Financial Accounting Chapter 1 Summary
Chapter 01
1. The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners.
2. The four basic financial statements include the balance sheet, income statement, statement of retained earnings and statement of cash flows.
3. A balance sheet covers a period of time, such as a month or year.
4. The income statement shows the financial position of a business on a specific date.
Chapter 2
5. Debit means the right-hand side of any account.
6. In a double-entry accounting system, total amount debited must always equal total amount credited.
7. A debit entry is always favorable.
8. …show more content…
14. A perpetual inventory system continually updates accounting records for inventory transactions.
Chapter 05
15. For a merchandising business, an increase in sales will probably also result in a higher inventory turnover rate.
16. The consistency principle requires a company to use the same accounting methods period after period, so that financial statements are comparable across periods.
17. In a period of rising prices, FIFO usually gives a lower taxable income, which leads to an advantage when it comes to paying income tax.
18. An advantage of LIFO is that it assigns the most recent costs to cost of goods sold and does a better job of matching current costs with revenues on the income statement.
19. An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.
20. Three key variables determine the dollar value of inventory: (1) inventory quantity, (2) costs of inventory and (3) cost flow assumption.
21. In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement …show more content…
The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection.
34. It is never good practice to accept a note receivable in exchange for an overdue account receivable.
Chapter 01
35. Which of the following accounting principles dictates when expenses are recognized? A. Revenue recognition principle B. Business entity principle C. Matching principle D. Full disclosure principle
36. Which of the following elements are found on the income statement? A. Cash B. Accounts Receivable C. Retained Earnings D. Salaries Expense
37. Which of the following elements are found on the Balance Sheet? A. Service Revenue B. Net Income C. Utilities Expense D. Retained Earnings
38. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser's books at: A. $95,000 B. $137,000 C. $140,000 D.
1. The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners.
2. The four basic financial statements include the balance sheet, income statement, statement of retained earnings and statement of cash flows.
3. A balance sheet covers a period of time, such as a month or year.
4. The income statement shows the financial position of a business on a specific date.
Chapter 2
5. Debit means the right-hand side of any account.
6. In a double-entry accounting system, total amount debited must always equal total amount credited.
7. A debit entry is always favorable.
8. …show more content…
14. A perpetual inventory system continually updates accounting records for inventory transactions.
Chapter 05
15. For a merchandising business, an increase in sales will probably also result in a higher inventory turnover rate.
16. The consistency principle requires a company to use the same accounting methods period after period, so that financial statements are comparable across periods.
17. In a period of rising prices, FIFO usually gives a lower taxable income, which leads to an advantage when it comes to paying income tax.
18. An advantage of LIFO is that it assigns the most recent costs to cost of goods sold and does a better job of matching current costs with revenues on the income statement.
19. An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.
20. Three key variables determine the dollar value of inventory: (1) inventory quantity, (2) costs of inventory and (3) cost flow assumption.
21. In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement …show more content…
The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection.
34. It is never good practice to accept a note receivable in exchange for an overdue account receivable.
Chapter 01
35. Which of the following accounting principles dictates when expenses are recognized? A. Revenue recognition principle B. Business entity principle C. Matching principle D. Full disclosure principle
36. Which of the following elements are found on the income statement? A. Cash B. Accounts Receivable C. Retained Earnings D. Salaries Expense
37. Which of the following elements are found on the Balance Sheet? A. Service Revenue B. Net Income C. Utilities Expense D. Retained Earnings
38. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser's books at: A. $95,000 B. $137,000 C. $140,000 D.