Page 51 - Accounting Principles (A Business Perspective)

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Statement of cash flows Financial statement showing cash inflows and outflows for a company over a
period of time.
Statement of retained earnings Financial statement used to explain the changes in retained earnings
that occurred between two balance sheet dates.
Stockholders’ equity The owners’ interest in a corporation.
Stockholders or shareholders Owners of a corporation; they buy shares of stock, which are units of
ownership, in the corporation.
Summary of transactions Teaching tool used in Chapter 1 to show the effects of transactions on the
accounting equation.
Transaction A business activity or event that causes a measurable change in the items in the accounting
equation, Assets = Liabilities + Stockholders’ equity.
Self-test
True-False
Indicate whether each of the following statements is true or false.
The three forms of business organizations are single proprietorship, partnership, and trust.

The three types of business activity are service, merchandising, and manufacturing.
The income statement shows the profitability of the company and is dated as of a particular date, such as 2010
December 31.
The statement of retained earnings shows both the net income for the period and the beginning and ending
balances of retained earnings.
The balance sheet contains the same major headings as appear in the accounting equation.
Multiple-choice

Select the best answer for each of the following questions.
The ending balance in retained earnings is shown in the:
a. Income statement.
b. Statement of retained earnings.
c. Balance sheet.
d. Both (b) and (c).
Which of the following is not a correct form of the accounting equation?
a. Assets = Equities.
b. Assets = Liabilities + Stockholders’ equity.

c. Assets – Liabilities = Stockholders’ equity.
d. Assets + Stockholders’ equity = Liabilities.
Which of the following is not one of the five underlying assumptions or concepts mentioned in the chapter?
a. Exchange-price concept.
b. Inflation accounting concept.
c. Business entity concept.
d. Going-concern concept.

When the stockholders invest cash in the business, what is the effect?
a. Liabilities increase and stockholders’ equity increases.
b. Both assets and liabilities increase.
c. Both assets and stockholders’ equity increase.

Accounting Principles: A Business Perspective 52 A Global Text