Chapter 1

Accounting is an information and measurement system that does all of the following except: Selected Answer: Identifies business activities. Records business activities. Communicates business activities. Eliminates the need for interpreting financial data. Helps people make better decisions.

The primary objective of financial accounting is to: Selected Answer: Serve the decision-making needs of internal users. Provide accounting information that serves external users. Monitor and control company activities. Provide information on both the costs and benefits of looking after products and services. Know what, when, and how much product to produce.

The area of accounting aimed at serving the decision making needs of internal users is: Selected Answer: Financial accounting. Managerial accounting. External auditing. SEC reporting. Bookkeeping.

External users of accounting information include all of the following except: Shareholders. Customers. Purchasing managers. Government regulators. Creditors.

Ethical behavior requires that: Auditors' pay not depend on the success of the client's business. Auditors invest in businesses they audit. Analysts report information favorable to their companies. Managers use accounting information to benefit themselves. Auditors' pay depends on the success of the client's business.

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the: APB. FASB. AAA. AICPA. SEC.

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the: Selected Answer: Objectivity principle. Monetary unit assumption. Business entity assumption. Going-concern assumption. Revenue recognition principle.

Revenues are: The same as net income. The excess of expenses over assets. Resources owned or controlled by a company. The increase in equity from a company's sales of products and services. The costs of assets or services used.

Another name for equity is: Net income. Expenses. Net Assets. Revenue. Net loss.

Resources a company owns or controls that are expected to yield future benefits are: Assets. Revenues. Liabilities. Owner's Equity. Expenses.

Net Income: Decreases equity. Represents the amount of assets owners put into a business. Equals assets minus liabilities. Is the excess of revenues over expenses. Represents owners' claims against assets.

A partnership: Is also called a sole proprietorship. Has unlimited liability for its partners. Has to have a written agreement in order to be legal. Is a legal organization separate from its owners. Has owners called shareholders

Creditors' claims on the assets of a company are called: Net losses. Expenses. Revenues. Equity. Liabilities.

The difference between a company's assets and its liabilities, or net assets is: Net income. Expense. Equity. Revenue. Net loss.

A resource that the owner takes from the company is called a(n): Liability. Withdrawal. Expense. Contribution. Investment.

Assets created by selling goods and services on credit are: Accounts payable. Accounts receivable. Liabilities. Expenses. Equity.

Risk is: Net income divided by average total assets. The reward for investment. The uncertainty about the return expected to be earned. Unrelated to return expected. Derived from the idea of getting something back from an investment.

The basic financial statements include all of the following except: Balance Sheet. Income Statement. Statement of Owner's Equity. Statement of Cash Flows. Statement of Changes in Assets

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the: Balance sheet. Statement of owner's equity. Statement of cash flows. Income statement. Statement of financial position.

Accounts payable appear on which of the following statements? Balance sheet. Income statement. Statement of owner's equity. Statement of cash flows. Transaction statement.

All of the following are classified as assets except: Selected Answer: Accounts Receivable. Supplies. Equipment. Correct Accounts Payable. Land.

Which of the following accounts is not included in the calculation of a company's ending owner's equity? Revenues. Expenses. Withdrawals. Owner investments. Cash.

All of the following are classified as liabilities except: Selected Answer: Accounts Receivable. Notes Payable. Wages Payable. Accounts Payable. Taxes Payable.

Which of the following accounts is not included in the asset section of the balance sheet? Cash. Accounts receivable. Supplies. Land. Services revenue.

The revenue recognition principle: Prescribes that accounting information is based on actual cost. Provides guidance on when a company must recognize revenue. Prescribes that a company report the details behind financial statements that would impact users' decisions. Prescribes that a company record the expenses it incurred to generate the revenue reported. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

The full disclosure principle: Prescribes that accounting information is based on actual cost. Provides guidance on when a company must recognize revenue. Prescribes that a company report the details behind financial statements that would impact users' decisions. Prescribes that a company record the expenses it incurred to generate the revenue reported. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

The materiality constraint: Prescribes that accounting information is based on actual cost. Provides guidance on when a company must recognize revenue. Prescribes that only information that would influence the decisions of a reasonable person need be disclosed. Prescribes that a company record the expenses it incurred to generate the revenue reported. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

The going concern assumption: Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold. Means that we can express transactions and events in monetary, or money, units. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods. Means that a business is accounted for separately from other business entities, including its owner. Prescribes that a company record the expenses it incurred to generate the revenue reported.

The monetary assumption: Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold. Means that we can express transactions and events in monetary, or money, units. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods. Means that a business is accounted for separately from other business entities, including its owner. Prescribes that a company record the expenses it incurred to generate the revenue reported.

The time period assumption: Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold. Means that we can express transactions and events in monetary, or money, units. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods. Means that a business is accounted for separately from other business entities, including its owner. Prescribes that a company record the expenses it incurred to generate the revenue reported.

The business entity assumption: Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold. Means that we can express transactions and events in monetary, or money, units. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods. Means that a business is accounted for separately from other business entities, including its owner. Prescribes that a company record the expenses it incurred to generate the revenue reported.