Chapter 01
Financial Statements and Business Decisions

True / False Questions

1. Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.
True False

2. Assets on the balance sheet are recorded at market value or replacement cost.
True False

3. In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners.
True False

4. The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is generally the period in which the cash is collected.
True False

5. Total assets are $70,000, total liabilities, $40,000 and contributed capital is $20,000; therefore, retained earnings are $15,000.
True False

6. The payment of a cash dividend to stockholders increases stockholders' equity.
True False

7. The accounting model for the balance sheet is: Assets + Liabilities = Stockholders' Equity.
True False

8. A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.
True False

9. The financial statement that shows an entity's economic resources and its liabilities is the statement of cash flows.
True False

10. Companies prepare financial statements at the end of each year and more often as needed.
True False

11. A note payable is a borrowing instrument that generally does not involve the payment of interest.
True False

12. The amount of cash paid by a business for office utilities would be reported on the statement of cash flows as an operating activity.
True False

13. The