1. Cash Method provides a better indicator of a business's profits or losses.

(FALSE)
2. Accounting is the process of recording and classifying business financial transactions. (FALSE)
3. The Accrual Method (basis) of accounting records income in the period earned and expenses in
the period incurred. (TRUE)
4. The only users of financial information are the owners of a business. (FALSE)
5. A calendar year is the accounting period used by most businesses. (TRUE)
6. Profit is the amount that a business's expenses exceed revenues. (FALSE)
7. Asset Accounts normally have a credit balance. (FALSE)
8. Owner's Withdrawals are not used to figure the profit or loss for a business. (TRUE)
9. Expense Accounts normally have a debit balance. (FALSE)
10. A debit increases the balance of a liability and revenue account. (FALSE)
11. Plant Machinery is a type of asset. (TRUE)
12. A Chart of Accounts is a coded listing of all the accounts included in the General Ledger. (TRUE)
13. A T-Account is a formal accounting record. (FALSE)
14. Every business needs a complex and detailed chart of accounts. (FALSE)
15. The purpose of a chart of accounts is to establish a framework for classifying, recording, and
reporting business transactions. (TRUE)

1. A business organized as a separate legal entity is a

a. corporation.

b. proprietor.

c. government unit.

d. partnership.

2. Which of the following is not one of the three forms of business organization?

a. Corporations

b. Partnerships

c. Proprietorships

d. Investors

3. Which of the following would not be considered an internal user of accounting data for the Xanadu

Company?

a. President of the company

b. Production manager

c. Merchandise inventory clerk

d. President of the employees' labor union

4. The liability created by a business when it purchases coffee beans and coffee cups on credit from

suppliers are termed a(n)

a. account payable.

b. account receivable.

c. revenue.

d. expense.

5. The right to receive money in the future is called a(n)

a. account payable.

b. account receivable.

c. liability.

d. revenue.

6. The cost of assets consumed or services used is also known as

a. a revenue.

b. an expense.

c. a liability.

d. an asset.

8. Dividends are reported on the

a. income statement.

b. retained earnings statement.

c. balance sheet.

d. income statement and balance sheet.

9. Which of the following is an asset?

a. Accounts Receivable

b. Accounts Payable

c. Common Stock

d. Dividends

10. To show how successfully your business performed during a period of time, you would report its

revenues and expenses in the

a. balance sheet.

b. income statement.

c. statement of cash flows.

d. retained earnings statement.

14. Which of the following financial statements is concerned with the company at a point in time?

a. Balance sheet

b. Income statement

c. Retained earnings statement

d. Statement of cash flows

1. A

2. D

3. D

4. A

5. B

6. B

8. B

9. A

10. B

14. A

1. Drawings are the amounts of cash or other assets taken by the owner

from the business for personal use.
2. The excess of current assets over current liabilities is called working
capital.
3. Fixed assets are assets that are purchased for permanent use in the
business.
4. Real accounts exist even after the close of accounting year.
5. A balance sheet is a statement of assets and liabilities of a business.
6.  A balance sheet shows the financial position of a business entity.
7. Current assets are more liquid than fixed assets.
8.  Current liabilities are liabilities that are payable within a year .
9. Assets that can be converted into cash within one year of the operating
cycle are called current assets .
10.  An action undertaken to earn profit is called business
11.  A person who owns a business alone is called a proprietor .
12. Goods sold in the course of trading are called sales
13. Business property is called assets
14. Withdrawal of cash or merchandise for personal use is
called drawing .