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