Chapter 1 - Introduction to Accounting and Business

Chapter 1 - Introduction to Accounting and Business

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Indicate whether the statement is true or false.

• A corporation is a business that is legally separate and distinct from its owners.
• True
• False

• The role of accounting is to provide many different users with financial information to make economic decisions.
• True
• False

• Investing activities are those activities by which the company obtains funds to start and operate the business.
• True
• False

• Managerial accounting information is used by external and internal users equally.
• True
• False

• Senior executives cannot be criminally prosecuted for the wrongdoings they commit on behalf of the companies where

they work.

• True
• False

• Financial accounting provides information to all users, while the main focus for managerial accounting is to provide

information to management.

• True
• False

• Proper ethical conduct implies that you only consider what's in your best interest.
• True
• False

• Some major fraudulent acts committed by senior executives started as what they considered to be small ethical lapses

that grew out of control.

• True
• False

• A business is an organization in which basic resources or inputs, like materials and labor, are assembled and processed

to provide outputs in the form of goods or services to customers.

• True
• False

• Operating activities are those activities by which a company generates revenues from customers.
• True
• False

(Accounting, 29e Carl Warren, Jefferson Jones, William Tayler) (Test Bank, Answer at the end of each Chapter) 1 / 4

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Chapter 1 - Introduction to Accounting and Business

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• An example of a general-purpose financial statement would be a report about projected price increases related to

transportation costs.

• True
• False

• The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
• True
• False

• The main objective for all businesses is to maximize unrealized profits.
• True
• False

• The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing

entities.

• True
• False

• The basic difference between manufacturing and retail companies is the completion level of the products they

purchase for resale to customers.

• True
• False

• Proprietorships have one owner and provide only services to their customers.
• True
• False

• About 90% of the businesses in the United States are organized as corporations.
• True
• False

• An example of an external user of accounting information is the federal government.
• True
• False

• The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for

developing accounting principles.

• True
• False

• The cost principle is the basis for entering the purchase price into the accounting records.
• True
• False

• The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States.
• True 2 / 4

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• False

• If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer

would record the building at $85,000.

• True
• False

• The financial statements of a proprietorship should include the owner's personal assets and liabilities.
• True
• False

• No significant differences exist between the accounting standards issued by the FASB and the IASB.
• True
• False

• Generally accepted accounting principles regulate how and what financial information is reported by businesses.
• True
• False

• The accounting equation can be expressed as Assets – Liabilities = Owner's Equity.
• True
• False

• The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners.
• True
• False

• The owner’s rights to the assets rank ahead of the creditors' rights to the assets.
• True
• False

• If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total

$300,000.

• True
• False

• If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the same

period, the period's change in total liabilities was a $65,000 increase.

• True
• False

• If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same

period, the period's change in total owner's equity was a $200,000 increase.

• True
• False

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• If net income for a company was $50,000, $20,000 in owner withdrawals were made, and the owners invested an

additional $10,000 in cash, the owners' equity increased by $40,000.

• True
• False

• An account receivable is typically classified as a revenue.
• True
• False

• An account receivable is a claim against a customer resulting from a sale on account.
• True
• False

• Paying an account payable increases liabilities and decreases assets.
• True
• False

• Receiving payments on an account receivable increases both equity and assets.
• True
• False

• Withdrawals paid to owners decrease assets and increase equity.
• True
• False

• Purchasing supplies on account increases liabilities and decreases equity.
• True
• False

• Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
• True
• False

• Revenue is earned only when money is received.
• True
• False

• Assets that are used up during the process of earning revenue are called expenses.
• True
• False

• The excess of revenue over the expenses incurred in earning the revenue is called capital.
• True
• False

• The primary financial statements of a proprietorship are the income statement, the statement of owners’ equity, the
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