chapter 1

Assets created by selling goods and services on credit are:

Accounts receivable.

If a company paid $38,000 of its accounts payable in cash, what was the effect on the accounting equation?

Assets would decrease $38,000, liabilities would decrease $38,000, and equity remains unchanged.

Decreases in equity from costs of providing products or services to customers are called:

Expenses.

Net Income:

Is the excess of revenues over expenses.

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

External users of accounting information include all of the following except:

Purchasing managers.

Distributions of cash or other resources by a business to its stockholders:

Reduce assets and equity.

If Houston Company billed a client for $10,000 of consulting work completed, the accounts receivable asset increases by $10,000 and:

Revenue increases $10,000.

If assets are $365,000 and equity is $120,000, then liabilities are:

$245,000.

Resources a company owns or controls that are expected to yield future benefits are:

Assets.

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Business entity assumption.

When expenses exceed revenues, the result is called

Net loss.

Revenues are:

The increase in equity from a company's sales of products and services.

A corporation is:

A business legally separate from its owners.

If equity is $300,000 and liabilities are $192,000, then assets equal:

492,000.

If a company receives $12,000 from a stockholder, the effect on the accounting equation would be:

Assets increase $12,000 and equity increases $12,000.

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Assets increase $4,500 and liabilities increase $4,500.

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the

Income statement.

Creditors' claims on the assets of a company are called:

Liabilities.

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Measurement (Cost) principle.

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

Measurement (Cost) principle.

if a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,300 and another asset decreases $1,300, causing no effect.

The rule that (1) requires revenue to be recognized when goods or services are provided to customers and (2) at the amount expected to be received from the customer is called the:

Revenue recognition principle.

The basic financial statements include all of the following except:

Statement of Changes in Assets.