23) Which accounting concept or principle specifically states that we should record transactions
that can be verified?
A) Going-concern concept
B) Cost principle
C) Reliability principle
D) Business entity concept
24) Which of the following events would be recorded in the financial accounting records of
Acme Lawn Service, Inc.?
A) Acme mows 125 lawns.
B) Acme buys 5 new lawn mowers from Lawn Equipment, Inc.
C) Lawn Equipment, Inc. sells 2 mowers to Acme’s competitor, Best Lawns, Inc.
D) Events A and B should both be recorded in the financial accounting records of Acme.
25) IFRS stands for:
A) Internal Financial Report Standards.
B) International Financial Reports Study.
C) Internal Financial Reports Study.
D) International Financial Reporting Standards.
26) What is an example of objective evidence?
A) Bank statements
B) Cancelled checks
C) Purchase receipts
D) All of the above
E) None of the above
1.5 Questions
1) Cash accounting recognizes business transactions when they occur.
2) Cash accounting recognizes business transactions when cash is received or paid.
3) Accrual accounting recognizes business transactions when they occur.
4) Accrual accounting recognizes business transactions when cash is received or paid.
5) The fundamental accounting equation is Assets plus Liabilities equals Stockholders’ Equity.
6) Liabilities are obligations owed to third parties.
7) Stockholders’ Equity consists of Retained Earnings and Common Stock.
8) Assets consist of revenues, expenses, and dividends.
9) A transaction is a business event that does NOT have an impact on the finances of a company.
10) The method of accounting that recognizes a transaction when cash is received or paid is:
A) financial accounting.
B) cash accounting.
C) cost accounting.
D) accrual accounting.
11) The method of accounting that recognizes a transaction when it occurs is:
A) financial accounting.
B) cash accounting.
C) cost accounting.
D) accrual accounting.
12) Most businesses use:
A) cash accounting.
B) accrual accounting.
C) cash and accrual accounting.
D) profit accounting.
13) Which of the following is considered an asset?
A) Accounts Payable
B) Sales
C) Accounts Receivable
D) Common Stock
14) Consider Accounts Receivable and Accounts Payable. Which of the following statements is
TRUE?
A) Accounts Receivable is a liability and Accounts Payable is an asset.
B) Accounts Receivable is an asset and Accounts Payable is an asset.
C) Accounts Receivable is an asset and Accounts Payable is a liability.
D) Accounts Receivable is a liability and Accounts Payable is a liability.
15) Liabilities represent:
A) items owned by the company.
B) economic resources of the company.
C) earnings kept in the business.
D) amounts owed to third parties.
16) A business pays off a note payable. What effect does this have on the accounting equation?
A) Assets go up, Liabilities go down, and Stockholders’ Equity remains the same.
B) Assets go down, Liabilities remain the same, and Stockholders’ Equity goes up.
C) Assets go down, Liabilities go down, and Stockholders’ Equity remains the same.
D) Assets go up, Liabilities remain the same, and Stockholders’ Equity goes up.
17) A business purchases a computer for cash. What effect does this have on the accounting
equation?
A) Stockholders’ Equity and Assets go up.
B) There is no change in Total Assets.
C) Assets go up and Liabilities go down.
D) Stockholders’ Equity and Liabilities go up.
18) Revenues, expenses and dividends are all a part of:
A) Assets.
B) Retained Earnings.
C) Liabilities.
D) Common Stock.
19) Cash and Accounts Receivable are both a part of:
A) Assets.
B) Retained Earnings.
C) Liabilities.
D) Common Stock.
20) James opens his business by investing $12,000. How does this affect the accounting
equation?
A) Increase in Assets; increase in Stockholders’ Equity.
B) Increase in Liabilities; increase in Stockholders’ Equity.
C) Decrease in Assets; increase in Stockholders’ Equity.
D) Increase in Assets; decrease in Stockholders’ Equity.
21) Sylvia borrowed money for her business from a local bank. What accounts will be affected?
A) Cash and Accounts Payable
B) Cash and Notes Payable
C) Accounts Payable and Revenue
D) Accounts Receivable and Revenue
22) An increase in revenues would have which of the following effects on the accounting
equation?
A) Decrease Stockholders’ Equity
B) Increase Common Stock
C) Increase Liabilities
D) Increase Stockholders’ Equity
23) Which of the following is a written promise to pay?
A) Account receivable
B) Account payable
C) Note payable
D) Dividend payable
24) A company has Liabilities of $23,500 and Stockholders’ Equity of $56,500. How much does
the company have in Assets?
A) $56,500
B) $33,000
C) $80,000
D) $23,500
25) A company has $123,000 in Assets and $65,000 in Liabilities. How much does the company
have in Stockholders’ Equity?
A) $188,000
B) $123,000
C) $65,000
D) $58,000
26) A company has $74,000 in Assets and $23,000 in Liabilities. How much does the company
have in Stockholders’ Equity?
A) $23,000
B) $51,000
C) $97,000
D) $74,000
27) A company has $63,000 in Assets and $14,000 of Stockholders’ Equity. How much does the
company have in Liabilities?
A) $14,000
B) $49,000
C) $77,000
D) Cannot be determined from the given information
28) A company has $82,000 in Liabilities and $112,000 in Stockholders’ Equity. What is the
value of the company’s Assets?
A) $30,000
B) $112,000
C) $194,000
D) Not enough information provided
29) If Total Assets remain the same and Total Stockholders’ Equity increases, Liabilities will:
A) increase by the same amount.
B) decrease by the same amount.
C) remain the same.
D) increase by a different amount.
30) A company purchases supplies for cash. What is the net result on the accounting equation?
A) Total Assets will go up and total Liabilities will go down.
B) Total Assets will go up and Stockholders’ Equity will go up.
C) Total Assets will not change.
D) Total Liabilities will go up.
31) Renuud, Inc. provided $34,000 worth of services for cash. Which of the following best
describes the effect on the expanded accounting equation?
A) Total Assets and total Liabilities will increase.
B) Total Assets and total Revenue will increase.
C) Total Liabilities will increase and total Revenue will decrease.
D) Total Assets will decrease and total Liabilities will increase.
32) In the expanded accounting equation, revenues minus expenses are part of:
A) Assets.
B) Retained Earnings.
C) Liabilities.
D) Dividends.
33) A net loss will:
A) decrease Retained Earnings.
B) increase Retained Earnings.
C) force the company into bankruptcy.
D) force the company to pay dividends.
34) Dillon invested $5,000 into his business. He would:
A) increase Cash and increase Stockholders’ Equity.
B) decrease Cash and increase Stockholders’ Equity.
C) increase Liabilities and increase Stockholders’ Equity.
D) increase Cash only.
35) Payables are classified as:
A) Stockholders’ Equity.
B) Retained Earnings.
C) Liabilities.
D) Assets.
36) Items such as revenue, expenses and dividends are classified as:
A) Common Stock.
B) Retained Earnings.
C) Liabilities.
D) Assets.