Accounting 1 chapter 1

Which of the following requires that economic data be recorded in dollars in the U.S.?

Unit of measure concept. The unit of measure concept requires that economic data be recorded in dollars. Money is a common unit of measurement for reporting financial data and reports.

Owner’s equity can best be defined as:

the rights of owners.

Clayton Company purchased a new coffee maker in the amount of $3,500. Clayton paid $1,000 down and will pay the remainder in 60 days. What effect does this transaction have on the accounting equation?

$2,500 net increase in assets and $2,500 increase in liabilities. Note: Assets will have a net increase of $2,500 (due to an increase to Equipment of $3,500 and a decrease of $1,000 cash). Liabilities (likely in the form of Accounts Payable) will be increased by $2,500.

The statement that reports net income or loss for a certain period in time is the:

Income statement.

Assets of a company may include:

cash, inventory, buildings, and equipment.

Which of the following is not considered an internal user of accounting information?

Supplier.

Ramos Inc. has total assets of $1,000 and total liabilities of $450 on December 31, 2013. Assume that assets increased by $130 and liabilities decreased by $25 during 2014. What would owner’s equity be as of December 31,2014?

$705. Note: Assets will be $1,130 and liabilities will be $425 as of December 31, 2014. Thus, the accounting question is:$1,130 = $425 + Owner’s equity, resulting in $705 as the owner’s equity balance at the end of 2014. Assets = Liabilities + owner’s equity. 1000 = 425 + ? +130 = 0 + ? 1130 = 425 ? 1130 – 425 = $705.

All of the following are incorrect as to the rights of creditors regarding a business’s assets except:

the rights of creditors come before the rights of stockholders. note: The rights of creditors to a business’s assets come before the rights of the owners or stockholders.

Each of the following transactions affect owner’s equity except:

the purchase of land with cash. note: The asset purchased (land) increases assets by the same amount as cash (an asset) decreases. There is no effect on the accounting equation and no change to either liabilities or owner’s equity.

Include on the balance sheet are:

assets, liabilities, and owner’s equity accounts.

A(n) _____________ changes basic inputs into products that are sold to customers.

manufacturing business. note: Manufacturing businesses purchase materials to be transformed into a product and sold to another business.

Which of the following is not true about GAAP?

GAAP allows a company’s management to record and report data as it sees fit.

Which of the following is not accurate when it pertains to managerial accounting?

Provides economic data reports on the operation and condition of the business that are useful for banks and other creditors in deciding whether to lend money to the business. note: Managerial accounting uses both financial accounting and estimated data to help management in running day-to-day operations and in planning future operations.

Corporations refer to total owner’s equity as:

total stockholders’ equity. Note: Corporations refer to total owner’s equity as total stockholders’ equity.

The following data were taken from Reynolds Company balance sheet.
Dec. 31, 2014 Dec. 31, 2013
Total liabilities $240,000 $210,000
Total owner’s equity $160,000 $150,000
Which of the following best explains the change in creditors’ risk from 2013 to 2014?

increased risk.

Which of the following does not represent the accounting equation?

Assets + Owner’s Equity = Liabilities. note: In its traditional form, the accounting equation is Assets = Liabilities + Owner’s Equity.

Which financial statement reports financial data based on the matching concept?

Income Statement. note: the income statement repots the revenues and expenses for a period of time, based on the matching concept. This concept is applied by matching the expenses incurred during a period with the revenue that those expenses generated.

Which of the following forms of business entities generates 90% of business revenues in the U.S.?

Corporations Note: Although corporations only comprise 20$ of the business organizations in the U.S., they generated 90% of the business revenues.