactions that affect owners' equity are listed next and are added together. The result is added to (or subtracted from, if negative) the beginning-of-the-year balance, which provides the end-of-the-year balance for total owners' equity. See pages 1.111 in the Fraud Examiner's Manual

Credits decrease asset and expense accounts. A. True B. False

a Entries :to the left side of an account are referred to as debits, and entries to the right side of an account are referred to as credits. Debits increase asset and expense accounts, whereas credits decrease these accounts. On the other side of the equation, credits increase liability, revenue, and owners' equity accounts. Conversely, debtts decrease liabilities, revenues. and owners' equity.