Accounting Chapter 1 Quiz: Effects on Equation

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Questions and Answers

What is the primary purpose of an income statement?

To report the company's revenues and expenses for a specific period (correct)

To summarize the owner's equity over a period

To display the cash flow of the business

To show the company's total assets and liabilities

Which financial statement includes information about assets, liabilities, and owner's equity?

Cash flow statement

Statement of owner's equity

Balance sheet (correct)

Income statement

What does the statement of owner's equity primarily report?

The liabilities owed by the company at the end of the period

The company's total revenue generated over the year

Changes in the owner's equity from one period to another (correct)

The cash inflows and outflows for the month

Which of the following components is NOT included in the balance sheet?

Total revenues Signup and view all the answers

When preparing financial statements, which order is typically followed?

Income statement, Statement of owner's equity, Balance sheet Signup and view all the answers

What is the effect on Vivian's equity when cash increases?

Equity increases Signup and view all the answers

In the accounting equation of Sam's Snack Foods, which transaction would increase liabilities?

Acquisition of a loan Signup and view all the answers

How does a service revenue increase affect the accounting equation for Ashley Stamper, M.D.?

Increases equity Signup and view all the answers

What impact does a salary payment have on Ashley Stamper's accounting equation?

Decreases assets and increases expenses Signup and view all the answers

Which account classification is affected when cash is withdrawn by the owner in Ashley Stamper's practice?

Equity decreases Signup and view all the answers

If land is purchased for cash by Ashley Stamper, what is the net effect on the accounting equation?

Assets remain unchanged Signup and view all the answers

What effect does increasing accounts payable have on the accounting equation for Sam's Snack Foods?

Liabilities increase Signup and view all the answers

When utility expenses are recorded in Ashley Stamper's accounting system, what is the consequence?

Equity decreases and assets decrease Signup and view all the answers

What are the primary components that make up the accounting equation?

Assets + Liabilities = Equity Signup and view all the answers

Which financial statement shows the revenues and expenses of a business over a specific period?

Income Statement Signup and view all the answers

If the cash balance at the beginning of the period is $1,900.00, which of the following could correctly represent the cash balance at the end of the period if the business received $1,000.00 in cash revenue?

$2,900.00 Signup and view all the answers

What will be the effect on equity if there is a withdrawal of $3,200.00?

Decrease by $3,200.00 Signup and view all the answers

In the provided financial statements, which component is NOT part of liabilities?

Service Revenue Signup and view all the answers

Study Notes

Business Transactions and the Accounting Equation

Business transactions impact the accounting equation: Assets = Liabilities + Equity.
In Vivian's Online Video Store, cash (an asset) increases alongside Vivian's capital (equity).
Sam's Snack Foods undergo similar transactions, showing changes in their assets, liabilities, and equity.

Analysis of Ashley Stamper's Medical Practice

Key accounts to consider: Cash, Land, Supplies, Accounts Payable, Revenues, and various Expenses.
The practice monitors its assets (cash, supplies) against liabilities (accounts payable) and equity (Stamper’s capital, withdrawals).
Each account’s new balance reflects ongoing activities, such as revenue earned and expenses incurred (salaries, rent, utilities).

Income Statement for Wilson Towing Service

Income statement prepared for the period ending June 30, 2018.
Reports revenues and expenses, leading to net income or loss.
Essential for understanding financial performance over a specific time.

Statement of Owner's Equity for Wilson Towing Service

Prepares a statement that accounts for changes in owner’s equity for June 30, 2018.
Includes investments by the owner and withdrawals alongside the net income from the income statement.
Critical for assessing the equity changes in the business over the month.

Balance Sheet for Wilson Towing Service

Balance sheet presentation as of June 30, 2018, detailing assets, liabilities, and owner's equity.
Confirms the accounting equation remains balanced.
Key for stakeholders to understand the financial position at a specified date.

Public Relations Firm - Solid Gold Analysis

Key accounts include Cash, Office Supplies, Revenues, Accounts Payable, and Expenses.
Balance sheet reflects the firm’s financial standing, ensuring liabilities and equity align with assets.
The monitoring process involves understanding how fees for services and advertising expenses affect the overall financial health.

General Reporting Requirements

Each financial statement (income statement, statement of owner's equity, balance sheet) serves a distinct purpose.
Together, they provide comprehensive insights into a business's financial performance and position.
Essential for stakeholders, including owners, investors, and creditors, to make informed decisions.

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Description

This quiz examines the impacts of various business transactions on the accounting equation specific to Vivian's Online Video Store. Students will classify accounts and identify increases or decreases in assets and equity. Test your understanding of basic accounting principles as outlined in Horngren's Accounting.