Chapter 1 Review

Payments for advertising, equipment repairs, utilities, and rent are liabilities.

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• false

When an owner withdraws cash from the business, the transaction affects both assets and owner’s equity.

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• false

A negative amount for net worth would reflect more debt than assets, something a creditor would favor.

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• false

The most common type of withdrawal by an owner from a business is the withdrawal of cash.

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• false

After each transaction, the accounting equation must remain in balance.

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• false

A transaction for the sale of goods or services results in a decrease in owner’s equity.

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The accounting equation is most often stated as Assets + Liabilities = Owner’s Equity.

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When two asset accounts are changed in a transaction, there must be an increase and a decrease.

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Keeping separate the financial records for a business and for its owner’s personal belongings is an application of the Business Entity accounting concept.

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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.

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• false