Deck 7: Financial Statements for a Proprietorship

Question 1

For a service business, the revenue reported on an income statement is often compared to two items: total expenses and net income.

Answer 1

True

Question 2

The net income calculated for the income statement and the net income on the work sheet can be different because of adjusting entries.

Answer 2

False

Question 3

An amount written in parentheses on a financial statement indicates an estimate.

Answer 3

False

Question 4

The formula for calculating the net income ratio is net income divided by total sales.

Question 5

The area of accounting that focuses on reporting information to internal users is called managerial accounting.

Question 6

When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.

Question 7

If a business has a net loss for the period, expenses should be reported before revenues on the income statement.

Question 8

The current owner's capital amount reported on a statement of owner's equity is calculated as capital account balance less drawing account balance less net income.

Question 9

The area of accounting that focuses on reporting information to external users is called managerial accounting.

Question 10

A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.

Question 11

The formula for calculating the total expenses ratio is total expenses divided by net income.

Question 12

A financial ratio is a comparison between two components of financial information.

Question 13

The calculation and interpretation of a financial ratio is called ratio analysis.

Question 14

An income statement reports information for a specific date indicating the financial progress of a business in earning a net income or a net loss.

Question 15

The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.

Question 16

Vertical analysis is reporting an amount on a financial statement as a percentage of another item on the same financial statement.

Question 17

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.

Question 18

Return on sales (ROS) is the ratio of net income to total sales.

Question 19

The date on a monthly income statement prepared on April 30 is written as

A) April 30, 20--.
B) For Month Ended April 30, 20--.
C) 20--, April 30.
D) none of these.

Question 20

The amount of net income calculated on an income statement is correct if

A) it is the same as the net income shown on the work sheet.
B) debits equal credits.
C) it is the same as the net income shown on the balance sheet.
D) none of these.

Question 21

Preparing financial statements at the end of each monthly fiscal period is an application of the accounting concept

A) Adequate Disclosure.
B) Going Concern.
C) Objective Evidence.
D) Accounting Period Cycle.

Question 22

Information needed to prepare an income statement's Expense section is obtained from a work sheet's Account Title column and

A) Income Statement Debit column.
B) Income Statement Credit column.
C) Balance Sheet Debit column.
D) Balance Sheet Credit column.

Question 23

An income statement reports a business's financial

A) condition over a specific period of time.
B) progress over a specific period of time.
C) condition on a specific date.
D) progress on a specific date.

Question 24

When preparing a statement of owner's equity, the amount of the current owner's capital is calculated using amounts obtained from

A) the general ledger.
B) the income statement.
C) the journal.
D) the work sheet.

Question 25

The formula for calculating the net income ratio is

A) net income divided by total sales.
B) total sales divided by total expenses.
C) total sales minus total expenses divided by net income.
D) none of these.

Question 26

Information needed to prepare a balance sheet's Assets section is obtained from a work sheet's Account Title column and

A) Income Statement Debit column.
B) Income Statement Credit column.
C) Balance Sheet Debit column.
D) Balance Sheet Credit column.

Question 27

Assuring that financial statements contain all information necessary to understand a business's financial condition is an application of the accounting concept

A) Adequate Disclosure.
B) Going Concern.
C) Objective Evidence.
D) Accounting Period Cycle.