Chapter 1 Objective Questions
A decrease in owner's equity because of a withdrawal is a result of the normal operations of a business.
False
A revenue transaction decreases the sum of the balances on the left side of an accounting equation.
False
A withdrawal is an expense.
False
Anything of value that is owned is a liability.
False
Asset accounts are listed on the right side of the accounting equation.
False
If two amounts are recorded on the same side of the accounting equation, the equation will no longer be in balance.
False
Revenue from a sale on account should be recorded when the payment is received.
False
Revenue is decrease in owner's equity resulting from the operation of a business.
False
The accounting equation does not have to be in balance to be correct.
False
The accounting equation is most often stated as: Assets + Liabilities = Owner's Equity.
False
The capital account is a liability account.
False
The capital account is the owner's liability.
False
The sum of the assets and liabilities of a business always equals the investment of the business owner.
False
When a business pays cash for insurance, a liability is increased.
False
When a company pays insurance premiums in advance to and insurer, it records the payment as a liability because the insurer owes future coverage.
False
When an account on one side of the accounting equation is increased, there must also be an increase on the other side to keep the equation in balance.
False
When an owner invests cash in a business, owner's equity decreases.
False
When cash is paid for expenses, the business has less cash; therefore, the asset account Cash is decreased and the owner's equity account is increased.
False
When cash is paid for supplies, assets increase and liabilities decrease.
False
When cash is paid on account, a liability is increased.
False
A business has two types of equities.
True
A business that performs and activity for a fee is a service business.
True
A proprietorship is also known as a sole proprietorship.
True
A record summarizing all the information pertaining to a single item in the accounting equation is an account
True
A transaction for the sale of goods or services results in an increase in owner's equity.
True
A transaction is a normal business activity that changes assets, liabilities, or owner's equity
True
A transaction that increases accounts receivable and increases owner's equity is a sale on account.
True
Accounting is the language of business.
True
After each transaction, the accounting equation must remain in balance.
True
Asset accounts are listed on the left side of the accounting equation.
True
Assets have value because they can be used to acquire other assets or to operate the business.
True
Assets such as cash and supplies have value because they can be used to acquire other assets or to operate a business.
True
In the United States, business transactions are recorded in U.S. dollars.
True
Individuals or other businesses to which a business owes money have rights to the business's assets.
True
Keeping personal and business records separate is an application of the business entity concept.
True
Regardless of when payment is made when services are sold, the revenue should be recorded at the time of the sale.
True
The accounting equation must be in balance to be correct.
True
The amount in an account is an account balance.
True
The capital account is an owner's equity account.
True
The relationship among assets, liabilities, and owner's equity can be written as an equation.
True
When company makes a sale of $300.00, assets and owner's equity increase by $300.00.
True
When financial records for a business and for its owner's personal belongings are not mixed, this is an application of the Business Entity accounting concept.
True
When items are bought and paid for at a future date, another way to state this is to say these items are bought on account.
True
When two asset accounts are changed in a transaction, there must be an increase and a decrease.
True
Withdrawals are assets taken out of a business for the owner's personal use.
True