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Chapter 7

Accounting

QuestionAnswer
The Full Disclosure accounting concept is applied when a company always prepares financial statements at the end of each monthly fiscal period. (p. 190) false
Internal users of accounting information include company managers, officers, and creditors. (p. 190) false
An income statement reports information on a specific date, indicating the financial condition of a business. (p. 192) false
The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period. (p. 192) true
Information needed to prepare an income statement comes from the Account Title column and the Income Statement columns of a work sheet. (p. 192) true
The income statement for a service business has five sections: heading, Revenue, Expenses, Net Income or Net Loss, and Capital. (p. 192) false
The income statement's account balances are obtained from the work sheet's Income Statement columns. (p. 192) true
The net income on an income statement is verified by checking the balance sheet. (p. 194) false
Double lines ruled across both amount columns of an income statement indicate that the amount has been verified. (p. 194) true
A financial ratio is a comparison between two components of financial information. (p. 195) true
Financial ratios on an income statement are calculated by dividing sales and total expenses by net income. (p. 195) false
No company should have a vertical analysis ratio for total expenses higher than 48.0%. (p. 196) false
When a business has two different sources of revenue, both revenue accounts are listed on the income statement. (p. 197) true
An amount written in parentheses on a financial statement indicates a negative amount. (p. 197) true
A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity. (p. 199) true
A balance sheet reports information about the elements of the accounting equation. (p. 201) true
The owner's capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance less net income. (p. 202) false
The position of the total asset line on the balance sheet is determined after the Equities section is prepared. (p. 202) true
The Owner's Equity section of a balance sheet is the same for all businesses. (p. 203) false
The date on a monthly balance sheet prepared on July 31 is written as... July 31, 20--
Information needed to prepare a balance sheet's Assets section is obtained from a work sheet's Account Title column and... Balance Sheet Debit column
Information needed to prepare a balance sheet's Liabilities section is obtained from a work sheet's Account Title column and... Balance Sheet Credit column.
The amount of capital reported on a balance sheet is calculated as... Capital Account Balance + Net Income – Drawing Account Balance
If a business wanted to show how the current capital balance was calculated, it would... list the beginning capital balance, the net income, the withdrawals, and the ending capital balance on the balance sheet.
A negative balance that remains after total expenses are subtracted from total income. deficit
The ratio of net income to total sales. return on sales
Reporting an amount on a financial statement as a percentage of another item on the same financial statement. vertical analysis
Any persons or groups who will be affected by an action. stakeholder
The area of accounting that focuses on reporting information to internal users managerial accounting
The calculation and interpretation of a financial ratio. ratio analysis
The area of accounting that focuses on reporting information to external users. financial accounting
A budgeting strategy of setting aside at least 10% of after-tax income for saving and investing. pay yourself first
A financial road map used by individuals and companies as a guide for spending and saving. budget
A comparison between two components of financial information. financial ration
A positive balance that remains after total expenses are subtracted from total income. surplus
Created by: Whvolleyball8
 

 



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