LEARNING OBJECTIVES
1. Use accounting vocabulary.
2. Apply accounting concepts and principles.
3. Use the accounting equation.
4. Analyze business transactions.
5. Prepare the financial statements.
6. Evaluate business performance.
TRUE/FALSE
1. Financial statements are documents that report on a business in monetary amounts.
True L.O. 1 Easy Page: 4
2. Nonprofit organizations have no need for accounting information as do profit-
oriented organizations.
False L.O. 1 Easy Page: 5
3. Managers use accounting information to set goals for their organizations.
True L.O. 1 Moderate Page: 5
4. A Certified Management Accountant is a licensed accountant who serves the general
public rather than one particular company.
False L.O. 1 Easy Page: 6
,5. The cost principle states that acquired assets and services should be recorded at their
actual cost.
True L.O. 2 Easy Page: 9
6. The reliability principle is also referred to as the going-concern principle.
False L.O. 2 Moderate Page: 9
7. The accounting equation can be stated as assets + liabilities = owner’s equity.
False L.O. 3 Easy Page: 11
8. Liabilities are economic resources of a business expected to be of benefit in the future.
False L.O. 3 Moderate Page: 10
9. Owner’s equity is often referred to as capital and represents the residual amount of
business assets that can be claimed by the creditors.
False L.O. 3 Moderate Page: 11
10. An owner investment would increase the assets and decrease the equity of the firm.
False L.O. 4 Easy Page: 12
,11. The purchase of supplies on account would have an affect on the liabilities of the firm.
True L.O. 4 Moderate Page: 14
12. One way of decreasing the equity of a business is to increase an asset.
False L.O. 4 Difficult Page: 14
13. The purchase of supplies on account will decrease equity.
False L.O. 4 Moderate Page: 14
14. When revenue is recorded, the asset account cash is always increased along with
owner’s equity.
False L.O. 4 Moderate Page: 14
15. The income statement lists all the entity's assets, liabilities, and owner's equity as of a
specific date.
False L.O. 5 Easy Page: 18
16. Increases in owner’s equity result from revenues and owner investments while
decreases result from expenses and owner withdrawals.
True L.O. 5 Moderate Page: 18
1. An income statement is dated for the last day in the period of time such as "December
31, 20X4."
, False L.O. 5 Easy Page: 20
18. The income statement must be prepared before the statement of owner’s equity since
net income or net loss is added to or subtracted from the beginning balance in the
owner’s capital account.
True L.O. 5 Moderate Page: 21
19. The income statement presents a summary of an entity's assets and liabilities over a
period of time.
False L.O. 5 Easy Page: 18
20. The income statement shows how much liabilities either increased or decreased
during the period.
False L.O. 5 Moderate Page: 18
1. Use accounting vocabulary.
2. Apply accounting concepts and principles.
3. Use the accounting equation.
4. Analyze business transactions.
5. Prepare the financial statements.
6. Evaluate business performance.
TRUE/FALSE
1. Financial statements are documents that report on a business in monetary amounts.
True L.O. 1 Easy Page: 4
2. Nonprofit organizations have no need for accounting information as do profit-
oriented organizations.
False L.O. 1 Easy Page: 5
3. Managers use accounting information to set goals for their organizations.
True L.O. 1 Moderate Page: 5
4. A Certified Management Accountant is a licensed accountant who serves the general
public rather than one particular company.
False L.O. 1 Easy Page: 6
,5. The cost principle states that acquired assets and services should be recorded at their
actual cost.
True L.O. 2 Easy Page: 9
6. The reliability principle is also referred to as the going-concern principle.
False L.O. 2 Moderate Page: 9
7. The accounting equation can be stated as assets + liabilities = owner’s equity.
False L.O. 3 Easy Page: 11
8. Liabilities are economic resources of a business expected to be of benefit in the future.
False L.O. 3 Moderate Page: 10
9. Owner’s equity is often referred to as capital and represents the residual amount of
business assets that can be claimed by the creditors.
False L.O. 3 Moderate Page: 11
10. An owner investment would increase the assets and decrease the equity of the firm.
False L.O. 4 Easy Page: 12
,11. The purchase of supplies on account would have an affect on the liabilities of the firm.
True L.O. 4 Moderate Page: 14
12. One way of decreasing the equity of a business is to increase an asset.
False L.O. 4 Difficult Page: 14
13. The purchase of supplies on account will decrease equity.
False L.O. 4 Moderate Page: 14
14. When revenue is recorded, the asset account cash is always increased along with
owner’s equity.
False L.O. 4 Moderate Page: 14
15. The income statement lists all the entity's assets, liabilities, and owner's equity as of a
specific date.
False L.O. 5 Easy Page: 18
16. Increases in owner’s equity result from revenues and owner investments while
decreases result from expenses and owner withdrawals.
True L.O. 5 Moderate Page: 18
1. An income statement is dated for the last day in the period of time such as "December
31, 20X4."
, False L.O. 5 Easy Page: 20
18. The income statement must be prepared before the statement of owner’s equity since
net income or net loss is added to or subtracted from the beginning balance in the
owner’s capital account.
True L.O. 5 Moderate Page: 21
19. The income statement presents a summary of an entity's assets and liabilities over a
period of time.
False L.O. 5 Easy Page: 18
20. The income statement shows how much liabilities either increased or decreased
during the period.
False L.O. 5 Moderate Page: 18
