Financial Accounting Introduction and Accounting Equation

Which of the following is not a step in the accounting

process?

• Identification

• Verification

• Recording

• Communication

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.

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, 2014, 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, 2014?

• $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 2014, Lim Company’s assets decreased $50,000 and its liabilities decreased $90,000. Its owner’s equity therefore:

• increased $40,000.

• decreased $140,000.

• decreased $40,000.

• increased $140,000.

Which of the following statements is false?

• A statement of cash flows summarizes information

  about the cash inflows (receipts) and outflows (payments) for a specific period of time.

• A balance sheet reports the assets, liabilities, and owner’s equity at a specific date.

• An income statement presents the revenues, expenses, changes in owner’s equity, and resulting net income or net loss for a specific period of time.

• An owner’s equity statement summarizes the changes in owner’s equity for a specific period of time.