Accounting I Chapter 1 True/False Review

Accounting is the language of business.

• True

• False

A creditor would favor a positive net worth.

• True

• False

Keeping personal and business records separate is an application of the business entity concept.

• True

• False

1. The principles of right and wrong that guide an individual in making personal decisions is called business ethics.

• True

• False

Answer explanation

This is the definition of ethics, not business ethics.

Business ethics refers to implementing appropriate business policies and practices with regard to arguably controversial subjects.

1. Generally Accepted Accounting Principles, GAAP, allows for flexibility in reporting.

• True

• False

Answer explanation

GAAP provides specific guidelines that are to be followed in report business transactions and financial statements.

1. Recording business costs in terms of hours required to complete projects is an application of the unit of measurement concept.

• True

• False

Answer explanation

all reported data presented in a currency must be consistently reported in that same currency, regardless of the currency the business has been transacted in. In this example, hours is not a currency

1. Assets such as cash and supplies have value because they can be used to acquire other assets or be used to operate a business.

• True

• False

1. The relationship among assets, liabilities, and owner’s equity can be written as an equation.

• True

• False

1. The accounting equation does not have to be in balance to be correct.

• True

• False

Answer explanation

The accounting equation MUST be in balance in order to be correct.

1. When a company pays insurance premiums in advance to an insurer, it records the payment as a liability because the insurer owes future coverage.

• True

• False

Answer explanation

This would be recorded as an asset because of the future coverage. This future coverage is something of value to the company (asset).