Question

1.)External users are those within an organization who use financial information to make day-to-day decision.

Group of answer choices

True

False

2)The four basic financial statements are Income Statement, Statement of Owner's Equity, Balance Sheet and the Chart of Accounts.

Group of answer choices

True

False

3)Generally Accepted Accounting Principles (GAAP) are accounting principles, assumptions, concepts (the rules) that guide the preparation and presentation of financial statements.

Group of answer choices

True

False

4)In double-entry bookkeeping, at least four accounts are involved.

Group of answer choices

True

False

5)Normal balance of the account is the side that it increases on.

Group of answer choices

True

False

6)The accounting concept that requires a business to only report activities on the financial statements that are specifically related to company operations, not those activities that affect the owner personally is known as the:

Group of answer choices

Cost principle

Gong-concern assumption

Time-period assumption

Separate Entity Concept

7)The accounting assumption that assumes a business will continue to operate in the foreseeable future (12 months) is the:

Group of answer choices

Going Concern Assumption

Cost Principle.

Revenue Recognition Principle

Time Period Assumption

8)Identify the account below that is classified as an asset account:

Group of answer choices

Unearned Revenue

Accounts Receivable

Common Stock

Accounts Payable

9)A debit is used to record an increase in all of the following accounts except:

Group of answer choices

Utilities Expense

Cash

Accounts Payable

Prepaid Insurance

10)If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Group of answer choices

Debit Unearned Legal Fees and credit Accounts Receivable

Debit Cash and credit Legal Fees Earned

Debit Cash and credit Unearned Legal Fees

Debit Unearned Leagl Fees and credit Legal Fees Earned

11)

Revenue Recognition Principle says that revenue is recognized when:

Group of answer choices

it is earned

cash is received

a deposit is made for future work

we owe another company

Answer 1

1) False

External users of the financial information are outside the organisation like shareholders, lenders, bankers, etc. They do not use the information for regular day to day decision. It is the internal managers of the firm who use information for regular decision making on day to day basis

2) False

The four basic financial statements are Income statement, Statement of owner’s equity, Balance sheet and Cash flow statement. Chart of account is a numerical representation of account to be used for accounting purpose

3) True

GAAP are the fundamental accounting concept and principles based on which financial statements should be prepared. For example: principle of consistency, principle of materiality, etc

4) False

For double entry accounting 2 accounts are involved. One account is involved for debit and another accounts involved for credit. For example: Rent paid in cash entry is Rent expense debit and cash is credited

5) True

Normal balance of account is the side that increases on. For example: Asset balance increases on debit side so normal balance is debit

6) Separate Entity Concept

AS per separate entity concept the business has separate identity from the owners of the business. The personal transactions should not be clubbed with business transactions and accounting has to be done. For example: drawings for personal purpose should be deducted from the capital account

7) Going concern assumption

The financial statements of the entity are prepared on the assumption that the entity is a going concern for a foreseeable future and there is no intention to liquidate the firm.

8) Accounts receivable

Accounts receivable are current assets of the business generated from operations due to sales. Unearned revenue and accounts payable are current liabilities. Common stock is part of stockholders equity

9) Accounts payable

In case of accounts payable debit is decrease in balance of accounts payable since it is normally credit balance. Debit to utilities expense, cash and prepaid insurance represents increase.

10) Debit unearned legal fees and credit legal fees earned

Unearned legal fees are debited for the revenue recognised. There is no debit involved to cash and no credit involved for accounts receivable.

11) It is earned

As per revenue recognition concept revenue should be recognised when the goods are delivered or service is performed. Hence cash is not important in recognition of revenue. As and when sales are made to customers the revenue is accrued and recognised in income statement.