Accounting: 2-3 How Transactions Affect Owner's Equity

What is the revenue recognition principle in accounting?

• Revenue should be recognized when cash is received

• Revenue should be recognized when assets are acquired

• Revenue should be recognized when it is earned

• Revenue should be recognized when expenses are paid

What is the effect of an expense on the value of owners' equity?

• Increases the value of owners' equity

• Decreases the value of owners' equity

• Has no effect on owners' equity

• Increases the value of assets

What is the purpose of creating an expense account in accounting?

• To decrease the value of assets

• To decrease the value of owners' equity

• To increase the value of owners' equity

• To increase the value of liabilities

What is the term used to represent the current balance of all money owed to a company for goods and/or services it sold to its customers?

• Liabilities

• Accounts Receivable

• Accounts Payable

• Net Income

When is revenue recorded in accounting on an accrual basis?

• When assets are acquired

• When expenses are paid

• When it is earned

• When cash is received

What is the net effect of revenue and expenses on the accounting equation?

• Increases liabilities

• Has no effect on owners' equity

• Decreases owners' equity

• Increases owners' equity

What is the purpose of an invoice in accounting?

• To track assets and liabilities

• To outline the goods or services sold and the terms of payment

• To record expenses

• To record revenue

What is the term used to represent the profit that remains after all expenses have been subtracted from revenue during a certain time period?

• Owners' Equity

• Accounts Receivable

• Net Income

• Liabilities

What happens to the value of owners' equity if a company's revenue exceeds its expenses during a certain time period?

• Remains the same

• Decreases

• Becomes negative

• Increases

What happens to the value of owners' equity if a company's expenses exceed its revenue during a certain time period?

• Becomes negative

• Increases

• Decreases

• Remains the same