Accounting Chapter 7

Information needed to prepare a balance sheet's Liabilities section is obtained from a work sheet's

Account Title column and Balance Sheet Credit column

Information needed to prepare a balance sheet's Assets section is obtained from a work sheet's

Account Title column and Balance Sheet Debit column

The date on a monthly balance sheet prepared on July 31 is written as

July 31, 20--

The ratio of net income to total sales.

Return on Sales (ROS)

Examples of external users

bankers, creditors, customers, government agencies, stockholders

Examples of internal users

company managers and officers

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

managerial accounting

The calculation and interpretation of a financial ratio.

ratio analysis

The amount of capital reported on a statement of owner's equity is calculated as

Capital Account Balance + Net Income - Drawing Account Balance

Information needed to prepare a statement of owner's equity is obtained from

a work sheet's Account Title column and balance sheet columns

A financial road map used by individuals and companies as a guide for spending and saving.

budget

The statement of owner's equity reports changes in the ___________________________________________.

capital account for a period of time.

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

deficit

Information needed to prepare a statement of owner's equity is obtained from the balance sheet.

false

Internal users of accounting information include company managers, officers, and creditors.

false

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

false

The net income on an income statement is verified by checking the balance sheet.

false

An income statement reports information on a specific date indicating the financial condition of a business.

false (for month ended)

On the balance sheet, the current capital amount is taken from the work sheet.

false (have to actually calculate)

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

false (no capital) 2 headings for revenue and expenses

Financial ratios on an income statement are calculated by dividing sales and total expenses by net income.

false (total expense/revenue)

The area of accounting that focuses on reporting information to external users.

financial accounting

A comparison between two components of financial information.

financial ratio

The date on a monthly statement of owner's equity prepared on May 31 is written as

for month ended May 31, 20--

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

pay yourself first

Any persons or groups who will be affected by an action.

stakeholders

A positive balance that remains after total expenses are subtracted from total income.

surplus

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

An amount written in parentheses on a financial statement indicates a negative amount.

true

Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct

true

Double lines ruled across both amount columns of an income statement indicate that the amount has been verified.

true

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

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 income statement's account balances are obtained from the work sheet's Income Statement columns.

true

The position of the total asset line on the balance sheet is determined after the Equities section is prepared.

true

When a business has a net loss, the current capital amount will be less than the capital account balance.

true

When a business has two different sources of revenue, both revenue accounts are listed on the income statement.

true

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

vertical analysis

Full Disclosure Principle

when financial statements contain all information necessary to understand a business' financial condition