ACCOUNTING 101 MIDTERM EXAMINATION

1. Which of the following is the correct accounting equation?

A) Assets + Liabilities = Owner’s equity
B) Assets = Liabilities + Owner’s equity
C) Assets + Revenue = Owner’s equity
D) Assets + Revenue = Liabilities + Expenses

2. Which of the following financial statements shows the changes in capital during a period of time?

A) Income statement
B) Statement of owner’s equity
C) Statement of cash flows
D) Balance sheet

3. Which of the following financial statements lists the entity's assets, liabilities, and capital as of a specific date?

A) Balance sheet
B) Statement of owner’s equity
C) Income statement
D) Statement of cash flows

4. Accounting is the information system that measures business activity, processes the data into reports, and communicates the results to decisions makers.

TRUE OR FALSE

5. Accounting is "the language of business."

TRUE OR FALSE

6. An obligation that a proprietorship owes to an outside person or agency is called a(n):

A) asset.
B) liability.
C) owner’s equity.
D) revenue.

7. An asset account is increased by a debit.

TRUE OR FALSE

8. An owner’s equity account is increased by a debit.

TRUE OR FALSE

9. Expenses are increases in owner’s equity, caused by providing goods or services for customers.

TRUE OR FALSE

10. Accountants first record transactions in the:

A) chart of accounts.
B) trial balance.
C) journal.
D) ledger.

11. Which of the following accounts is an asset?
A) Salary expense
B) Accounts payable
C) Service revenue
D) Prepaid expenses

12. Which of the following accounts is a liability?

A) Accounts payable
B) Prepaid expenses
C) Salary expense
D) Service