Accounting 1: Chapter 7 Test A

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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


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