1.4 Analyze transactions using the basic accounting equation
1) The fundamental accounting equation is Assets plus Liabilities equals Shareholders' Equity.
2) Liabilities are those obligations that are owed to third parties.
3) A transaction is a business event that does NOT have an impact on the finances of a company.
4) Shareholders' equity includes retained earnings and common shares.
5) Which of the following is considered an asset?
A) Accounts payable
B) Sales
C) Accounts receivable
D) Common shares
E) Notes payable
6) Revenues, expenses, and dividends are all a part of:
A) assets.
B) retained earnings.
C) liabilities.
D) common shares.
E) cash.
7) Which of the following is a FALSE statement?
A) Revenues provide inward flows of assets.
B) Revenue is categorized as an asset.
C) Revenue is categorized as part of retained earnings.
D) Revenues are generated from the sale of goods and services.
E) Revenue is an increase in retained earnings.
8) Which of the following is a written promise to pay?
A) Accounts receivable
B) Accounts payable
C) Notes payable
D) Dividends payable
E) Notes receivable
9) Liabilities represent:
A) items owned by the company.
B) future economic benefits of the company.
C) earnings kept in the business.
D) monies owed to third parties.
E) monies owed to shareholders
10) Revenues would have which of the following effects on the accounting equation?
A) Decrease shareholders' equity
B) Increase common shares
C) Increase liabilities
D) Increase shareholders' equity
E) Decrease assets