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CHAPTER 1 ACCOUNTING IN ACTION SUMMARY OF QUESTIshowing page 4 out of 53

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Test Bank for Accounting Principles, Eighth Edition
1 - 4
requires that the activities of each economic entity be kept separate from the activities of its
owner and other economic entities.
6.
State the accounting equation, and define assets, liabilities, and owner's equity.
The
basic accounting equation is:
Assets = Liabilities + Owner's Equity
Assets are resources owned by a business. Liabilities are creditorship claims on total assets.
Owner's equity is the ownership claim on total assets.
7.
Analyze the effects of business transactions on the accounting equation.
Each business
transaction must have a dual effect on the accounting equation. For example, if an individual
asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase
in a specific liability, or (3) increase in owner's equity.
8.
Understand the four financial statements and how they are prepared.
An income
statement presents the revenues and expenses of a company for a specified period of time.
An owner's equity statement summarizes the changes in owner's equity that have occurred
for a specific period of time. A balance sheet reports the assets, liabilities, and owner's equity
of a business at a specific date. A statement of cash flows summarizes information about the
cash inflows (receipts) and outflows (payments) for a specific period of time.
a
9.
Explain the career opportunities in accounting
. Accounting offers many different jobs in
fields such as public and private accounting, government, and forensic accounting.
Accounting is a popular major because there are many different types of jobs, with unlimited
potential for career advancement.
TRUE-FALSE STATEMENTS
1.
Owners of business firms are the only people who need accounting information.
2.
Transactions that can be measured in dollars and cents are recorded in the financial
information system.
3.
The hiring of a new company president is an economic event recorded by the financial
information system.
4.
Management of a business enterprise is the major external user of information.
5.
Accounting communicates financial information about a business enterprise to both
internal and external users.
6.
Accounting information is used only by external users with a financial interest in a
business enterprise.
7.
Financial statements are the major means of communicating accounting information to
interested parties.
8.
Bookkeeping and accounting are one and the same because the bookkeeping function
includes the accounting process.

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