Financial Accounting 9th Edition by Miller-Nobles Test bank

18. Liabilities represent creditors' claims on the business's assets.

1. True
2. False

Answer: True
Difficulty: Basic
AACSB: Analytical Thinking, Reflective Thinking
Learning Objective: 2 Describe the accounting equation, and define assets, liabilities and equity
A-Head: What is the accounting equation?

19. The right side of the accounting equation measures the amount that the business owes to creditors and to the owner.

1. True
2. False

Answer: True
Difficulty: Basic
AACSB: Analytical Thinking, Reflective Thinking
Learning Objective: 2 Describe the accounting equation, and define assets, liabilities and equity
A-Head: What is the accounting equation?

20. The total of liabilities and equity of a business may or may not equal the total of amount of assets that the business possesses.

1. True
2. False

Answer: False
Difficulty: Basic
AACSB: Analytical Thinking, Reflective Thinking
Learning Objective: 2 Describe the accounting equation, and define assets, liabilities and equity
A-Head: What is the accounting equation?

21. Equity increases when revenues are earned.

1. True
2. False

Answer: True
Difficulty: Basic
AACSB: Analytical Thinking, Reflective Thinking
Learning Objective: 2 Describe the accounting equation, and define assets, liabilities and equity
A-Head: What is the accounting equation?

22. Equity decreases with expenses and revenues.

1. True
2. False

Answer: False
Difficulty: Basic
AACSB: Analytical Thinking, Reflective Thinking
Learning Objective: 2 Describe the accounting equation, and define assets, liabilities and equity
A-Head: What is the accounting equation?

23. Owner's drawings are the expenses of a business.

1. True
2. False

Answer: False
Difficulty: Basic
AACSB: Analytical Thinking, Reflective Thinking
Learning Objective: 2 Describe the accounting equation, and define assets, liabilities and equity
A-Head: What is the accounting equation?

Multiple choice: Choose the alternative(s) that best completes the statement or answers the question.

24. Joe purchased office equipment for $1 250 cash. What is the effect on accounts?

1. Two asset accounts increase.
2. One asset account increases; one owners' equity account increases.
3. One asset account increases; another asset account decreases.
4. One asset account increases; one liability account increases.

Answer: C
Difficulty: Basic
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

25. Hamilton Lawn Service earned $1 000 for services rendered and collected cash from its customer. What is the effect on accounts?

1. Cash account increases; Accounts receivable increases.
2. Cash account increases; Owners' capital account increases.
3. Cash account increases; Supplies account decreases.
4. Cash account increases; Accounts payable increases.

Answer: B
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

26. Hamilton Lawn Service earned $1 000 for services rendered. The customer promised to pay at a later time. What is the effect on accounts?

1. Cash account increases; Accounts receivable decreases.
2. Accounts receivable increases; Owners' capital increases.
3. Cash and Accounts receivable both increase.
4. Accounts receivable decreases; Owners' capital increases.

Answer: B
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions