Q: Which formula correctly represents the relationship shown on the balance sheet?

$$\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$$

Question 1

Which of the following best describes the accrual basis of accounting under GAAP?

Accepted Answer

Revenue is recognized when goods and services are delivered, and expenses are recognized when economic resources are consumed.

Question 2

A company delivers services in December but receives payment in January. Under the accrual basis, when should the company recognize the revenue?

Accepted Answer

In December, when the services are delivered.

Question 3

Which formula correctly represents the relationship shown on the balance sheet?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Owners' Equity}$$

Question 4

Which of the following is NOT considered a business entity type?

Accepted Answer

Dividend

Question 5

A company has the following information for the year: Revenue = $$5,000, Expenses = 3$$,200. What is the Net Income?

Accepted Answer

$$1,800$$

Question 6

Which statement best describes the purpose of the Statement of Retained Earnings?

Accepted Answer

It reports the changes in retained earnings due to net income and dividends over a period.

Question 7

If a company starts the year with $$10,000 in retained earnings, earns 4$$,000 in net income, and pays $1,500 in dividends, what is the ending retained earnings?

Accepted Answer

$$12,500$$

Question 8

Which of the following is included in revenue on the income statement?

Accepted Answer

Income earned from selling goods and services.

Question 9

A business purchases equipment for $2,000 cash. How does this transaction affect the balance sheet equation?

Accepted Answer

One asset (equipment) increases by $$2,000; another asset (cash) decreases by 2$$,000; total assets remain unchanged.

Question 10

Which of the following best describes an expense in financial accounting?

Accepted Answer

Consumption of economic resources.

Question 11

A company has assets of $$50,000 and liabilities of 20$$,000. What is the owners' equity?

Accepted Answer

$$30,000$$

Question 12

Which financial statement would you use to determine the financial position of a company at a specific point in time?

Accepted Answer

Balance Sheet

Question 13

If a company pays $500 in dividends during the year, how does this affect the Statement of Retained Earnings?

Accepted Answer

Dividends decrease retained earnings by $500.

Question 14

Which of the following is a key difference between the cash basis and accrual basis of accounting?

Accepted Answer

Accrual basis recognizes revenue when goods and services are delivered, regardless of cash receipt.

Question 15

A partnership is best described as:

Accepted Answer

A business owned by two or more individuals sharing profits and losses.

Question 16

Which of the following transactions would NOT affect the income statement?

Accepted Answer

Payment of dividends to shareholders.

Question 17

A company has beginning retained earnings of $$2,000, net income of 1$$,200, and dividends of $400. What is the ending retained earnings?

Accepted Answer

$$2,800$$

Question 18

Which of the following is NOT a component of owners' equity on the balance sheet?

Accepted Answer

Dividends Payable

Question 19

If a corporation issues new shares of common stock, which section of the balance sheet is directly affected?

Accepted Answer

Owners' Equity

Question 20

Which equation is used to calculate ending retained earnings?

Accepted Answer

$$	ext{Ending Retained Earnings} = 	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$$

Chapter 1: Introduction to Financial Accounting – Key Concepts and Financial Statements

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