Introduction to Accounting (Chapter 1-4)

The basic accounting equation is:

• Assets = Liabilities + Owner's Equity

• Assets = Liabilities - Owner's Equity

• Assets + Liabilities = Owner's Equity

• Assets = Revenues - Expenses

Which of the following best defines accounting?

• A system for managing personal finances

• The recording, summarizing, and analysis of financial transactions

• The recording of business revenues

• The preparation of tax returns

Which financial statement provides information on a company’s profitability over a period of time?

• Balance Sheet

• • Income Statement

• Statement of Cash Flows

• Statement of Owner’s Equity

A business organized as a separate legal entity under state law and having ownership divided into transferable shares of stock is known as a:

• Sole proprietorship

• Partnership

• Corporation

• Limited liability company

Which of the following is an example of an asset?

• Service Revenue

• Accounts Receivable

• Dividends

• Accounts Payable

The purpose of the general journal is to:

• Record all business transactions in chronological order

• Provide information about cash inflows and outflows

• Summarize the total amount of assets, liabilities, and equity

• Reflect the financial position of the company

What is the purpose of a trial balance?

• To prepare financial statements

• To ensure that debits equal credits after posting

• To calculate net income

• To adjust accounts at the end of the period

An account has a debit balance if:

• The total of its debit amounts exceeds the total of its credit amounts

• • It is a liability account

• • The total of its credit amounts exceeds the total of its debit amounts

• It is an income account

A debit to an asset account indicates:

• A reduction of owner’s equity

• An increase in the account

• An error in the journal entry

• • A decrease in the account

Which of the following describes a compound journal entry?

• • A journal entry that increases only revenue accounts

• A journal entry that reduces liability accounts

• A journal entry involving multiple accounts for the same transaction

• A journal entry involving multiple accounts for the same transaction