Ch. 7 Review

a. total expenses divided by total sales equals total expenses component percentage

The formula for calculating the total expenses component percentage is ____.

True

The net income calculated for the income statement and the net income on the work sheet must be the same.

True

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.

c. a component percentage

The percentage relationship between one financial statement item and the total that includes that item is ____.

True

The position of the total asset line is determined after the equities section is prepared.

b. heading, revenue, expenses, and net income or net loss

The sections of an income statement are ____.

True

The work sheet is used to assist in preparing the revenue, expenses, and net income sections of an income statement.

False

Component percentages on an income statement are calculated by dividing sales and total expenses by net income.

True

For a service business, the revenue reported on an income statement includes components for total expenses and net income.

True

Information needed to prepare the liabilities section of a balance sheet is obtained from the work sheet's Account Title column and the Balance Sheet Credit column.

c. the work sheet's Balance Sheet Credit column

When preparing a balance sheet, the amount of owner's capital is obtained from ____.

c. Balance Sheet Debit column

Information needed to prepare a balance sheet assets section is obtained from a work sheet's Account Title column and ____.

d. Balance Sheet Credit column

Information needed to prepare a balance sheet liabilities section is obtained from a work sheet's Account Title column and ____.

False

Information needed to prepare an income statement comes from the Trial Balance columns and the Income Statement columns of a work sheet.

a. Income Statement Debit column

Information needed to prepare an income statement's expense section is obtained from a work sheet's Account Title column and ____.

b. Income Statement Credit column

Information needed to prepare an income statement's revenue section is obtained from a work sheet's Account Title column and ____.

False

Information needed to prepare the assets section of the balance sheet is obtained from the work sheet's Account Title column and the Balance Sheet Credit column.

True

Reporting in the same fiscal period the revenue earned and the expenses incurred to earn that revenue is an application of the accounting concept Matching Expenses with Revenue.

False

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

False

The owner's capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance less net income.

False

On a balance sheet, double lines are ruled across both amount columns to indicate that debits equal credits.

False

On an income statement, double lines are ruled across both amount columns to indicate that debits equal credits.

c. condition on a specific date

A balance sheet reports a business's financial ____.

True

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

False

A balance sheet reports financial information over a specific period of time.

True

A balance sheet reports information about the elements of the accounting equation.

True

A component percentage is the percentage relationship between one financial statement item and the total that includes that item.

False

All companies should have a total expenses component percentage that is not more than 80.0 percent.

False

All financial statements have four-line headings.

True

Amounts from a work sheet's Income Statement Debit column are used in preparing the expense section of an income statement.

False

Amounts from a work sheet's Trial Balance columns are used in preparing the revenue section of an income statement.

False

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

b. progress over a specific period of time

An income statement reports a business's financial ____.

True

An income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss.

a. Adequate Disclosure

Assuring that financial statements contain all information necessary to understand a business's financial condition is an application of the accounting concept ____.

True

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

True

Only revenue accounts and expense accounts are used in preparing the income statement.

d. Accounting Period Cycle

Preparing financial statements at the end of each monthly fiscal period is an application of the accounting concept ____.

True

Single lines ruled across an amount column of an income statement indicate that amounts are to be added.

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.

a. it is the same as net income shown on the work sheet

The amount of net income calculated on an income statement is correct if ____.

False

The current capital to be reported on a balance sheet is calculated as: the capital account balance plus net income equals current capital.

a. For Month Ended July 31, 20--

The date on a monthly income statement prepared on July 31 is written as ____.

True

The financial condition of a business refers to its financial strength.

True

The formula for calculating net income is total revenue minus total expenses equals net income.

a. net income divided by total sales equals net income component percentage

The formula for calculating the net income component percentage is ____.

True

The formula for calculating the total expenses component percentage is: total expenses divided by total sales equals total expenses component percentage.

False

The income statement for a service business has five sections: heading, revenue, expenses, net income or loss, and capital.

False

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