Chapter 1: Accounting in Action

Which of the following is not a step in the accounting

process?

• Identification.

• Economic entity

• Communication.

• Recording

Which of the following statements about users of

accounting information is incorrect?

• Management is an internal user.

• Taxing authorities are external users.

• Present creditors are external users.

• Regulatory authorities are internal users

The historical cost principle states that:

• assets should be initially recorded at cost and adjusted when the fair value changes.

• activities of an entity are to be kept separate and

  distinct from its owner.

• assets should be recorded at their cost.

• only transaction data capable of being expressed

  in terms of money be included in the accounting

  records.

Which of the following statements about basic assumptions is correct?

• Basic assumptions are the same as accounting

  principles.

• The economic entity assumption states that there

  should be a particular unit of accountability.

• The monetary unit assumption enables accounting to measure employee morale.

• Partnerships are not economic entities

The three types of business entities are:

• proprietorships, small businesses, and partnerships.

• proprietorships, partnerships, and corporations.

• proprietorships, partnerships, and large businesses

• financial, manufacturing, and service companies.

Net income will result during a time period when:

• assets exceed liabilities.

• assets exceed revenues.

• expenses exceed revenues.

• revenues exceed expenses

As of December 31, 2017, Kent Company has assets of

$3,500 and owner’s equity of $2,000. What are the liabilities for Kent Company as of December 31, 2017?

• $1,500

• $1,000

• $2,500

• $2,000

Performing services on account will have the following effects on the components of the basic accounting

equation:

• increase assets and decrease owner’s equity.

• increase assets and increase owner’s equity.

• increase assets and increase liabilities.

• increase liabilities and increase owner’s equity

Which of the following events is not recorded in the

accounting records?

• Equipment is purchased on account.

• An employee is terminated

• A cash investment is made into the business.

• The owner withdraws cash for personal use

During 2017, Bruske Company’s assets decreased

$50,000 and its liabilities decreased $50,000. Its owner’s equity therefore:

• increased $50,000.

• decreased $50,000

• decreased $100,000

• did not change