Accounting Basics Quiz

A business paid $7,000 to a creditor for an amount owed. The effect of the transaction on the accounting equation was to

• increase an asset; decrease another asset

• decrease an asset; decrease a liability

• increase an asset; increase a liability

• increase an asset; increase stockholders' equity

How does paying a liability in cash affect the accounting equation?

• Assets increase; liabilities decrease

• assets increase; liabilities increase

• assets decrease; liabilities decrease

• liabilities decrease; stockholders' equity increases

Financial reports are used by

• management

• creditors

• investors

• all of these choices

Which of the following is not true of accounting principles?

• Financial accountants follow generally accepted accounting principles (GAAP).

• Following GAAP allows accounting information users to compare one company to another.

• A new accounting principle can be adopted with stockholders' approval.

• The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles.

Generally accepted accounting principles regulate how and what financial information is reported by businesses.

• True

• False

Which type of business is most likely to obtain large amounts of resources by issuing stock?

• partnership

• corporation

• proprietorship

• government entity

Indicate whether each of the following accounts represents an asset, liability, or stockholders' equity: Accounts Payable

Indicate whether each of the following accounts represents an asset, liability, or stockholders' equity: Wages Expense

Indicate whether each of the following accounts represents an asset, liability, or stockholders' equity: Common Stock

Indicate whether each of the following accounts represents an asset, liability, or stockholders' equity: Accounts Receivable