True/False
Indicate whether the
statement is true or false.
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1.
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The purpose of accounting is to provide the necessary financial information so
that accurate and timely decisions can be made.
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2.
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Accounting focuses on the interpretation of financial data rather than the
recording and analyzing of that same data.
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3.
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A transaction occurs when something that has value is exchanged for something
else that has value.
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4.
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Bookkeeping, like accounting, deals with the recording, analyzing, and
interpreting of financial data for small businesses that do not have an accounting department.
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5.
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Double-entry bookkeeping is based on the principle that each transaction
involves two changes.
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6.
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A preauthorized payment occurs every time that you use either your credit or
debit card to make a purchase.
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7.
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When an individual writes a cheque for an amount that is not in his or her bank
account, the account is tagged as having insufficient funds.
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8.
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Individuals can use accounting to determine their net worth, which is the value
of the total debts that they have at that moment in time.
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9.
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In accounting, an asset is something that has value and is owned by a
person.
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10.
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Liabilities are debts or amounts owed to others and are similar to the assets
owned by that same person.
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11.
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Personal equity, or net worth, is what you would have left if you paid off all
of your assets.
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12.
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The equation to determine a person’s personal equity would be: Assets -
Liabilities = Net Worth.
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13.
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The balance sheet equation can be expressed in several forms, such as: Assets -
Liabilities = Owner’s Equity.
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14.
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A balance sheet is one of the financial statements in a business used by
accountants to show the financial position of that business for a set period of time.
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15.
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Assets are always recorded at the actual amount that they cost the business and
this approach is referred to as a cost principle in accounting.
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16.
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For reasons of consistency, assets are always recorded at the actual amount that
a business sells them for, which in accounting is known as the cost principle.
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17.
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Even though an asset loses value over time, that is it depreciates, the original
cost of that asset remains on the books of the business.
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18.
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Assets for a business include such things as cash, accounts receivable,
supplies, inventory, bank loans, equipment, and land.
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19.
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A balance sheet, which must be in balance at all times, is like a snapshot of
how a business is doing on a given day.
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20.
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The statement of cash flow summarizes information about revenue and expenses as
well as helping to estimate the amount of cash that flows in and out of a business.
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21.
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The assets of the business are owned by one of two groups: (1) the owner or
owners and/or (2) the people or businesses to whom the business owes money.
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22.
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Liquidity is the term used to describe the ease of converting assets into cash,
and maturity is the term used to describe the order of those same assets.
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23.
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The information shown on a balance tells creditors how solvent the business is,
and how much of a claim other creditors have on the assets of the business.
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24.
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A simple income statement consists of accounts, which can be categorized as
revenue or expense accounts, and when put together will show a profit or loss for the
business.
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25.
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If an expense is charged against one month but that expense should have been
charged against a different month, the matching principle has been violated.
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26.
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Gross profit for a retail business can be calculated by subtracting the
business’s expenses from its revenue.
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27.
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A fiscal year can be any 12-month period of time as long as that period of time
ends on December 31.
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28.
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The cost of goods available for sale is calculated by adding the inventory
purchased to the ending inventory figure, and then subtracting the beginning inventory figure from
that amount.
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29.
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A business can increase its cash flow by increasing the price of its goods,
reduce the inventory that it has on hand, spread out expenses, and/or shorten the deadline for
accounts payable.
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30.
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A sound objective of a business is to strive to have a positive cash flow, which
means that the business has enough money on hand to meet all of its short-term commitments.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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Accountants get involved with financial activities of a business, which could
include one or more from the following list.
A. | calculating profits | B. | controlling expenses | C. | estimating cost
projections | D. | all of the above |
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2.
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The stated purpose of accounting is to provide the necessary financial
information so that
A. | accurate and timely decisions can be made. | B. | employees get paid
at the end of the week. | C. | inventories don’t pile up in a
warehouse. | D. | there is always enough cash on hand to pay bills. |
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3.
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In accounting, any business activity involving money is recorded as a(n)
A. | increase | B. | decrease | C. | transaction | D. | sale |
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4.
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Accounting involves analyzing and interpreting information, whereas bookkeeping
involves
A. | paying all employees. | B. | keeping track of buying
goods. | C. | hiring necessary personnel. | D. | recording all business
transactions. |
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5.
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Double-entry bookkeeping is designed to handle and record transactions where
there could be
A. | an increase and a decrease | B. | two increases | C. | two
decreases | D. | all of the above |
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6.
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This expression describes those times when you have given permission for someone
else to automatically take money from your bank account.
A. | overdrawn account | B. | preauthorized payment | C. | debit
memo | D. | credit memo |
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7.
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When individuals try to calculate their net worth, they define their assets
as
A. | what they owe | B. | what they own | C. | what they have
sold | D. | what they discard |
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8.
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When a person is trying to calculate their net worth, they define their
liabilities as
A. | what they owe | B. | what they own | C. | what they have
sold | D. | what they discard |
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9.
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The way to calculate a person’s net worth is to
A. | subtract all assets from liabilities | B. | add all assets to
liabilities | C. | subtract all liabilities from assets | D. | divide assets into
liabilities |
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10.
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The accounting document that shows the financial position of a business on a
particular date is called a
A. | accounting equation | B. | income statement | C. | statement of
equity | D. | balance sheet |
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11.
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Assets are things of value and are recorded at the actual amount that a business
paid for them, which in accounting is called the
A. | balance sheet equation | B. | cost principle | C. | asset
total | D. | all of the above |
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12.
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The term that describes the process where an asset loses value over time is
known as
A. | depreciation | B. | costing | C. | inflation | D. | devaluation |
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13.
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Which of the following assets links most closely with the customers of the
business?
A. | accounts payable | B. | account transactions | C. | accounts
receivable | D. | accounts outstanding |
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14.
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One or more of the following labels can be associated with creditors of a
business.
A. | accounts payable | B. | mortgage payable | C. | bank
loan | D. | all of the above |
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15.
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If the asset total summed to $55 000 and if the liability total summed to $63
000, the net worth of that business would be
A. | $8000 | B. | $118 000 | C. | ($8000) | D. | ($118 000) |
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16.
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The financial statement that somewhat resembles a movie, that is, it takes place
over time is called a(n)
A. | income statement | B. | balance sheet | C. | statement of cash
flow | D. | statement of owner’s equity |
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17.
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The statement of cash flow is used to help estimate
A. | the asset total at any given moment. | B. | how much debt is owed by a
business. | C. | how money comes and goes over a period of time. | D. | the equity that an
owner has in the business. |
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18.
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The second line of the heading of a balance sheet answers the following
question.
A. | Who? | B. | What? | C. | When? | D. | Where? |
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19.
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The third line of the heading of an income statement answers the following
question.
A. | Who? | B. | What? | C. | When? | D. | Where? |
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20.
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The term that is used to describe the process of being able to quickly convert
an asset into cash is called
A. | maturity | B. | equity | C. | liquidity | D. | liability |
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21.
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Liabilities are listed in a particular order when a balance sheet is prepared,
which is known as
A. | maturity | B. | equity | C. | liquidity | D. | liability |
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22.
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When preparing a formal financial statement, it is important to remember to
never
A. | use abbreviations. | B. | have corrections appear on the
page. | C. | forget to underline a total. | D. | all of the
above |
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23.
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The group that would be most interested in a business’s ability to pay its
taxes would be
A. | investors. | B. | Canada Revenue Agency. | C. | creditors. | D. | payables. |
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24.
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If a business is considered to be solvent, that means that the business has an
ability to
A. | make money. | B. | pay its debts. | C. | acquire more
assets. | D. | sell its inventory. |
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25.
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When preparing an income statement, an accountant must gather all of the
information relating to
A. | revenue accounts | B. | asset accounts | C. | equity
accounts | D. | liability accounts |
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26.
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If, by mistake, an accountant charged some expenses to the wrong month resulting
in the profit amounts being distorted, the process violated is called
A. | cost overrun | B. | solvency mistake | C. | revenue
sharing | D. | matching principle |
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27.
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The cost of goods sold section on an income statement is calculated as
follows:
A. | adding purchases to ending inventory and then subtracting beginning
inventory | B. | adding the two inventory figures and then subtracting the
purchases | C. | adding purchases to beginning inventory and then subtracting ending
inventory | D. | adding revenue to gross profit and then subtracting
expenses |
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28.
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A fiscal year in a business is
A. | from January 1 to December 31 | B. | any 12-month operating
period | C. | any 24- month operating period | D. | May 1 to April
30 |
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29.
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One or more of the following methods can be used to help a business boost its
cash flow position.
A. | use the right kind of debt | B. | spread out expenses | C. | minimize
costs | D. | all of the above |
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30.
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The owner’s equity in a business is considered by the owner to be
a(n)
A. | debt | B. | investment | C. | expense | D. | asset |
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