1. Ramirez Company received their first electric bill in the amount of $60 which will be paid next month. How will this transaction affect the accounting equation?
- Increase Liabilities (Accounts Payable) and decrease Owner's Equity (Utilities Expense)
- Increase Liabilities (Accounts Receivable) and decrease Owner's Equity (Utilities Expense)
- Decrease Assets (Cash) and decrease Liabilities (Accounts Payable)
- Decrease Assets (Cash) and decrease Owner's Equity (Utilities Expense)
2. Earning revenue:
- increases assets, increases owner's equity.
- increases assets, decreases owner's equity
- increases one asset, decreases another asset
- decreases assets, increases liabilities
3. How does the purchase of equipment by signing a note affect the accounting equation?
- assets increase; assets decrease
- assets increase; liabilities decrease
- assets increase; liabilities increase
- assets increase; owner's equity increases
4. The objectivity principle requires that:
- business transactions must be consistent with the objectives of the entity
- the Financial Accounting Standards Board must be fair and unbiased in its deliberations over new accounting standards
- accounting principles must meet the objectives of the Security and Exchange Commission
- amounts recorded in the financial statements must be based on independently verifiable evidence
5. Which of the following is not true of accounting principles?
- Financial accountants follow generally accepted accounting principles (GAAP).
- Following GAAP allows accounting information users to compare one company to another.
- A new accounting principle can be adopted with stockholders approval.
- The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles.
- Accounting principles develop from research, accepted accounting practices, and pronouncements of authoritative bodies.
6. Profit is the difference between:
- assets and liabilities
- the incoming cash and outgoing cash
- the assets purchased with cash contributed by the owner and the cash spent to operate the business
- the assets received for goods and services and the amounts used to provide the goods and services
7. Presently, the dominant body in the development of accounting principles is the:
- American Institute of Certified Public Accountants (AICPA)
- American Accounting Association (AAA)
- Financial Accounting Standards Board (FASB)
- Institute of Management Accountants (IMA)
8. Owned resources of a business are referred to as:
- Assets
- Liabilities
- Equities
- Revenues
9. The assets and liabilities of the company are $175,000 and $40,000, respectively. Owner's equity should equal:
- $215,000
- $135,000
- $175,000
- $40,000
10. How does paying a liability in cash affect the accounting equation?
- assets increase; liabilities decrease
- assets increase; liabilities increase
- assets decrease; liabilities decrease
- liabilities decrease; owner's equity increases