PRE-ASSESSMENT 12.

Net income occurs when revenues exceed

expenses.
1. The primary objective of financial a) True
accounting is to provide general purpose b) False
financial statements to help external users 13. Liabilities are the owner's claim on assets.
analyze and interpret an organization's a) True
activities. b) False
a) True 14. Assets are the resources of a company and
b) False are expected to yield future benefits.
2. External auditors examine financial a) True
statements to verify that they are prepared b) False
according to generally accepted accounting 15. Owner's withdrawals are expenses.
principles. a) True
a) True b) False
b) False 16. The accounting concept that requires
3. External users include lenders, financial statement information to be supported
shareholders, customers, and regulators. by independent, unbiased evidence other than
a) True someone's belief or opinion is:
b) False a) Business entity assumption.
4. A partnership is a business owned by two b) Monetary unit assumption.
or more people. c) Going-concern assumption.
a) True d) Time-period assumption.
b) False e) Objectivity.
5. Owners of a corporation are called 17. The accounting assumption that requires
shareholders or stockholders. every business to be accounted for separately
a) True from other business entities, including its owner
b) False or owners is known as the:
6. In the partnership form of business, the a) Time-period assumption.
owners are called stockholders. b) Business entity assumption.
a) True c) Going-concern assumption.
b) False d) Revenue recognition principle.
7. The balance sheet shows a company's net e) Cost principle.
income or loss due to earnings activities over a 18. The rule that requires financial statements
period of time. to reflect the assumption that the business will
a) True continue operating instead of being closed or
b) False sold, unless evidence shows that it will not
8. Generally accepted accounting principles continue, is the:
are the basic assumptions, concepts, and a) Going-concern assumption.
guidelines for preparing financial statements. b) Business entity assumption.
a) True c) Objectivity principle.
b) False d) Cost Principle.
9. The business entity assumption means that e) Monetary unit assumption.
a business is accounted for separately from 19. To include the personal assets and
other business entities, including its owner or transactions of a business's owner in the
owners. records and reports of the business would be in
a) True conflict with the:
b) False a) Objectivity principle.
10. As a general rule, revenues should not be b) Monetary unit assumption.
recognized in the accounting records until it is c) Business entity assumption.
received in cash. Revenues are increases in d) Going-concern assumption.
equity from a company's earning activities. e) Revenue recognition principle.
a) True 20. The accounting principle that requires
b) False accounting information to be based on actual
11. A net loss occurs when revenues exceed cost and requires assets and services to be
expenses. recorded initially at the cash or cash-equivalent
a) True amount given in exchange, is the:
b) False a) Accounting equation.
 b) Cost principle. a) Net Income
c) Going-concern assumption. b) Expense.
d) Realization principle. c) Equity.
e) Business entity assumption d) Revenue.
21. Which of the following accounting e) Net loss.
principles would require that all goods and 28. Creditors' claims on the assets of a
services purchased be recorded at cost? company are called:
a) Going-concern assumption. a) Net losses.
b) Matching principle. b) Expenses.
c) Cost principle. c) Revenues.
d) Business entity assumption. d) Equity.
e) Consideration assumption. e) Liabilities.
22. Which of the following accounting 29. Decreases in equity that represent costs of
principles prescribes that a company record its assets or services used to earn revenues
expenses incurred to generate the revenue are called:
reported? a) Liabilities.
a) Going-concern assumption. b) Equity.
b) Matching principle. c) Withdrawals.
c) Cost principle. d) Expenses.
d) Business entity assumption. e) Owner's Investment.
e) Consideration assumption. 30. The description of the relation between a
23. Revenue is properly recognized: company's assets, liabilities, and equity,
a) When the customer's order is which is expressed as Assets = Liabilities +
received. Equity, is known as the:
b) Only if the transaction creates an a) Income statement equation.
account receivable. b) Accounting equation.
c) At the end of the accounting period. c) Business equation.
d) Upon completion of the sale or when d) Return on equity ratio.
services have been performed and e) Net income
the business obtains the right to
collect the sales price.
e) When cash from a sale is received.
24. Net Income:
a) Decreases equity.
b) Represents the amount of assets
owners put into a business.
c) Equals assets minus liabilities.
d) Is the excess of revenues over
expenses.
e) Represents owners' claims against
assets.
25. Resources that are expected to yield future
benefits are:
a) Assets.
b) Revenues.
c) Liabilities.
d) Owner's Equity.
e) Expenses.
26. Increases in equity from a company's
earnings activities are:
a) Assets.
b) Revenues.
c) Liabilities.
d) Owner's Equity.
e) Expenses.
27. The difference between a company's
assets and its liabilities, or net assets is: