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Gifford Nale BSA-III Accounting 6 October 17, 2014

Final requirements for accounting 6

Basic accounting

You correctly answered 20 questions for a score of 86 percent.


2-1. The financial position of the business on a given date is reported on the

86%

a. Income Statement
b. Balance Sheet
c. Statement of Changes In Owner's Equity
d. Statement of Cash Flows
You answered correctly! The assets, liabilities, and equity of a company are
reported on the company Balance Sheet. What the business owns (assets), owes
(liabilities) and is worth, (owner's equity) clearly gives all of the required data to
determine the financial position or condition of the business.
2-2. The net profit or loss for a particular period of time is reported on the
a. Income Statement
b. Balance Sheet
c. Trial Balance
d. Statement of Changes In Owner's Equity
You answered correctly! The assets, liabilities, and equity of a company are
reported on the company Balance Sheet. What the business owns (assets), owes
(liabilities) and is worth, (owner's equity) clearly gives all of the required data to
determine the financial position or condition of the business.
2-3. The investment of cash into the business results in a/an
a. increase in cash and a decrease in capital
b. increase in cash and an increase in capital
c. decrease in cash and an increase in capital
d. increase in fees earned and an increase in capital
You answered correctly! Cash will increase and the balance of the Capital
account will increase. The net worth of the business will increase by the exact
amount of the investment.

2-4. The purchase of supplies for cash will result in a/an


a. increase in cash and a decrease in capital
b. increase in cash and an increase in supplies
c. increase in supplies and a decrease in cash
d. increase in equipment and an increase in capital
You answered correctly! Supplies will increase and Cash will decrease.
2-5. Services rendered for cash will result in a/an
a. increase in cash and a decrease in capital
b. increase in cash and an increase in fees earned
c. decrease in cash and an increase in fees earned
d. increase in fees earned and an decrease in capital
You answered correctly! Cash will increase and the balance of the Fees Earned
account will increase.
2-6. Cash is received from a client for office rental space.
a. cash increases and rental fees earned decreases
b. cash increases and rental fees earned increases
c. cash decreases and capital increases
d. cash decreases and withdrawals increases
You answered correctly! Cash will increase and the Rental Fees Earned account
balance will increase.
2-7. Keeping the records of the business separate from the personal records of
the owner of the business is said to be adherence to which accounting principle or
concept?
a. Continuing-concern concept
b. Business entity principle
c. Realization principle
d. Objectivity principle
You answered correctly! All personal transactions should be kept separate from
the records of business operations under the business entity concept.
2-8. Which of the following is a formal written promise to pay a definite sum of
money on demand or at a fixed or determinable future date?
a. Account payable

b. Account receivable
c. Note payable
d. Prepaid insurance policy
You answered correctly! A note payable (or a note receivable) is a formal written
promise to pay a specific amount on demand or at a fixed or determinable future
date.
2-9. Peter Atli decided to pay himself a salary of $3,000 per month for the work he
performs for his business, a single proprietorship. Each time a cheque is recorded
for $3,000, which account should be increased?
a. Salaries Expense
b. Capital
c. Peter Atli, Withdrawals
d. Owner Salary Expense
You answered correctly! The owner of a single proprietorship cannot legally get
paid a salary by the business entity. No matter what the proprietor chooses to call
it, it must be treated as a withdrawal or drawing.
2-10. The personal telephone bill of Junior Sample was paid by issuing a cheque
from the business chequing account. No business calls had been made from
Junior's personal phone. What account must be charged for this transaction?
a. Junior, Capital
b. Cash
c. Junior, Withdrawals
d. Telephone Expense
You answered correctly! All withdrawals of assets (cash or supplies) for personal
use must be accounted for in the Withdrawals account.
2-11. Which of the following accounts is NOT a liability?
a. Accounts Payable
b. Accounts Receivable
c. Salaries Payable
d. Notes Payable
You answered correctly! Accounts Receivable is a major current asset account.
All of the other accounts listed are liabilities.
2-12. Assets total $50,000 and Liabilities total $10,000. The equity of the business

must total
a. $4,000
b. $40,000
c. $400
d. $40
You answered correctly! The accounting equation is Assets = Liabilities +
Owner's Equity. $50,000 = $10,000 + $40,000.
2-13. The resulting amount when total liabilities are subtracted from total assets is
known as
a. owner's equity or net assets
b. net income or net loss
c. total expenses
d. total revenue
You answered correctly! Total assets minus total liabilities equals net assets.
Since assets = liabilities + owner's equity, net assets and owner's equity are the
same amount--the ownership (vested interest) of assets by the owner.
2-14. A broad rule adopted by the accounting profession as a guide in measuring,
recording, and reporting the financial affairs and activities of a business is known
as
a. an accounting concept
b. an accounting principle
c. the basic accounting equation
d. objectivity principle
You answered correctly! Accounting principles are the rules or guides used by
accountants for measuring, recording, and reporting the financial affairs and
activities of a business.
2-15. Using a sales invoice as the basis for recording a sale of merchandise is an
example of using which accounting principle or concept for recording
transactions?
a. Recognition principle
b. Objectivity principle
c. Realization principle
d. Continuing-concern concept
The correct answer is "b". Your choice of "a" was incorrect. Adherence to the

objectivity principle requires the use of objective evidence (documentation) that a


business transaction has occurred.
2-16. Which of the following statements is true?
a. a salary paid to a partner is an expense to the partnership
b. a salary paid to a proprietor is an expense to the proprietorship
c. a salary paid to a shareholder is an expense of the corporation
d. the business entity principle does not apply to corporations
You answered correctly! Unlike a sole proprietorship or partnership, a
corporation is a separate LEGAL entity. As such, it can hire shareholders (owners)
who would have employee status. Therefore, their wages or salaries are
expenses.
2-17. Keith Manich deposited $5,000 in a bank account he established for a pet
store that he is going to own and operate as KM's Pets. Recording the deposit will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity
You answered correctly! Investments in the form of cash or other assets will
increase owner's equity. The accounting equation will be in balance as: Assets of
$5,000 = Owner's Equity of $5,000.
2-18. Better-Cars Selection, a used car dealer, has total assets and liabilities of
$50,000 and $18,000, respectively. The firm constructed a shelter for its
automobiles by promising to pay the building contractor, upon completion of the
building, $500 per month for twenty-four months. Upon completion, owner's equity
will:
a. increase by $12,000
b. remain unchanged
c. decrease by $12,000
d. increase by $500, each month
The correct answer is "b". Your choice of "c" was incorrect. Upon completion
of the building, the firm will increase its assets (the building) by $12,000, and
increase its liabilities (debt owed to the contractor) by $12,000. There will be no
change in owner's equity.
2-19. The owner of a computer services business was able to acquire a new
computer, valued at $5,000, by establishing an account with the computer vendor,

Com Pewters Unlimited. There was no down payment. Recording the transaction
will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity
You answered correctly! The computer is an asset and the account payable is a
liability. There are many forms of liabilities--accounts payable, notes payable,
mortgage notes, and taxes payable, as examples.
2-20. A sole proprietor recorded the payment of an account payable to an office
supplies store. Recording the transaction will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity
You answered correctly! Payment of an account payable will reduce cash, an
asset, and reduce the debt owed, a liability, for supplies purchased on credit.
2-21. If during the accounting period the assets increased by $5,000, and the
owner's equity increased by $1,000, then the liabilities must have
a. increased by $6,000
b. increased by $4,000
c. decreased by $4,000
d. decreased by $6,000
You answered correctly! The accounting equation is Assets = Liabilities +
Owner's Equity. A $5,000 net increase on the asset side of the equation must be
matched by an equal $5,000 net increase on the liability and equity side of the
equation. $5,000 = $4,000 + $1,000.
2-22. If during the accounting period the assets increased by $7,000, and the
owner's equity decreased by $3,000, then the liabilities must have
a. increased by $10,000
b. increased by $4,000
c. decreased by $4,000
d. decreased by $10,000
The correct answer is "a". Your choice of "b" was incorrect. The accounting

equation is Assets = Liabilities + Owner's Equity. A $7,000 net increase on the


asset side of the equation must be matched by an equal $7,000 net increase on
the liability and equity side of the equation. $7,000 = $10,000 + ($3,000).
2-23. One of the local fast-food outlets hired a first-year accounting student to
oversee the cash-collection procedures. When the firm pays the student her
weekly wage, the transaction will
a. increase an asset, increase a liability
b. decrease an asset, decrease a liability
c. increase an asset, increase owner's equity
d. decrease an asset, decrease owner's equity
You answered correctly! The wages or salaries of employees are treated as
expenses. Expenses decrease owner's equity. The payment resulted in a
decrease in cash, an asset, and a decrease in owner's equity (from an expense).