, TESTBANK FOR Financial Accounting, 18e Warren
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A sample of selected pages has been provided for preview.
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provided.
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,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
True / False
1. A corporation is a business that is legally separate and distinct from its owners.
a. True
b. False
ANSWER: True
2. The role of accounting is to provide many different users with financial information to make economic decisions.
a. True
b. False
ANSWER: True
3. Investing activities are those activities by which the company obtains funds to start and operate the business.
a. True
b. False
ANSWER: False
4. Managerial accounting information is used by external and internal users equally.
a. True
b. False
ANSWER: False
5. Senior executives can be criminally prosecuted for the wrongdoings they commit on behalf of the companies where
they work.
a. True
b. False
ANSWER: True
6. Financial accounting provides information to all users, while the main focus for managerial accounting is to provide
information to management.
a. True
b. False
ANSWER: True
7. Proper ethical conduct implies that you only consider what's in your best interest.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
8. Some major fraudulent acts committed by senior executives started as what they considered to be small ethical
lapses that grew out of control.
a. True
b. False
ANSWER: True
9. A business is an organization in which basic resources or inputs, like materials and labor, are assembled and
processed to provide outputs in the form of goods or services to customers.
a. True
b. False
ANSWER: True
10. Operating activities are those activities by which a company generates revenues from customers.
a. True
b. False
ANSWER: True
11. An example of a general-purpose financial statement would be a report about projected price increases related to
transportation costs.
a. True
b. False
ANSWER: False
12. The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
a. True
b. False
ANSWER: True
13. The main objective for all businesses is to maximize unrealized profits.
a. True
b. False
ANSWER: False
14. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing
entities.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
15. The basic difference between manufacturing and merchandising companies is the completion level of the products
they purchase for resale to customers.
a. True
b. False
ANSWER: True
16. Proprietorships have one owner and provide only services to their customers.
a. True
b. False
ANSWER: False
17. About 90% of the businesses in the United States are organized as corporations.
a. True
b. False
ANSWER: False
18. An example of an external user of accounting information is the federal government.
a. True
b. False
ANSWER: True
19. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for
developing accounting principles.
a. True
b. False
ANSWER: True
20. The matching principle is the basis for entering the purchase price into the accounting records.
a. True
b. False
ANSWER: False
21. The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
22. If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer
would record the building at $85,000.
a. True
b. False
ANSWER: False
23. The financial statements of a proprietorship should include the owner's personal assets and liabilities.
a. True
b. False
ANSWER: False
24. No significant differences exist between the accounting standards issued by the FASB and the IASB.
a. True
b. False
ANSWER: False
25. Generally accepted accounting principles regulate how and what financial information is reported by businesses.
a. True
b. False
ANSWER: True
26. The accounting equation can be expressed as Assets + Liabilities = Owner's Equity.
a. True
b. False
ANSWER: False
27. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners.
a. True
b. False
ANSWER: True
28. The owner’s rights to the assets rank ahead of the creditors' rights to the assets.
a. True
b. False
ANSWER: False
29. If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total
$300,000.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
30. If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the
same period, the period's change in total liabilities was a $65,000 increase.
a. True
b. False
ANSWER: False
31. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same
period, the period's change in total owner's equity was a $200,000 increase.
a. True
b. False
ANSWER: True
32. If net income for a company was $65,000, $30,000 in owner withdrawals were made, and the owners invested an
additional $40,000 in cash, the owners' equity increased by $35,000.
a. True
b. False
ANSWER: False
33. An account receivable is typically classified as a revenue.
a. True
b. False
ANSWER: False
34. Accounts payable is a liability created by a purchase on account.
a. True
b. False
ANSWER: True
35. Paying an account payable increases liabilities and decreases assets.
a. True
b. False
ANSWER: False
36. Receiving payments on an account receivable increases both equity and assets.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
37. Withdrawals paid to owners decrease assets and increase equity.
a. True
b. False
ANSWER: False
38. Purchasing supplies on account increases liabilities and increases assets.
a. True
b. False
ANSWER: True
39. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
a. True
b. False
ANSWER: False
40. Revenue is earned only when money is received.
a. True
b. False
ANSWER: False
41. Assets that are used up during the process of earning revenue are called expenses.
a. True
b. False
ANSWER: True
42. The excess of revenue over the expenses incurred in earning the revenue is called capital.
a. True
b. False
ANSWER: False
43. The primary financial statements of a proprietorship are the income statement, the statement of owners’ equity, the
cash budget, and the balance sheet.
a. True
b. False
ANSWER: False
44. An income statement is a summary of the revenues and expenses of a business as of a specific date.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
45. A statement of owners’ equity reports the changes in owner's equity for a period of time.
a. True
b. False
ANSWER: True
46. The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income
activities, and cash flows from equity activities.
a. True
b. False
ANSWER: False
47. The balance sheet represents the accounting equation.
a. True
b. False
ANSWER: True
48. Net income and net profit do not mean the same thing.
a. True
b. False
ANSWER: False
49. Any 12-month accounting period adopted by a company is known as its fiscal year.
a. True
b. False
ANSWER: True
50. A fiscal year that ends when business activities have reached their lowest point is called the natural business year.
a. True
b. False
ANSWER: True
51. All businesses must use the calendar year (January 1 through December 31) as their fiscal year.
a. True
b. False
ANSWER: False
52. The majority of businesses end their fiscal year on December 31.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
Multiple Choice
53. Profit is the difference between
a. assets and liabilities.
b. incoming cash and outgoing cash.
c. the assets purchased with cash contributed by the owner and the cash spent to operate the business.
d. the amounts received from customers for goods or services and the amounts paid for the inputs used to
provide the goods or services.
ANSWER: d
54. Two common areas of accounting that respectively provide information to internal and external users are
a. forensic accounting and financial accounting.
b. managerial accounting and financial accounting.
c. managerial accounting and environmental accounting.
d. financial accounting and tax accounting systems.
ANSWER: b
55. Which of the following best describes accounting?
a. Accounting records economic data but does not communicate the data to users according to any specific
rules.
b. Accounting is an information system that measures, records, and reports financial information about a
company that assists and supports user decision-making.
c. Accounting is of no use by individuals outside of the business.
d. Accounting is used only for filling out tax returns and for financial statements for various types of
governmental reporting requirements.
ANSWER: b
56. Which type of accountant typically practices as an individual or as a member of a public accounting firm?
a. Certified Public Accountant
b. Certified Payroll Professional
c. Certified Internal Auditor
d. Certified Management Accountant
ANSWER: a
57. The area of accounting that provides external users with information is
a. managerial accounting.
b. forensic accounting.
c. cost accounting.
d. financial accounting.
ANSWER: d
Copyright Cengage Learning. Powered by Cognero. Page 8
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
Contact Email:
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
True / False
1. A corporation is a business that is legally separate and distinct from its owners.
a. True
b. False
ANSWER: True
2. The role of accounting is to provide many different users with financial information to make economic decisions.
a. True
b. False
ANSWER: True
3. Investing activities are those activities by which the company obtains funds to start and operate the business.
a. True
b. False
ANSWER: False
4. Managerial accounting information is used by external and internal users equally.
a. True
b. False
ANSWER: False
5. Senior executives can be criminally prosecuted for the wrongdoings they commit on behalf of the companies where
they work.
a. True
b. False
ANSWER: True
6. Financial accounting provides information to all users, while the main focus for managerial accounting is to provide
information to management.
a. True
b. False
ANSWER: True
7. Proper ethical conduct implies that you only consider what's in your best interest.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
8. Some major fraudulent acts committed by senior executives started as what they considered to be small ethical
lapses that grew out of control.
a. True
b. False
ANSWER: True
9. A business is an organization in which basic resources or inputs, like materials and labor, are assembled and
processed to provide outputs in the form of goods or services to customers.
a. True
b. False
ANSWER: True
10. Operating activities are those activities by which a company generates revenues from customers.
a. True
b. False
ANSWER: True
11. An example of a general-purpose financial statement would be a report about projected price increases related to
transportation costs.
a. True
b. False
ANSWER: False
12. The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
a. True
b. False
ANSWER: True
13. The main objective for all businesses is to maximize unrealized profits.
a. True
b. False
ANSWER: False
14. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing
entities.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
15. The basic difference between manufacturing and merchandising companies is the completion level of the products
they purchase for resale to customers.
a. True
b. False
ANSWER: True
16. Proprietorships have one owner and provide only services to their customers.
a. True
b. False
ANSWER: False
17. About 90% of the businesses in the United States are organized as corporations.
a. True
b. False
ANSWER: False
18. An example of an external user of accounting information is the federal government.
a. True
b. False
ANSWER: True
19. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for
developing accounting principles.
a. True
b. False
ANSWER: True
20. The matching principle is the basis for entering the purchase price into the accounting records.
a. True
b. False
ANSWER: False
21. The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
22. If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer
would record the building at $85,000.
a. True
b. False
ANSWER: False
23. The financial statements of a proprietorship should include the owner's personal assets and liabilities.
a. True
b. False
ANSWER: False
24. No significant differences exist between the accounting standards issued by the FASB and the IASB.
a. True
b. False
ANSWER: False
25. Generally accepted accounting principles regulate how and what financial information is reported by businesses.
a. True
b. False
ANSWER: True
26. The accounting equation can be expressed as Assets + Liabilities = Owner's Equity.
a. True
b. False
ANSWER: False
27. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners.
a. True
b. False
ANSWER: True
28. The owner’s rights to the assets rank ahead of the creditors' rights to the assets.
a. True
b. False
ANSWER: False
29. If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total
$300,000.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
30. If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the
same period, the period's change in total liabilities was a $65,000 increase.
a. True
b. False
ANSWER: False
31. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same
period, the period's change in total owner's equity was a $200,000 increase.
a. True
b. False
ANSWER: True
32. If net income for a company was $65,000, $30,000 in owner withdrawals were made, and the owners invested an
additional $40,000 in cash, the owners' equity increased by $35,000.
a. True
b. False
ANSWER: False
33. An account receivable is typically classified as a revenue.
a. True
b. False
ANSWER: False
34. Accounts payable is a liability created by a purchase on account.
a. True
b. False
ANSWER: True
35. Paying an account payable increases liabilities and decreases assets.
a. True
b. False
ANSWER: False
36. Receiving payments on an account receivable increases both equity and assets.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
37. Withdrawals paid to owners decrease assets and increase equity.
a. True
b. False
ANSWER: False
38. Purchasing supplies on account increases liabilities and increases assets.
a. True
b. False
ANSWER: True
39. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
a. True
b. False
ANSWER: False
40. Revenue is earned only when money is received.
a. True
b. False
ANSWER: False
41. Assets that are used up during the process of earning revenue are called expenses.
a. True
b. False
ANSWER: True
42. The excess of revenue over the expenses incurred in earning the revenue is called capital.
a. True
b. False
ANSWER: False
43. The primary financial statements of a proprietorship are the income statement, the statement of owners’ equity, the
cash budget, and the balance sheet.
a. True
b. False
ANSWER: False
44. An income statement is a summary of the revenues and expenses of a business as of a specific date.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
45. A statement of owners’ equity reports the changes in owner's equity for a period of time.
a. True
b. False
ANSWER: True
46. The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income
activities, and cash flows from equity activities.
a. True
b. False
ANSWER: False
47. The balance sheet represents the accounting equation.
a. True
b. False
ANSWER: True
48. Net income and net profit do not mean the same thing.
a. True
b. False
ANSWER: False
49. Any 12-month accounting period adopted by a company is known as its fiscal year.
a. True
b. False
ANSWER: True
50. A fiscal year that ends when business activities have reached their lowest point is called the natural business year.
a. True
b. False
ANSWER: True
51. All businesses must use the calendar year (January 1 through December 31) as their fiscal year.
a. True
b. False
ANSWER: False
52. The majority of businesses end their fiscal year on December 31.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
Chapter 01: Introduction to Accounting and Business
Multiple Choice
53. Profit is the difference between
a. assets and liabilities.
b. incoming cash and outgoing cash.
c. the assets purchased with cash contributed by the owner and the cash spent to operate the business.
d. the amounts received from customers for goods or services and the amounts paid for the inputs used to
provide the goods or services.
ANSWER: d
54. Two common areas of accounting that respectively provide information to internal and external users are
a. forensic accounting and financial accounting.
b. managerial accounting and financial accounting.
c. managerial accounting and environmental accounting.
d. financial accounting and tax accounting systems.
ANSWER: b
55. Which of the following best describes accounting?
a. Accounting records economic data but does not communicate the data to users according to any specific
rules.
b. Accounting is an information system that measures, records, and reports financial information about a
company that assists and supports user decision-making.
c. Accounting is of no use by individuals outside of the business.
d. Accounting is used only for filling out tax returns and for financial statements for various types of
governmental reporting requirements.
ANSWER: b
56. Which type of accountant typically practices as an individual or as a member of a public accounting firm?
a. Certified Public Accountant
b. Certified Payroll Professional
c. Certified Internal Auditor
d. Certified Management Accountant
ANSWER: a
57. The area of accounting that provides external users with information is
a. managerial accounting.
b. forensic accounting.
c. cost accounting.
d. financial accounting.
ANSWER: d
Copyright Cengage Learning. Powered by Cognero. Page 8
