Accounting Chapter 1

Accountants generally work in which of the following areas of accounting?

Public, Private, and Governmental

Which of the following assumes a business entity will remain in operation for the foreseeable​ future?

The Going-Concern Assumption

Limited liability means the most a stockholder can lose is the amount they originally paid for the stock

True

Retained Earnings is increased by revenues but decreased by dividends and expenses.

True

The Economic Entity Assumption draws boundaries around each entity to keep its affairs distinct from those of other entities and separate from its owners.

True

The FASB oversees the creation of accounting​ standards, GAAP are the accounting​ standards, and the SEC oversees the U.S. financial markets

True

The Monetary Unit Assumption states that items on the financial statements should be measured in a particular monetary unit.

True

The balance sheet reports the

financial position on a specific date

Corporate officers are appointed by the board of directors to manage a business and never run the business for their own benefit rather than the benefit of the company.

False

Financial accounting involves communicating accounting information to internal decision makers while managerial accounting involves providing information to external decision makers.

False

The Cost Principles states that acquired assets and services should be recorded at their market​ value, not their actual cost.

False

Generally Accepted Accounting Principles​ (GAAP) are currently formulated by the

Financial Accounting Standards Board (FASB)

When an owner contributes cash into a​ corporation, the​ corporation's assets increase while its equity decreases.

False

If a business has assets of $200,000 and equity of $125,000, then liabilities must equal...

$75,000

If a business has assets of $ 230,000 and equity of $ 150,000​, then liabilities must equal

$80,000

Which of the following statements describes a corporation?

-A corporation may enter into contracts -Ownership interest is divided into shares of stock -A corporation can buy, sell, own, and sell property

Disadvantages of the corporate form of a business include:

-Corporate taxation- corporations pay a variety of taxes not paid by a sole proprietorships or partnerships -Government regulation- corporations are subjected to more government regulation than other forms of business

Generally Accepted Accounting Principle (GAAP)

-Creates the acceptable accounting principle -Rests on a conceptual framework that identifies the objectives, characteristics, elements, and implementation of financial statements.

Investors use accounting information to...

-Predict the amount of income earned in an investment -Understand a company's financial statements to help decide which stock to invest in

Accounting is an information system that...

-Processes the information into reports -Measures business activities -Communicates the results to decision makers

When organizing a corporation...

-The incorporators agree to a set of bylaws that guide the corporations activities -The corporate charter from the state includes an suthorization to issue a certain number of shares to investors.

Assume Jefferson Cleaning Service had net income of $ 1,470 for the year. Jefferson Cleaning​ Service's beginning and ending total assets were $ 5,420 and $ 5,080​, respectively. Calculate Jefferson Cleaning​ Service's return on assets for the year.

28%

Which of the following transactions would increase assets and​ liabilities?

A purchase of office supplies on credit

An economic resource that is expected to benefit the business in the future is called​ a(n):

Asset

The accounting equation is typically shown in which of the following​ forms?

Assets​ = Liabilities​ + Equity

When Smart Touch Learning purchases land for cash

Cash decreases

Which of the following is​ true?

Contributed capital increases equity while expenses decreases equity

The payment of expenses with cash would

Decrease retained earnings

Distributions to stockholders are called

Dividends

The​ stockholders' claim to the assets of a business is called

Equity

Which of the following is a privately funded organization that oversees the creation and governance of accounting​ standards?

FASB

Which of the following requires accounting information to be​ complete, neutral, and free from material​ error?

Faithful representation concept

Which of the following would not be considered a business transaction that would affect the accounting​ equation?

Hiring an employee

Which of the following stands for the set of global financial standards that are used or required by more than 120​ nations?

IFRS

Assume that Global Cleaning Service performed cleaning services for a department store on account for​ $180. How would this transaction affect Global Cleaning​ Service's accounting​ equation?

Increase both assets and equity by​ $180

Which of the following statements is false regarding a​ corporation?

It is harder for corporations to raise capital compared to a sole proprietorship [What IS true is that corporations have continuous lives, the transfer of stock has no effect on the continuity of the corporation, and a stockholder cannot commit the corporation to a contract unless that stockholder is acting as an officer in the business]

Smart Touch Learning pays​ $300 cash on account for a previous purchase of office supplies. In this​ transaction,

None of the above [NOT equity assets or liabilities would increase]

Indicate the effects of the business transactions on the accounting equation for

Paid $ 325 cash for salaries expense. b. Decrease asset (Cash) ; Decrease equity (Salaries Expense) c. Received a $ 1 comma 000 contribution in exchange for common stock. c. Increase asset (Cash) ; Increase equity (Common Stock) d. Earned $ 640 for service​ revenue, but the customer has not paid Tiny Town Kennel yet. d. Increase asset (Accounts Receivable) ; Increase equity (Service Revenue) e. Received utility bill of $ 85​, which will be paid next month. e. Increase liability (Accounts Payable) ; Decrease equity (Utility Expense) f. Cash dividends of $ 100 were paid to stockholders. f. Decrease asset (Cash) ; Decrease equity (Dividends)

The objective to financial reporting is to

Provide information useful for making an investment and lending decisions.

Net income occurs when..

Revenues exceed expenses

Important equations

Revenues-Expenses=Net Income Assets=Liabilities+Equity

The​ Sarbanes-Oxley Act​ (SOX) requires companies to

Review its internal controls

Which of the following would be considered a​ liability?

Salaries Payable

Which of the following would be a question an external decision maker would ask regarding the financial information of a​ business?

Should we lend money to the business?

Which of the following characteristics best describes a​ corporation?

Stockholders not personally liable for entity's debts

A Certified Public Accountant​ (CPA) must meet certain​ educational/experience requirements and pass a qualifying exam before becoming licensed to serve the general public.

True

A corporation is a business entity formed under state law and the state grants a charter which is the document that gives the​ state's permission to form a corporation.

True

A payment of a cash dividend would decrease cash and decrease equity.

True

Accounting information must be relevant and have faithful representation for investors and lenders to make sound business decisions.

True

An audit is an examination of a​ company's financial statements and records.

True

Contributed Capital is the amount invested in a corporation by its owners and is also known as ​Paid-In Capital.

True

Which of the following statements is true comparing U.S. GAAP to​ IFRS?

U.S. GAAP leaves less room for professional judgment while IFRS leaves more room for professional judgment

Identify each account as​ Asset, Liability, or Equity.

a. Accounts Payable Liability b. Cash Asset c. Common Stock Equity d. Accounts Receivable Asset e. Rent Expense Equity f. Service Revenue Equity g. Office Supplies Asset h. Dividends Equity i. Land Asset j. Salaries Expense Equity

For each user of accounting​ information, identify if the user would use financial accounting or managerial accounting.

a. investor Financial Accounting b. banker Financial Accounting c. IRS Financial Accounting d. manager of the business Managerial Accounting e. controller Managerial Accounting f. stockholder Financial Accounting g. human resources director Managerial Accounting h. creditor Financial Accounting

The income statement reports:

revenues and expenses for a period of time