CHAPTER 7 REVIEW
Accounting
Identifying Accounting Concepts and Practices
1. When a business has two different sources of revenue, they should both be recorded
on the same income statement.
2.
A balance sheet reports financial information on a specific date and includes the
assets, liabilities, and owner’s equity.
3.
An amount written in parentheses on a financial statement indicates a loss.
4.
Information needed to prepare and Income Statement comes from the worksheet
income statement columns.
5.
The Matching Expenses with Revenue accounting concept is applied when the
revenue earned and the expenses incurred to earn that revenue are reported in the
same fiscal period.
6.
An income statement reports information over a period of time, indicating financial
progress of a business in earning a net income or a net loss.
7.
A component percentage is the percentage relationship between one financial
statement item and the total that includes that item.
8.
Component percentages on an income statement are calculated by dividing total
expenses and net income by sales.
9.
The owner’s equity section of a balance sheet may report different kinds of details
about owner’s equity, depending on the need of the business.
10. The current capital to be reported on a balance sheet is calculated as the capital
account balance minus drawing plus net income.
11. The financial condition of a business refers to it financial strenght.
12. For a service business, the revenue reported on an income statement includes
components for total expenses and net income.
13. On an income statement, double lines are ruled across both amount columns to
indicate that the net income equals the net income on the worksheet.
14. The Adequate Disclosure accounting concept is applied when financial statements
contain all information necessary to understand a business’s financial condition.
15. The net income calculated for the income statement and the net income on the
worksheet must be the same.
16. The formula for calculating net income is: total revenue minus total expenses equals
net income.
17. Reporting in the same fiscal period the revenue earned and the expenses incurred to
earn that revenue is an application of the accounting concept Matching Expenses
with Revenue.
Identifying Financial Statement Procedures
1. The date on a monthly income statement prepared on July 31 is written as: For the
Month Ended July 31, 2001.
2. The amount of net income calculated on an income statement is correct if it is the
same as net income shown on the worksheet.
3. Accounting Period Cycle: Preparing financial statements at the end of each monthly
fiscal period.
4. Information needed to prepare an income statement’s revenue section is obtained
from a work sheet’s Account Title column and Income Statement Credit column.
5. A balance sheet reports a business’s financial condition on a specific date.
6. When preparing a balance sheet, the amount of owner’s capital is obtained from
capital minus drawing plus net income.
7. The formula for calculating the net income component percentage is net income
divided by total sales equals net income component percentage.
8. Information needed to prepare a balance sheet liabilities section is obtained from a
work sheet’s Account Title column and Balance sheet credit column.
9. Assuring that financial statements contain all information necessary to understand a
business’s financial condition is an application of the accounting concept Adequate
Disclosure.
Application
Must be able to prepare an income statement and balance sheet from a worksheet.
Practice using mastery.