Clemson Accounting 2010 Test 1, Acc.
2010 Chapter 1-4 Questions and
Answers
Accounting - ANSWER-a system that collects and processes financial info about an
organization and reports that info to decision makers
Partnership - ANSWER-an unincorporated business owned by 2 or more people
Private Company - ANSWER-a company that sells shares of its stock privately and is
not required to release any of its financial statements to the public
Corporation - ANSWER-an incorporated business that issues shares of stock as
evidence of ownership
Public Company - ANSWER-a company that has its stock bought and sold by investors
on stock exchanges
GAAP - ANSWER-Generally Accepted Accounting Principles
Sole Proprietorship - ANSWER-form of business owned and operated by one individual.
Easiest form of business to start
Accrual Basis Accounting - ANSWER-the better way; recording revenues when earned
and expenses when incurred
Unearned Revenue - ANSWER-a LIABILITY representing company's obligation to
provide goods or services to customers in the future
Net Profit Margin - ANSWER-profit earned from each dollar of revenue
Net profit (before tax)/ Sales = Net Profit Margin
1. Which of the following is not one of the four basic financial statements?
a. The balance sheet
b. The audit report
c. The income statement
d. The statement of cash flows - ANSWER-B
, 2. Which of the following is true regarding the income statement?
a. The income statement is sometimes called the statement of operations.
b. The income statement reports revenues, expenses, and liabilities.
c. The income statement only reports revenue for which cash was received at the point
of sale.
d. The income statement reports the financial position of a business at a particular point
in time. - ANSWER-A
3. Which of the following is false regarding the balance sheet?
a. The accounts shown on a balance sheet represent the basic accounting equation for
a particular business.
b. The retained earnings balance shown on the balance sheet must agree with the
ending retained earnings balance shown on the statement of retained earnings.
c. The balance sheet summarizes the net changes in specific account balances over a
period of time.
d. The balance sheet reports the amount of assets, liabilities, and stockholders' equity of
a business at a point in time. - ANSWER-C
4. Which of the following regarding retained earnings is false?
a. Retained earnings is increased by net income.
b. Retained earnings is a component of stockholders' equity on the balance sheet.
c. Retained earnings is an asset on the balance sheet.
d. Retained earnings represents earnings not yet distributed to stockholders in the form
of dividends. - ANSWER-C
. Which of the following is not one of the items required to be shown in the heading of a
financial statement?
a. The financial statement preparer's name
b. The title of the financial statement c. The financial reporting date or period
d. The name of the business entity - ANSWER-A
6. Which of the following statements regarding the statement of cash flows is false?
a. The statement of cash flows separates cash inflows and outflows into three major
categories: operating, investing, and financing.
b. The ending cash balance shown on the statement of cash flows must agree with the
amount shown on the balance sheet at the end of the same period.
c. The total increase or decrease in cash shown on the statement of cash flows must
agree with the "bottom line" (net income or net loss) reported on the income statement.
d. The statement of cash flows covers a period of time. - ANSWER-C
7. Which of the following regarding GAAP is true?
a. GAAP is an abbreviation for generally applied accounting principles.
b. Changes in GAAP always affect the amount of income reported by a company.
c. GAAP is the abbreviation for generally accepted accounting principles.
d. Changes to GAAP must be approved by the Senate Finance Committee. - ANSWER-
C
2010 Chapter 1-4 Questions and
Answers
Accounting - ANSWER-a system that collects and processes financial info about an
organization and reports that info to decision makers
Partnership - ANSWER-an unincorporated business owned by 2 or more people
Private Company - ANSWER-a company that sells shares of its stock privately and is
not required to release any of its financial statements to the public
Corporation - ANSWER-an incorporated business that issues shares of stock as
evidence of ownership
Public Company - ANSWER-a company that has its stock bought and sold by investors
on stock exchanges
GAAP - ANSWER-Generally Accepted Accounting Principles
Sole Proprietorship - ANSWER-form of business owned and operated by one individual.
Easiest form of business to start
Accrual Basis Accounting - ANSWER-the better way; recording revenues when earned
and expenses when incurred
Unearned Revenue - ANSWER-a LIABILITY representing company's obligation to
provide goods or services to customers in the future
Net Profit Margin - ANSWER-profit earned from each dollar of revenue
Net profit (before tax)/ Sales = Net Profit Margin
1. Which of the following is not one of the four basic financial statements?
a. The balance sheet
b. The audit report
c. The income statement
d. The statement of cash flows - ANSWER-B
, 2. Which of the following is true regarding the income statement?
a. The income statement is sometimes called the statement of operations.
b. The income statement reports revenues, expenses, and liabilities.
c. The income statement only reports revenue for which cash was received at the point
of sale.
d. The income statement reports the financial position of a business at a particular point
in time. - ANSWER-A
3. Which of the following is false regarding the balance sheet?
a. The accounts shown on a balance sheet represent the basic accounting equation for
a particular business.
b. The retained earnings balance shown on the balance sheet must agree with the
ending retained earnings balance shown on the statement of retained earnings.
c. The balance sheet summarizes the net changes in specific account balances over a
period of time.
d. The balance sheet reports the amount of assets, liabilities, and stockholders' equity of
a business at a point in time. - ANSWER-C
4. Which of the following regarding retained earnings is false?
a. Retained earnings is increased by net income.
b. Retained earnings is a component of stockholders' equity on the balance sheet.
c. Retained earnings is an asset on the balance sheet.
d. Retained earnings represents earnings not yet distributed to stockholders in the form
of dividends. - ANSWER-C
. Which of the following is not one of the items required to be shown in the heading of a
financial statement?
a. The financial statement preparer's name
b. The title of the financial statement c. The financial reporting date or period
d. The name of the business entity - ANSWER-A
6. Which of the following statements regarding the statement of cash flows is false?
a. The statement of cash flows separates cash inflows and outflows into three major
categories: operating, investing, and financing.
b. The ending cash balance shown on the statement of cash flows must agree with the
amount shown on the balance sheet at the end of the same period.
c. The total increase or decrease in cash shown on the statement of cash flows must
agree with the "bottom line" (net income or net loss) reported on the income statement.
d. The statement of cash flows covers a period of time. - ANSWER-C
7. Which of the following regarding GAAP is true?
a. GAAP is an abbreviation for generally applied accounting principles.
b. Changes in GAAP always affect the amount of income reported by a company.
c. GAAP is the abbreviation for generally accepted accounting principles.
d. Changes to GAAP must be approved by the Senate Finance Committee. - ANSWER-
C
