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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers
the question.
111) An income statement includes the following types of accounts: 111) _____
A) revenues, expenses and drawings
B) revenues and liabilities
C) revenues and expenses
D) revenues, expenses, assets, liabilities and equity
E) revenues and assets
112) The balance sheet: 112) _____
A) ignores net income as calculated on the income statement.
B) is the only financial statement used by businesses.
C) is totally independent from the income statement.
D) is made up of only asset, liability and equity sections.
E) shows the revenue and expense accounts in descending order.
113) Net income is: 113) _____
A) an asset account.
B) the excess of revenues over expenses.
C) the difference between revenues and expenses.
D) shown on the balance sheet only.
E) a general ledger account.
114) The income statement: 114) _____
A) is another name for the balance sheet.
B) summarizes the company’s revenues and expenses since the
company commenced operations.
C) shows the residual value of the business.
D) is based on an accounting period.
E) has two sections, revenues and liabilities.
115) The matching principle: 115) _____
A) is not a valid generally accepted accounting principle.
B) states that revenues must be matched to the accounting period.
C) ensures debits are matched with credits.
D) requires expenses to be matched with revenues as generated.
E) ensures that assets are recorded.
116) The accrual basis of accounting: 116) _____
A) requires revenue to be recorded before expenses.
B) is a special account used to show the owner’s personal use of
business assets.
C) requires only transactions affecting cash to be recorded.
D) is the same as the cash basis of accounting.
E) requires revenue to be recorded when earned and expenses when
incurred.
117) Which of the following statements about the owner’s drawings is not
true:
117) _____
A) it is shown on the income statement.
B) it indicates the value of assets removed by the owner for personal
use.
C) it normally has a debit balance.
D) it causes a decrease in owner’s equity.
E) it is part of owner’s equity.
118) The balance sheet: 118) _____
A) summarizes assets and expenses.
B) is part of the income statement.
C) is based on the accounting equation.
D) shows accountants where they made errors.
E) determines net income for the period.
119) A revenue account: 119) _____
A) is listed under liabilities in the balance sheet.
B) reduces the owner’s equity.
C) normally has a debit balance.
D) includes costs incurred by a company in its business.
E) is increased by a credit.
120) An expense account: 120) _____
A) includes costs incurred by a company in its business.
B) is listed under liabilities in the balance sheet.
C) does not affect the owner’s equity.
D) is increased by a credit.
E) normally has a credit balance.
121) An account that would be decreased by a debit is: 121) _____
A) drawings.
B) accounts receivable.
C) rent expense.
D) fees earned.
E) cash.
122) An account that would be decreased by a credit is: 122) _____
A) accounts receivable.
B) rent expense.
C) capital.
D) bank loan.
E) fees earned.
123) The normal balance of an account is: 123) _____
A) the right side.
B) the left side.
C) the side it decreases on.
D) the debit side.
E) the side it increases on.
124) Which account would normally appear on an income statement? 124) _____
A) drawings
B) cash
C) rent expense
D) supplies
E) rent payable
125) A rent expense account has a normal balance of $800 at the middle of a
month. Additional rent paid for the current month was $400. The
ending balance in the rent expense account would be:
125) _____
A) $1,200 CR
B) $400 CR
C) $0
D) $400 DR
E) $1,200 DR
126) What is net income for the period if revenues were $35,000; expenses
were $25,000; and drawings were $2,000?
126) _____
A) $10,000
B) $23,000
C) $8,000
D) $33,000
E) cannot be determined with existing information
127) What is owner’s equity at the end of the period if it had a balance of $0
at the beginning of the period, revenues were $45,000, expenses were
$25,000, and drawings were $2,500 for the period?
127) _____
A) $17,500
B) $22,500
C) $70,000
D) $2,500
E) cannot be determined with existing information
128) What is the cash balance at the end of the period if revenues were
$30,000; expenses were $17,500; and drawings were $2,000?
128) _____
A) $47,500
B) $2,000
C) $45,500
D) $12,500
E) cannot be determined with existing information
129) Debits: 129) _____
A) do not affect revenues.
B) decrease revenues and increase expenses.
C) increase revenues and decrease expenses.
D) increase both revenues and expenses.
E) decrease both revenues and expenses.
130) Accounts that normally have credit balances are: 130) _____
A) liabilities, expenses and drawings.
B) liabilities, revenues and drawings.
C) assets, revenues and owner’s capital.
D) liabilities, revenues and owner’s capital.
E) assets, revenues and drawings.
131) Accounts that normally have debit balances are: 131) _____
A) liabilities, drawings and revenues.
B) assets, liabilities and owner’s capital.
C) liabilities, revenues and owner’s capital.
D) assets, drawings and expenses.
E) liabilities, expenses and revenues.
132) Credits: 132) _____
A) increase liabilities and decrease revenues.
B) increase drawings and decrease owner’s capital.
C) decrease liabilities and increase assets.
D) increase both expenses and drawings.
E) increase both revenues and owner’s capital.
133) The following transaction would result in a debit to drawings: 133) _____
A) owner pays for equipment loan.
B) owner pays their personal phone bill.
C) owner pays for business trip.
D) owner pays monthly payroll to employees.
E) owner buys a car for business use.
134) The following transaction would result in a credit to owner’s equity: 134) _____
A) company receives a $2,000 shipment of parts and pays in cash.
B) company buys a new vehicle worth $10,000 and takes out a bank
loan.
C) company receives $9,000 investment from owner.
D) company makes a $10,000 investment in new machinery.
E) company receives a $2,000 shipment of parts on account.
135) What is the owner’s equity account balance at the end of the period if it
had a balance of $65,000 at the beginning of the period and the owner
invested $10,000; revenues were $27,000; expenses were $13,400; and
drawings were $4,600:
135) _____
A) $102,000
B) $84,000
C) $75,000
D) $13,600
E) cannot be determined with existing information
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
136) A loss occurs when expenses are greater than revenues. 136) _____
137) Revenues are recorded only if the cash has been received. 137) _____
138) The matching principle matches credits with debits. 138) _____
139) The fiscal period is the same thing as an accounting period. 139) _____
140) The withdrawal of company assets for personal use requires a debit to
the capital account.
140) _____
141) Revenues increase equity. 141) _____
142) Expenses are recorded on the debit side of expense accounts. 142) _____
143) Net income is recorded in the general ledger. 143) _____
144) The financial statements of a company are made up of the balance sheet,
income statement and trial balance.
144) _____
145) A revenue account would normally have a debit balance. 145) _____
146) Profit is the increase in owner’s equity due to successful operation of the
business.
146) _____
147) Expenses are only recorded if you pay for them during that fiscal
period.
147) _____
148) Net loss is the difference between revenue and expenses when the
expenses are greater.
148) _____
149) The time-period assumption requires that the accounting period used
by the company remains consistent for accurate comparison.
149) _____
150) Profit is the same as Net Income. 150) _____
SHORT ANSWER. Write the word or phrase that best completes each statement or answers
the question.
151) You are the loan manager for a bank. A customer, Lindsay
Enterprises, has applied for a loan to expand its business. In
support of the loan application, the company has supplied an
income statement for the last six months that shows a net
income of $20,000.
The following factors were not considered in the preparation of
the income statement:
∙ Salaries of $5,000 are owed to workers for last month but have
not been paid or recorded as an expense.
∙ Interest of $2,000 is owed to another bank.
∙ Repairs costing $500 have been made to computer equipment
but the invoice has not yet been received from the computer
repair company.
(a) What effect does the omission of the three items have on net
income?
(b) What is the correct net income?
(c) What generally accepted accounting principle was not
followed?
151) ____________
152) You are the loan manager for a bank. A customer, Elora
Enterprises, has applied for a loan to expand its business. In
support of the loan application, the company has supplied an
income statement for the last six months that shows a net
income of $33,000.
The following factors were not considered in the preparation of
the income statement:
∙ Salaries of $3,000 are owed to workers for last month but have
not been paid or recorded as an expense.
∙
Inter
est
of
$1,0
00 is
owe
d to
anot
her
bank.
∙ Sales
totalling
$11,500 have
been
completed but
the invoice has
not been
issued. The
sales
have not
been
recorded
as
Revenue
or
Accounts
Receivab
le.
(a) What
effect
does the
omission
of the
three
items
have on
net
income?
(b) What
is the
correct
net
income?
(c) What
generally
accepted
accounti
ng
principle
was not
followed
?
152) ____
____
____
153) Prepare the July income statement, in acceptable form, for
Vanderlans Service Station, using the following accounts:
Salaries Expense, $3,000; Advertising Expense, $75; Sales of
Parts, $600; Service Fees Earned, $8,000; Rent Expense, $2,500;
Miscellaneous Expense $50; Utilities Expense, $150.
153) ____________
154) Prepare the July income statement, in acceptable form, for
Bowman Gardening Services, using the following accounts:
Cash, $5,000; Advertising Expense, $300; Rent Expense, $2,600;
Salary Expense, $14,500; Consulting Fees Earned, $17,700; Truck
Expense, $2,300; Interest Earned, $100; Utilities Expense, $200;
Gardening Fees Earned, $7,900; Accounts Receivable, $3,000.
154) ____________
155) Complete the following:
Beginning Net Income (Net Loss) Withdrawals Increase/ Ending
Capital Decrease in
Capital
Capital
$22,000 $3,000 $2,000
47,000 (3,000) 2,000
19,500 5,000 5,000
25,700 6,000 $30,000
155) ____
____
____
156) Complete the following:
Beginning
Capital Net Income (Net Loss) Withdrawals
Increase/
Decrease in
Capital
Ending
Capital
$66,000 ($10,000) $1,500
23,500 2,000 26,000
37,700 12,000 10,000
55,200 1,000 (7,000)
156) ____________
157) Explain the difference between calendar year and fiscal year. 157) ____________
158) Explain the following terms:
(a) net income
(b) revenue
(c) expense
(d) drawings
158) ____________
159) Write an equation for the balance sheet and one for the income
statement.
159) ____________
160) Explain the rules for debits and credits for income statement
accounts only.
160) ____________
161) What effect do the following accounts have on owner’s equity?
(a) revenue
(b) expense
(c) drawings
(d) assets
161) ____________
162) Explain each of the following steps in preparing an income
statement.
(a) Prepare statement heading
(b) Prepare revenue section
(c) Prepare expenses section
(d) Determine net income or net loss
162) ____________
163) Explain, using examples, the following GAAP principle and
accounting concept:
(a) Matching Principle
(b) Time Period assumption
163) ____________
164) Explain the difference between accrual based accounting and
cash basis accounting. How does it affect the financial
statements of a company? Which one more accurately portrays
the financial position of the company? Why?
164) ____________
165) Explain why accurate portrayal of a company’s financial
position is important. Give examples of stakeholders that may
use these financials and what decisions may be based on these
statements.
