Objective Questions relating to basic accounting equation & Concepts.
1.The debt created by a business when it makes a purchase on account is referred to as an
a.accounts payable
b.accounts receivable
c.asset
d.expense payable
2.Retained Earnings represents:
a.the amount invested in the entity by the owners.
b.cash that is available for dividends
c.cumulative net income that has not been distributed to owners as dividends.
d.par value of common stock outstanding
3.The balance sheet contains the following accounts except:
a.Goodwill
b.Accounts Payable
c.Cash
d.Cost of Goods Sold
4.The return on investment measure of performance:
a.Is not as important a measure of management effectiveness as the amount of net income?
b.Relates dividends paid to the entity's assets.
c.Is calculated using net income as the amount of return?
d.Is calculated by dividing average assets for a period by the amount of net income for the period
5.Which of the following accounts are used in the calculation of working capital?
a.Retained Earnings
b.Sales
c.Merchandise Inventory
d.Common Stock
6. A current ratio of 6 is usually an indication that the firm
a.Has a low degree of liquidity.
b.Has a reasonable degree of liquidity.
c.Has made the most productive use of its assets.
d.Has not made good use of its assets
7.In an advertiser's records, a newspaper ad submitted and published this week with the agreement to pay for it next week would
a.Decrease assets and decrease expenses
b.Increase liabilities and increase expenses
c.Decrease assets and increase revenue
d.Increase assets and decrease liabilities
8.The accounting concept/principle being applied when an adjustment is made is usually matching revenue and expense
a.True
b.False