2) Owner’s withdrawals:
A) decrease assets.
B) increase expenses.
C) increase liabilities.
D) decrease withdrawals.
3) Go Blue Retail Store collected $12,000 of its accounts receivable. The expanded accounting equation
changes include:
A) Cash and Capital increase, $12,000.
B) Cash and Revenue increase $12,000.
C) Cash increases and Accounts Receivable decreases $12,000.
D) Accounts Receivable decreases and Capital increases $12,000.
4) If beginning capital was $110,000, ending capital is $95,000, and the owner’s withdrawals were $10,000,
the amount of net income or net loss was:
A) net income of $5,000.
B) net income of $15,000.
C) net loss of $15,000.
D) net loss of $5,000.
5) The payment of accounts payable would:
A) increase both assets and liabilities.
B) increase assets and decrease liabilities.
C) decrease both assets and liabilities.
D) decrease assets and increase liabilities.
6) Ryan withdrew cash from the business to pay his personal cell phone bill. The expanded accounting
equation changes include:
A) increase in both Cash and Withdrawal.
B) decrease in both Cash and Withdrawal.
C) decrease in Cash and increase in Withdrawal.
D) increase in Cash and decrease in Withdrawal.
7) Revenue, expenses, and withdrawals are subdivisions of:
A) assets.
B) liabilities.
C) owner’s equity.
D) All of these answers are correct.
8) Which of the following transactions has no effect on owner’s equity?
A) Paying salaries expense
B) Equipment purchase
C) Billing for services rendered
D) A withdrawal
9) When services are rendered but payment is not made, which account would be increased?
A) Accounts Receivable
B) Accounts Payable
C) Cash
D) Withdrawal
10) If ‘Ol Fashioned Toys’ revenues are less than its expenses during the accounting period:
A) owner’s withdrawals decrease net income.
B) net income causes liabilities to decrease.
C) the business will incur a loss.
D) owner’s withdrawals increase owner’s equity.
11) If ‘Ol Fashioned Toys’ revenues are greater than its expenses during the accounting period:
A) assets will increase more than liabilities.
B) liabilities will increase more than assets.
C) the business will incur a loss.
D) the business will earn a net income.
12) Carrie billed her legal clients $6,000 for legal work completed during the month. This transaction will:
A) cause a $6,000 increase in revenues and liabilities.
B) cause a $6,000 increase in revenues and a decrease in liabilities.
C) cause a $6,000 increase in assets and revenues.
D) not be recorded until the cash is collected.
13) Boxes R’ Us paid $3,000 in salaries and wages for February. This transaction will:
A) increase expenses and decrease revenue.
B) increase expenses and increase liabilities.
C) decrease assets and increase expenses.
D) decrease assets and expenses.
14) Crystal Clear Imagery received and paid a utility bill for $500 for the month of November. This
transaction will:
A) increase Cash and increase Utility Expense.
B) decrease Cash and increase Utility Expense.
C) increase Cash and decrease Utility Expense.
D) increase Utility Expense and decrease Withdrawal.
15) If a company’s revenues are higher than its expenses, it will cause:
A) an increase in owner’s equity.
B) a decrease in owner’s equity.
C) an increase in assets.
D) no effect on owner’s equity.
16) Expenses:
A) are costs the company incurs in carrying on operations.
B) are a subdivision of owner’s equity.
C) record personal expenses not related to the business.
D) Both A and B are correct.
17) An expense should be recorded when:
A) the bill is paid.
B) the expense is incurred.
C) a bill is received in the mail.
D) None of the above are correct.
18) A revenue should be recorded when:
A) it is earned.
B) payment is received.
C) the invoice is sent to the customer.
D) None of the above are correct.
19) Legal services were provided to a credit customer. How would this affect the accounting equation?
A) Cash and Accounts Receivable increase.
B) Accounts Payable and Capital increase.
C) Accounts Receivable and Revenue increase.
D) None of the above are correct.
20) Which accounts are affected when the company pays salaries?
A) Assets and Capital
B) Liabilities and Capital
C) Assets and Expenses
D) None of the above are correct.
21) Which accounts are affected when the company buys supplies on account?
A) Assets and Capital
B) Liabilities and Capital
C) Assets and Liabilities
D) None of the above are correct.
22) Which accounts are affected when the company provides services to a cash customer?
A) Assets and Capital
B) Liabilities and Capital
C) Assets and Revenue
D) None of the above are correct.
23) Which accounts are affected when the owner withdraws cash from the business?
A) Assets and Withdrawals
B) Liabilities and Capital
C) Assets and Liabilities
D) None of the above are correct.
24) Which of the following transactions would cause an asset to decrease and the owner’s equity to
decrease?
A) The business provided services to a cash customer.
B) The business bought supplies for cash.
C) The owner withdrew cash from the business.
D) The business bought supplies on account.
25) Vic’s Mart collects $700 of its accounts receivable. The expanded accounting equation impact is:
A) Cash and Capital increase $700.
B) Cash and Revenue increase $700.
C) Cash increases and Accounts Receivable decreases $700.
D) Accounts Receivable decreases and Capital increases $700.
26) Mark paid $800 cash to partially reduce the amount owed for equipment that was previously bought
on account. This transaction would:
A) increase both assets and liabilities.
B) increase assets and decrease liabilities.
C) decrease both assets and liabilities.
D) decrease assets and increase liabilities.
27) Victoria received $400 from customers in partial payment for accounting services performed
previously. The recording of this transaction would:
A) increase Cash and Victoria’s Capital $400.
B) increase Cash and decrease Accounts Receivable $400.
C) increase Cash and increase Accounts Receivable $400.
D) decrease Accounts Receivable and increase Victoria’s Capital $400.
28) The owner of a business paid personal rent with a company check. This payment reduces Cash as
well as increases the expenses of the firm.
29) Accounts Receivable results from earning revenue when cash is not yet received.
30) Expenses are recorded as costs of doing business whether cash was paid or not.
31) Withdrawals are considered an expense of doing business.
32) When expenses are greater than revenue, net loss is the result.
33) The four parts of owner’s equity include capital, liabilities, revenue, and expenses.
34) Cash withdrawals by the owner increase both equity and assets.
35) Cash investments by the owner increases both equity and assets.
36) Revenue and cash will always be the same amount.
37) Withdrawals are business expenses that are included on the balance sheet.
38) If expenses are less than revenue, a net income is incurred.
39) Indicate whether each of the following represents (1) Asset, (2) Liability, or (3) Owner’s Equity:
1. ________ Office Supplies
2. ________ Accounts Payable
3. ________ Capital
4. ________ Cash
5. ________ Withdrawal
6. ________ Land
7. ________ Accounts Receivable
8. ________ Expense
9. ________ Equipment
10. ________ Revenue
40) Record the following transactions into the expanded accounting equation for the Mayoras’ Law Firm.
Note that all titles have beginning balances. (You will need to determine the beginning capital balance.)
a. Provided legal services for cash, $1,200
b. Billed customers for services rendered, $2,400
c. Received and paid the monthly utility bill, $300
d. Collected $600 on account from customers
e. Paid supplies expense, $250
f. Withdrew $300 cash for personal use
Mayoras’ Law Firm
ASSETS
=
LIAB.
OWNER’S
EQUITY
Cash +
Accts.Rec.
=
Accts
Payable
Mayoras,
Capital
+Rev.
-Exp
-Mayoras
Withdrawal
beg.
$900
$100
=
$300
??
a.
b.
c.
d.
e.
f.
T
=
LIAB.
=
beg.
$900
$100
=
$300
a.
+1200
=
+1200
=
– 300
=
+600
=
e.
=
f.
=
T
=
$3,600
41) Katie’s Wedding Planning Service completed the following transactions:
a. Billed clients for service, $1,250.
b. Completed work for clients who paid $500 cash.
c. Received a bill for utilities to be paid later, $120.
d. Collected cash on account from clients, $700.
e. Paid the amount due for utilities.
f. Withdrew $500 cash for personal use.
Required: Record the above transactions in the expanded accounting equation. Note that the items have
beginning balances.
Katie’s Wedding Planning Service
ASSETS
=
LIAB.
OWNER’S
EQUITY
Cash +
Accts.Rec.
=
Accts
Payable
Katie,
Capital
+Rev.
-Exp
-Katie With.
beg.
$800
$85
=
$300
$235
$900
$400
$150
a.
b.
c.
d.
e.
f.
T
ASSETS
=
LIAB.
OWNER’S
EQUITY
Cash +
Accts.Rec.
=
Accts
Payable
Katie,
Capital
+Rev.
-Exp
-Katie With.
beg.
$800
$85
=
$300
$235
$900
$400
$150
a.
=
1,250
=
=
d.
=
e.
=
f.
=
T
$1380
=
$2650
1.4 Learning Objective 1-4
1) The increase or decrease in the owner’s equity is reported on the:
A) income statement.
B) statement of owner‘s equity.
C) balance sheet.
D) All of these are correct.
2) Which financial statement is prepared first?
A) Statement of Owner’s Equity
B) Balance Sheet
C) Income Statement
D) None of the above
3) The financial statement that shows business results in terms of revenue and expenses is:
A) an income statement.
B) a balance sheet.
C) a statement of owner’s equity.
D) the statement of cash flows.
4) An accounting report that shows the changes in capital during the accounting period is:
A) a balance sheet.
B) an income statement.
C) a statement of owner’s equity.
D) All of these answers are correct.
5) Which of the following items are on both the balance sheet and the statement of owner’s equity?
A) Net loss
B) Capital
C) Additional owner’s investments
D) Owner’s withdrawals
6) The financial statement that shows revenue and expenses for a period of time is the:
A) balance sheet.
B) income statement.
C) statement of owner’s equity.
D) statement of cash flows.
7) The income statement is a financial statement showing business results in terms of revenues and
expenses.
8) Statement of owner’s equity shows the change in capital.
9) The statement of owner‘s equity shows assets, liabilities and capital..
10) Total assets are included in the statement of owner’s equity.
11) The statement of owner’s equity is the link between the income statement and balance sheet.
12) The income statement is the first financial statement completed.
13) Calculate the total Liabilities if the company has: Assets totaling $700 and Capital of $450.
$ ________
14) Calculate the total Assets if the company has: Cash $200, Accounts Receivable $300, Accounts Payable
$500, Equipment $500.
$ ________
15) Use the following information to prepare 1) an income statement, 2) a statement of owner’s equity,
and 3) a balance sheet for the month ended March 31, 200x for Bolthouse Company.
J. Bolthouse, Capital (beg.) $2,000
Revenue 900
Expenses 600
Withdrawals 150
Cash 3,000
Equipment 1,000
Accounts Receivable 150
Accounts Payable 2,000
16) Prepare the financial statements for H. Logan of Logan Motorcycles from the following account
balances: 1) an income statement, 2) a statement of owner’s equity, and 3) a balance sheet for the month
ended October 31, 200x. You will need to calculate the value of the Accounts Payable account (note:
remember the basic accounting equation).
Cash $1,300
Accounts Receivable 500
Equipment 2,000
Accounts Payable ???
Travis, Capital 3,000
Revenue 1,000
Expenses 700
Travis, Withdrawal 100
17) Determine the ending capital balance of a business which had a beginning capital balance of $1,970,
additional investments of $530, withdrawals of $750, revenue of $3,790, and expenses of $2,600.
$ ________
18) Determine the beginning capital balance of a business having an ending capital balance of $10,900, no
additional investments, withdrawals of $2,500, and a net income of $4,100.
$ ________
19) Given the following account balances, determine the total liabilities. Cash $350, Accounts Receivable
$275, Equipment $300 and Capital $700.
$ ________