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accounting chapter 2 practice test

T/F: The basic elements of a financial accounting system include a framework for preparing financial statements
true
T/F: The accounting equation is Assets = Liabilities + Stockholder’s Equity
true
T/F: Any given transaction must affect at least 2 different parts of the accounting equation
false
T/F: Dividends are an example of an expense
false
T/F: Retained earnings will be increased by the amount in the dividend account
false
By keeping a running total of the effects of transactions, the accounting equation provides a framework for summarizing the effects of a series of transactions
true
T/F: A business receives $10,000 cash for a sale of merchandise and records this receipt of cash as an increase in accounts receivable by mistake. The accounting equation is still in balance
true
The effect of every transaction is an increase or decrease in 1 or more of the accounting equation elements
true
T/F: The accounting equation can be expressed: Assets-Liabilities=Revenues
false
T/F: When an accounts payable is paid in cash, the stockholder’s equity in the business increases
false
T/F: A transaction can affect at most 2 elements of the accounting equation
false
T/F: When an account receivable is collected in cash, the total assets of the business increase
false
T/F: Equality of the accounting equation means no errors have occured
false
T/F: It is possible for a transaction to change the makeup of assets, but to NOT affect assets in total
true
T/F: When capital stock is issued by a corporation for cash, both the income statement and the balance sheet are affected
false
T/F: Fees earned and received in cash will increase operating activity cash flows as well as retained earnings
true
T/F: Miscellaneous expenses are expenses that have an undetermined amount to be paid
false
T/F: The payment of utilities expense in cash would affect the operating activities in the statement of cash flows and the income statement but NOT the balance sheet
false
T/F: Revenues decrease stockholder’s equity
false
T/F: The two sides of the accounting equation don’t have to be equal
false
The basic financial statements do not include
tax return
Which of the following is NOT an element of the financial accounting system
a set of rules for the stock exchange
If a $15,000 purchase of equipment for cash is incorrectly recorded as an increase to equipment and as an increase to cash, at the end of the period assets will
exceed liabilities and stockholders equity by $30,000
Which of the following is NOT considered to be a liability
Accounts receivable
Which of the following is not true about liabilities?
Liabilities do not include wages owed to employees of the company
Which of the following accounts is a stockholder’s equity account?
capital stock
Which of the following group of accounts are all assets?
prepaid expenses, buildings, patents
Which of the following situations increase stockholder’s equity
Services are provided on account
Stockholder’s Equity will b reduced by all of the following except
revenues
The gross increases in stockholder’s equity attributable to business activities are called
revenues
The payment of $15,000 for expenses was recorded by Spears Co. as an increase in cash of $15,000 and a decrease in retained earnings of $15,000. What is the effect of this error on the accounting equation
Total assets will exceed total liabilities and stockholder’s equity by $30,000
Which of the following will increase stockholder’s equity
Owner investment
A ____ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded
transaction
The statement of cash flows is integrated with the balance sheet because
the cash at the beginning of the period + or – the cash flows from the operating, investing, and financing activities equals the end of period cash reported on the balance sheet
effect on S/E after borrowing money from bank?
no effect
effect on S/E by paying creditors?
no effect
effect on S/E by purchasing store equipment
no effect
effect on S/E by paying dividends
decrease
Declaring and paying cash dividends affects which accounts?
cash and retained earnings
Buying equipment for cash affects which accounts?
cash and equipment
Receiving cash for fees earned affects which financial statement elements?
assets and stockholder’s equity
Paying expenses affects which financial statement element?
assets and stockholder’s equity
The payment of a liability
decreases assets and decreases liabilities

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