Test Bank

Chapter 1
Evaluating Transactions

Name: _______________________________________

Class: _______________________________________

Date: _______________________________________

True/False Questions
1. The most fundamental accounting concept to be learned is the accounting equation.
a. True
b. False

2. Items within a business that represent value are called assets.

a. True
b. False

3. A sole proprietorship type of business is the easiest to form and offers limited liability.
a. True
b. False

4. If assets are $15,000, and liabilities are $5,000, then owner’s equity will equal $10,000.
a. True
b. False

5. The primary drawback of the corporation type of business is double taxation.

a. True
b. False

6. Capital represents an owner’s investment/equity in a business.

a. True
b. False

7. Revenues and expenses cause owner’s equity to increase.

a. True
b. False

8. “Buildings” is an example of an asset account.

a. True
b. False

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9. The first step in evaluating a transaction involves determining which accounts are involved.
a. True
b. False

10. Every transaction is recorded in terms of an increase and/or decrease in two or more accounts.
a. True
b. False

Multiple Choice Questions

11. The accounting equation is expressed as:
a. Assets = Liabilities minus Owner’s Equity
b. Assets minus Liabilities = Owner’s Equity
c. Assets plus Liabilities = Owner’s Equity
d. Assets plus Owner’s Equity = Liabilities

12. If an owner has $20,000 invested in their business and the business owes $8,000 to outside
entities, what is the amount of assets in the business?
a. $ 28,000
b. $ 12,000
c. $ 20,000
d. $ 8,000

13. Which of the following are not considered an owner’s equity account?
a. Revenues
b. Equipment
c. Expenses
d. Drawing

14. Unearned revenue is considered what type of an account?

a. Liability
b. Asset
c. Owner capital
d. Owner’s equity

15. The purchase of supplies for cash will?

a. increase supplies, increase cash
b. increase owner’s equity, increase supplies
c. decrease cash, increase supplies
d. decrease cash, increase owner’s equity

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Matching Questions
16. Match each of the following as appropriate:
A Assets Represent/s the portion of the assets that are owed to
entities outside of the business
B Liabilities Represent/s the portion of the assets that are not owed
to outside of the business
C Owner’s equity The mathematical relationship depicting the claims to
assets by business owners and outside entities
D Accounting equation Represent/s items of value within the business

17. Match each of the following business types with their corresponding characteristic:
A Sole proprietorship This type of business is owned by two or more individuals.
B Corporation This type of business offers limited liability to its owners
C Partnership This type of business is the easiest to form

18. Match each of the following as appropriate:

A Assets Cash
B Liabilities Salaries payable
C Owner’s equity Utilities expense

19. Match the steps in evaluating transactions to its corresponding activity:

A Step 1 Determine by how much each account has been impacted.
B Step 2 Determine which accounts have been impacted.
C Step 3 Determine whether the balance in each account has
increased or decreased.

20. Match each of the following as appropriate:

A Assets increase and owner’s equity increases.
B Assets decrease and assets increase.
C Liabilities increase and assets increase.
D Liabilities decrease and assets decrease.
E Owner’s equity decreases and liabilities
increase.
Bought supplies for cash.
Received utility bill to be paid later.
Purchased equipment on account.
Owner invested funds into the business.
The business made a payment on
account.

Fill-in-the-Blank Questions
21. The accounting equation is expressed as __________ = __________ plus __________.

22. __________ provides a manner in which individual business events, and the cumulative impact of
those events, can be expressed.

23. Revenues, expenses, owner capital, and owner’s drawing are all examples of __________.

24. __________ dictates that at least two accounts must be affected when a transaction takes place.

25. Accounts payable and unearned revenue are examples of __________.

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