Test Bank for Financial Accounting, 29th Edition by Carl S. Warren, Jefferson Jones & William Tayler | Complete All Chapters 1-24 | Newest Version (2026)

Name: Class: Date:

Chap 01 29e


Test Bank for Accounting, 29th Edition by Carl Warren,
Jefferson Jones & William Tayler | Complete All Chapters 1-24
| Newest Version (2026)



Chap 01 29e
Answers Included
Indicate whether the statement is true or false.
1. An account receivable is a claim against a customer resulting from a sale on account.


a. True
b. False


2. An example of an external user of accounting information is the federal government. a. True
b. False

3. A corporation is a business that is legally separate and distinct from its owners. a. True
b. False

4. The role of accounting is to provide many different users with financial information to make economic
decisions. a. True
b. False

5. The main objective for all businesses is to maximize unrealized profits. a. True
b. False

6. Financial accounting provides information to all users, while the main focus for managerial accounting
is to provide information to management. a. True
b. False

7. Assets that are used up during the process of earning revenue are called expenses. a. True
b. False

8. Withdrawals paid to owners decrease assets and increase equity. a. True
b. False

9. An example of a general-purpose financial statement would be a report about projected price increases
related to transportation costs. a. True
b. False

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Chap 01 29e




10. No significant differences exist between the accounting standards issued by the FASB and the IASB.
a. True
b. False
11. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of
owners. a. True
b. False

12. Investing activities are those activities by which the company obtains funds to start and operate the business.
a. True
b. False

13. Paying an account payable increases liabilities and decreases assets. a. True
b. False

14. Purchasing supplies on account increases liabilities and decreases equity. a. True
b. False

15. Senior executives cannot be criminally prosecuted for the wrongdoings they commit on behalf of the
companies where they work. a. True
b. False

16. An income statement is a summary of the revenues and expenses of a business as of a specific date. a. True
b. False

17. Managerial accounting information is used by external and internal users equally. a. True
b. False

18. The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure. a. True
b. False

19. The financial statements of a proprietorship should include the owner's personal assets and liabilities. a. True
b. False
20. Some major fraudulent acts committed by senior executives started as what they considered to be small ethical
lapses that grew out of control. a. True
b. False

21. The basic difference between manufacturing and retail companies is the completion level of the products they
purchase for resale to customers. a. True
b. False

22. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility
for developing accounting principles. a. True
b. False

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Chap 01 29e




23. The owner’s rights to the assets rank ahead of the creditors' rights to the assets. a. True
b. False

24. The excess of revenue over the expenses incurred in earning the revenue is called capital. a. True
b. False

25. Any 12-month accounting period adopted by a company is known as its fiscal year. a. True
b. False

26. Proper ethical conduct implies that you only consider what's in your best interest. a. True
b. False

27. The accounting equation can be expressed as Assets – Liabilities = Owner's Equity. a. True
b. False

28. The primary financial statements of a proprietorship are the income statement, the statement of owners’
equity, the cash budget, and the balance sheet. a. True
b. False



29. If net income for a company was $50,000, $20,000 in owner withdrawals were made, and the owners invested
an additional $10,000 in cash, the owners' equity increased by $40,000. a. True
b. False

30. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the
same period, the period's change in total owner's equity was a $200,000 increase. a. True
b. False

31. Proprietorships have one owner and provide only services to their customers. a. True
b. False
32. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing
entities. a. True
b. False

33. Operating activities are those activities by which a company generates revenues from customers. a. True
b. False

34. A business is an organization in which basic resources or inputs, like materials and labor, are assembled and
processed to provide outputs in the form of goods or services to customers. a. True
b. False

35. A statement of owners’ equity reports the changes in owner's equity for a period of time. a. True
b. False

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Chap 01 29e




36. Receiving payments on an account receivable increases both equity and assets. a. True
b. False

37. The monetary unit assumption requires that economic data be recorded in dollars for companies in the United
States.
a. True
b. False

38. Net income and net profit do not mean the same thing.
a. True
b. False

39. Revenue is earned only when money is received.
a. True
b. False
40. About 90% of the businesses in the United States are organized as corporations. a. True
b. False

41. The majority of businesses end their fiscal year on December 31. a. True
b. False

42. All businesses must use the calendar year (January 1 through December 31) as their fiscal year. a. True
b. False

43. The cost principle is the basis for entering the purchase price into the accounting records. a. True
b. False

44. If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during
the same period, the period's change in total liabilities was a $65,000 increase. a. True
b. False

45. Generally accepted accounting principles regulate how and what financial information is reported by
businesses. a. True
b. False

46. If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets
also total $300,000. a. True
b. False

47. If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the
buyer would record the building at $85,000. a. True
b. False


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