Financial Accounting Basics II
8 Questions
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Questions and Answers
- 1.The payment of a liability in cash will decrease stockholders' equity.
- A.
True
- B.
False
- 2.When a company borrows money from the bank, it leads to a cash inflow from a financing activity.
- A.
True
- B.
False
- 3.When a loan is repaid to the bank, it leads to an inflow of cash from a financing activity.
- A.
True
- B.
False
- 4.When a business pays for a two year insurance policy, it has incurred an expense.
- A.
True
- B.
False
- 5.The assumption that the assets and liabilities of the busness are accounted for on the books of the company but not included in the records of the owner is the
- A.
Unit-of measure assumption
- B.
Continuity assumption
- C.
Historical cost principle
- D.
Separate entity assumption
- 6.A company purchases $20K of inventory in February 2011 and will pay for it in March 2011. Which of the following statements is false?
- A.
The company will report an accounts payable of $20K in February
- B.
The statement of cash flows will report an operating cash outflow of $20K in March
- C.
The income statement will report the $20K as cost of goods sold in February when it was purchased
- D.
The company will record $20K in inventory purchased on February 2011
- 7.The operating cycle is the time it takes for a company to purchase goods, pay for the goods, sell them to customers, and collect the cash from customers.
- A.
True
- B.
False
- 8.It is not possible for the left side of the accounting equation to both increase and decrease as a result of the same transaction
- A.
True
- B.
False
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