Question

part two - identifying accounting concepts and practices
directions: place a t for true or an f for false in the answers column to show whether each of the following statements is true or false.

1. accounting is the language of business. (p. 4)
2. keeping personal and business records separate is an application of the business entity concept. (p. 6)
3. assets such as cash and supplies have value because they can be used to acquire other assets or be used to operate a business. (p. 7)
4. the relationship among assets, liabilities, and owners equity can be written as an equation. (p. 7)
5. the equation is called the accounting equation and does not have to be in balance to be correct. (p. 7)
6. the sum of the assets and liabilities of a business always equals the investment of the business owner. (p. 7)
7. recording business costs in terms of hours required to complete projects and sales in terms of dollars is an application of the unit of measurement concept. (p. 9)
8. the capital account is an owners equity account. (p. 9)
9. if two amounts are recorded on the same side of the accounting equation, the equation will no longer be in balance. (p. 10)
10. when a company pays insurance premiums in advance to an insurer, it records the payment as a liability because the insurer owes future coverage. (p. 10)
11. when items are bought and paid for later this is referred to as buying on account. (p. 11)
12. when cash is paid on account, a liability is increased. (p. 11)
13. the going concern accounting concept affects the way financial statements are prepared. (p. 13)
14. on a balance sheet, a single line means that amounts are to be added or subtracted. (p. 14)

Explanation:

1. Accounting is widely - regarded as the language of business for communicating financial information.
2. Separating personal and business records follows the business entity concept.
3. Assets like cash and supplies have value due to their utility.
4. The relationship among assets, liabilities, and owner's equity is expressed by the accounting equation.
5. The accounting equation must always be in balance.
6. The sum of liabilities and owner's equity equals assets, not just owner's investment.
7. Recording business costs in dollars is an application of the unit - of - measurement concept.
8. The capital account is part of owner's equity.
9. If two amounts are recorded on the same side of the accounting equation, it will be out of balance.
10. When a company pays insurance premiums in advance, it records a prepaid asset, not a liability for the insurer's future coverage.
11. Buying and paying for items later is buying on account.
12. When cash is paid on account, a liability is decreased.
13. The Going Concern concept affects financial statement preparation.
14. On a balance sheet, a single line doesn't necessarily mean amounts are to be added or subtracted.

Answer:

1. T
2. T
3. T
4. T
5. F
6. F
7. T
8. T
9. T
10. F
11. T
12. F
13. T
14. F