71. When a sale on credit is made under the cash basis of accounting, at the time of the sale, how is the transaction recorded?
A. An increase in assets and an increase in liabilities
B. An increase in assets and an increase in revenues
C. An increase in liabilities and an increase in revenues
D. It is not recorded.
72. When a sale on credit is made under the accrual basis of accounting, at the time of the sale, how is the transaction recorded?
A. An increase in assets and an increase in liabilities
B. An increase in assets and an increase in revenues
C. An increase in liabilities and an increase in revenues
D. It is not recorded.
73. Which of the following statements about depreciation is true?
A. Depreciation is the allocation of the cost of equipment to expense.
B. Depreciation represents the reduction in the market value of the asset.
C. Depreciation is the cash paid each month to use a piece of equipment.
D. Depreciation is the same under both cash-based and accrual-based accounting.
74. An employee worked for a small business during the current month but he will not be paid until the next month. If the business uses accrual accounting, what would be the effect on the accounting equation in the current month?
A. Assets decrease and liabilities decrease.
B. Liabilities increase and owners' equity increases.
C. Liabilities increase and owners' equity decreases.
D. There is no effect at this time.
75. An employee worked for a small business during the current month but will not be paid until the next month. If the business uses cash accounting, what would be the effect on the accounting equation in the current month?
A. Assets decrease and liabilities decrease.
B. Liabilities increase and owners' equity increases.
C. Liabilities increase and owners' equity decreases.
D. There is no effect at this time.
76. When a company makes a sale under accrual accounting, what is the impact on the balance sheet?
A. Assets increase
B. Assets decrease
C. Assets and owners' equity both increase
D. The increase and decrease in assets offset each other
77. If an entity suffered a $2,000 loss for the month, which of the following statements is most likely true?
A. The company's cash decreased $2,000.
B. The company's shareholders need to invest $2,000.
C. The costs incurred during the month exceeded the benefits.
D. Not all of the revenues were collected during the month.
78. Creditors who are expecting to be paid are most interested in which of the following for an entity?
A. Liquidity
B. Operating cycle
C. Gross margin
D. Profitability
79. What would a creditor calculate to assess liquidity?
A. Operating cycle
B. Gross margin
C. Current ratio
D. Debt-to-equity ratio
80. A company has current assets of $200,000 and current liabilities of $150,000. If they used cash to pay off some accounts payable, what would the effect be on their current ratio?
A. The current ratio would increase.
B. The current ratio would decrease.
C. The current ratio would stay the same.
D. The effect on the current ratio would depend on the amount paid.