AME Chapter 2 Review

Which type of transaction directly affects Owner's Capital?

• Expenses

• Investment

• Revenue

• Withdrawal

Which of the following represents the equation for Net Income?

• A=L + NW

• Owner's Investment - Withdrawals

• Revenue - Expenses

• Biginning Capital - Ending Capital

Which of the following statements show the changes in Owner's Equity?

• Income Statement

• Balance Sheet

• Cash Flow Statement

• Statement of Owner's Equity

Which of the following is true when a company incurs an expense that is to be paid later?

• An asset should be recorded.

• The expense should be recognized evenly over the next year.

• The expense account should be increased along with accounts payable.

• The expense cannot be recognized because it has not been paid.

FGH Inc. recorded a $500 telephone bill last month on account. This month the payment is made. How should this transaction be recorded?

• Decrease cash; decrease accounts payable

• Increase accounts payable; increase expense

• Decrease cash; increase expense

• Increase prepaid expense; decrease cash

MNO Co. received a $2,000 bill for maintenance to be paid next month. How should this transaction be recorded?

• Decrease cash; increase expense

• Increase prepaid expense; decrease cash

• Decrease cash; decrease accounts payable

• Increase accounts payable; increase expense

The owners and managers have an ethical responsibility to record and report revenue and expensees in a way that best represents economic reality, except for when doing so means the company reports an unfavorable result.

• True

• False

Liquidity is defined as

• The physical size of an asset.

• The amount an asset is worth.

• The due date of the liability.

• The ease at which an asset may be convereted to cash.

Which of the following items is least likely to appear on the balance sheet of a service business?

• Cash

• Accounts Receivable

• Accounts Payable

• Inventory

XYZ Co. provides $2,000 worth of services to customers and will receive a payment within 30 days. How should this transaction be recorded?

• Increase cash; increase unearned revenue

• Increase cash; increase revenue

• Increase cash; decrease accounts receivable

• Increase accounts receivable; increase revenue