Chapter 7 Test Review

What are the three sections of the balance sheet?

• Assets, Liabilities, and Equity

• Revenue, Expenses, and Profit

• Cash Flow, Income, and Expenses

• Investments, Dividends, and Retained Earnings

How do you calculate the capital account amount for the balance sheet?

• Beginning Capital (+Net Income or – Net Loss) – Drawing = Capital Account for Balance Sheet

• By subtracting liabilities from assets

• By adding total revenue and total expenses

• By subtracting total expenses from total revenue

How do you calculate net income on the income statement?

• Subtract total expenses from total revenues

• Add total expenses to total revenues

• Multiply total revenues by total expenses

• Divide total revenues by total expenses

What should net income on the income statement be equal to?

• Net income on the income statement should be equal to the net increase in cash for the period.

• The net income for the work sheet

• Net income on the income statement should be equal to the total assets minus total liabilities.

• Net income on the income statement should be equal to the gross profit minus operating expenses.

What is the Adequate Disclosure accounting concept?

• When financial statements contain all the necessary information to understand a

  business’s current financial condition.

• It mandates that financial statements are prepared in accordance with historical cost.

• It ensures that financial statements are prepared on a cash basis.

• It requires that all financial transactions are recorded at fair value.

What do double lines ruled on an income statement tell you?

• Amount is correct. You are done.

• They separate different sections of the income statement.

• They highlight important figures that need attention.

• They are used to denote negative values or losses.

What are component percentages figured for?

• Sales, Total Expenses, Net income/ Net Loss

• To determine the absolute value of each component

• To calculate the growth rate of each component

• To compare the components with those of a different entity

How do you calculate component percentages?

• Divide Total expenses by Sales

  Divide Net Income/Loss by Sales

• Multiply each component's value by the total and divide by 100

• Subtract each component's value from the total and multiply by 100

• Add each component's value to the total and divide by 100

What does the term “financial condition” mean?

• Financial strength of a company

• A specific type of investment strategy.

• The process of budgeting and forecasting future financial performance.

• A legal term for bankruptcy proceedings.

What does a detailed Owner’s equity section on a balance sheet contain?

• Detailed information over how to calculate new balance sheet capital amount

• Current liabilities and long-term liabilities

• Cash flow from operating activities

• Revenue and expenses