Accounting 1 chapter 7

how to find ending capital for balance sheet

Assets -liabilities

Current capital equation

Beginning capital + net income-drawing beginning capital-net loss-drawing

Return on sales (ROS)

The ratio of net income to total sales

true

14. A financial ratio is a comparison between two components of financial information. (p. 195)

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.

false

15. Financial ratios on an income statement are calculated by dividing sales and total expenses by net income. (p. 195)

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.

true

16. When a business has two different sources of revenue, both revenue accounts are listed on the income statement. (p. 197)

true

17. An amount written in parentheses on a financial statement indicates a negative amount. (p. 197)

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. A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity. (p. 199)

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

19. The position of the total asset line on the balance sheet is determined after the Equities section is prepared. (p. 202)

(B) Balance Sheet columns

2. Information needed to prepare a statement of owner's equity is obtained from a work sheet's Account Title column and (A) Income Statement columns (B) Balance Sheet columns (C) Adjustment columns (D) none of the above. (p. 199)

false

2. Internal users of accounting information include company managers, officers, and creditors. (p. 190)

true

20. Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct. (p. 202)

true

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

false

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

(D) Accounting Period Cycle.

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.

(A) Capital Account Balance + Net Income - Drawing Account Balance

3. The amount of capital reported on a statement of owner's equity is calculated as (A) Capital Account Balance + Net Income - Drawing Account Balance (B) Capital Account Balance - Net Income - Drawing Account Balance (C) Capital Account Balance + Net Income + Drawing Account Balance (D) Capital Account Balance - Net Income + Drawing Account Balance. (p. 200)

true

3. The statement of owner's equity reports changes in the capital account for a period of time. (p. 190).

3 lined heading Assets Liabilities Owners equity

4 sections to a balance sheet

false

4. Information needed to prepare a statement of owner's equity is obtained from the balance sheet. (p. 190).

(A) Income Statement Debit column.

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.

(B) July 31, 20--

4. The date on a monthly balance sheet prepared on July 31 is written as (A) For Month Ended July 31, 20-- (B) July 31, 20-- (C) 20--, July 31 (D) none of the above. (p. 201)

true

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

3 lined heading Revenue Expenses Net loss/income Vertical analysis

5 sections to an income statement

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

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.

(C) Balance Sheet Debit column

5. 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. (p. 201)

true

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

true

5. When a business has a net loss, the current capital amount will be less than the capital account balance. (p. 192)

(D) Balance Sheet Credit column.

6. Information needed to prepare a balance sheet's Liabilities 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. (p. 201)

false

6. On the balance sheet, the current capital amount is taken from the work sheet. (p. 192)

false

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

(D) none of these.

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.

false

7. An income statement reports information on a specific date indicating the financial condition of a business. (p. 192)

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.

(A) net income divided by total sales

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.

false

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

(C) Balance Sheet Debit column

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.

Budget

A financial roadmap used by individuals and companies as a guide for spending and saving

Deficit

A negative balance that remains after total expenses are subtracted from total income

Surplus

A positive balance that remains after total expenses are subtracted for total income

Transaction Journalizing Posting Worksheet Financial statement

Accounting cycle

(A) For Month Ended May 31, 20--

Answers 1. The date on a monthly statement of owner's equity prepared on May 31 is written as (A) For Month Ended May 31, 20-- (B) May 31, 20-- (C) 20--, May 31 (D) none of the above. (p. 199)

Stakeholders

Any persons or groups who will be affected by an action

Financial strength

Having available assets and few liability

Income statement

Reports financial information over a specific period of time indicating the financial progress in earning a net income or net loss

Managerial accounting

The area of accounting that focuses on reporting information to internal users

Financial accounting

The area of accounting which focuses on reporting information to external users

Ratio analysis

The calculation and interpretation of a financial ratio

true

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

False

1. The Full Disclosure accounting concept is applied when a company always prepares financial statements at the end of each monthly fiscal period. (p. 190)

false

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

false

10. The income statement for a service business has five sections: heading, Revenue, Expenses, Net Income or Net Loss, and Capital. (p. 192)

true

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

true

11. The income statement's account balances are obtained from the work sheet's Income Statement columns. (p. 192)

true

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

false

12. The net income on an income statement is verified by checking the balance sheet. (p. 194)

true

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

true

13. Double lines ruled across both amount columns of an income statement indicate that the amount has been verified. (p. 194)

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

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.

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.

true

8. 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. (p. 192)

(A) Adequate Disclosure

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.

true

9. Information needed to prepare an income statement comes from the Account Title column and the Income Statement columns of a work sheet. (p. 192)

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.

Pay yourself first

A budgeting strategy of setting aside at least 10% of after tax income for saving and investing

Financial ratio

A comparison between two components of financial information

Balance sheet

Indicates the Financial information of the business financial condition refers to financial strength

Going concern

Is applied when financial statements are prepared with the expectation that a business will remain in operation indefinitely

Full disclosure

Is applied when financial statements contain all information necessary to understand the business's financial condition

Balance sheet is the

Picture of the accounting equation a=l+oe

Vertical analysis

Reporting an amount on a financial statement as a percentage of another item on the same financial statement