Accounting Exam 1

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Which of the following statements is the correct definition of a liability?

A liability is a claim by a creditor against the assets of a business

- Notes receivable is considered a(n) _____

o Asset

- Equipment is a(n) _____ account. It is reported on the _____ side of the accounting equation and is _____ when equipment is purchased

o Asset o Left o Increased

- Prepaid accounts are _____ that represent payments of future expenses and are increased with a _____

o Assets o Debit

- Supplies are _____ until they are used. When they are used up, their costs are reported as _____

o Assets o Expenses

- Match the item on the left with the correct definition on the right

o Creditors - individuals or organizations that have rights to receive payments from a business o Liabilities - claims against the assets of a business o Assets - things of value owned by a business o Expenses - the costs of doing business

- Which of the following statements is (are) accurate regarding equipment purchased within a business?

o Equipment purchases are reported on the balance sheet o Equipment is an asset o Equipment cost is initially recorded as an asset and as it is used and gets worn down, the cost is gradually expensed o Equipment is reported on the left side of the accounting equation

- True or false: The cost of land owned by a business is recorded in the Land account and this account is classified as an expense

o FALSE

Select the statement below that best defines prepaid accounts

o Prepaid accounts are assets that represent prepayments of future expenses

Which of the following statements is accurate about the Land account?

o The Land account is an asset o The Land account is used to record the costs of land purchased by the business o The Land account is increased on the left side of its T-account

Which of the following statements are accurate regarding supplies?

o Unused supplies are treated as assets o Unused supplies can be recorded as Store Supplies, Office Supplies or Supplies o Supplies are assets until they are used o When supplies are purchased, they are added to the supplies account


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