Questions and Answers
The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.
True
Stakeholders are any persons or groups who will be affected by an action.
True
An income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss.
True
The Matching Expenses with revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal periods.
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Information needed to prepare an income statement comes from the trial balance columns and the income statement columns of a worksheet.
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The income statement for a service business has five sections: heading, revenue, expenses, net income or loss, and capital.
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The income statement's account balances are obtained from the worksheet's Income Statement columns.
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The net income on an income statement is verified by checking the balance sheet.
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Single lines ruled across an amount column of an income statement indicated that amounts are to be added.
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A component percentage is the percentage relationship between one financial statement item and the total that includes that item.
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Component percentages on an income statement are calculated by dividing sales and total expenses by net income.
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All companies should have a total expenses component percentage that is not more than 80.0%.
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When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.
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An amount written in parentheses on a financial statement indicates an estimate.
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A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.
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A balance sheet reports information about the elements of the accounting equation.
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The owner's capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance, less net income.
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The position of the total asset line on the balance sheet is determined after the equities section is prepared.
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Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct.
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The owner's equity section of a balance sheet may report different kinds of details about owner's equity, depending on the need of the business.
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The date on a monthly income statement prepared on July 31 is written as _____.
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Information needed to prepare an income statement's revenue section is obtained from a worksheet's Account Title column and _____.
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Information needed to prepare an income statement's expense section is obtained from a worksheet's Account Title column and _____.
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The amount if net income calculated on an income statement is correct if _____.
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The formula for calculating the net income component percentage is _____.
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A balance sheet has three sections: heading, assets, liabilities.
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The owner's capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance less net income.
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The formula for calculating net income is: total revenue minus total expenses equals net income.
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The net income calculated for the income statement and the net income on the worksheet must be the same.
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On an income statement, double lines are ruled across both amount columns to indicate the debits equal credits.
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For a service business, the revenue reported on an income statement includes components for total expenses and net income.
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The formula for calculating the total expenses component percentage is: total expenses divided by total sales equals expenses component percentage.
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The financial condition of a business refers to its financial strength.
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The current capital to be reported on a balance sheet is calculated as: the capital account balance plus net income equals current capital.
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The owner's equity section of a balance sheet may report different kinds of details about owner's equity, depending on the need of the business.
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Component percentages on an income statement are calculated by dividing sales and total expenses by net income.
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A component percentage is the percentage relationship between one financial statement item and the total that includes that item.
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An income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss.
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An amount written in parentheses on a financial statement indicates an estimate.
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A balance sheet reports financial information over a specific period of time.
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When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.
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Preparing financial statements at the end of each monthly fiscal period is an application of the accounting concept _____.
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A balance sheet reports a business's financial _____.
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When preparing a balance sheet, the amount of owner's capital is calculated using amounts obtained from _____.
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Information needed to prepare a balance sheet liabilities section is obtained from a worksheet's Account Title and _____.
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Assuring the financial statements contain all information necessary to understand a business's financial condition is an application of the accounting concept _____.
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Study Notes
Accounting Concepts and Principles
- Adequate Disclosure: Ensures financial statements include all necessary information for understanding a business's financial condition.
- Stakeholders: Defined as individuals or groups affected by business actions.
- Matching Expenses with Revenue: Revenue earned and related expenses must be reported in the same fiscal period for accuracy.
Income Statement Details
- Time Frame: Income statements report financial performance over a specific duration, showing net income or loss.
- Components: An income statement for service businesses includes sections for heading, revenue, expenses, and net income or loss (does not include capital).
- Account Balances: Income statement account balances are derived from the work sheet's Income Statement columns.
- Component Percentages: Represents the percentage relationship between an item on a financial statement and the total, calculated as item value divided by total.
Balance Sheet Essentials
- Balance Sheet Structure: Reports financial information on a specific date, detailing assets, liabilities, and owner's equity.
- Accounting Equation: Balance sheet reflects the elements of the accounting equation: Assets = Liabilities + Owner's Equity.
- Owner's Equity Calculations: The owner’s capital is not calculated as stated; the formula is incorrect.
- Verification: Double lines across the balance sheet columns indicate the totals have been verified.
Income Statement Accuracy
- Revenue and Expense Sections: Revenue and expenses for an income statement are gathered from specified columns in a work sheet.
- Net Income Verification: The calculated net income must match net income shown on the work sheet for correctness.
- Component Percentage Formulas: Total expenses component percentage calculated as total expenses divided by total sales.
Key Statements & Definitions
- Income statements are for a period, while balance sheets report at a specific date.
- An amount in parentheses on financial statements does not indicate an estimate but usually signifies a negative figure (like a loss or deduction).
- When handling multiple revenue sources, only one income statement is prepared for all; separate statements are not necessary.
Additional Accounting Concepts
- Accounting Period Cycle: Involves preparing financial statements at the end of each monthly fiscal period.
- Understanding Financial Position: Refers to the overall financial strength of a business.
- Owner's Equity Variability: The owner's equity section on balance sheets can vary in detail based on business needs.
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Description
This quiz covers fundamental accounting concepts like adequate disclosure, stakeholder definitions, and the matching principle of expenses with revenue. Additionally, it delves into the structure and components of income statements, including time frames and percentage relationships. Test your knowledge of these vital accounting principles.
