Accounting Chapter 7 questions

A balance sheet reports financial information over a specific period of time

The financial condition of a business refers to its financial strength

A balance sheet has three columns: heading, assets, and liabilities.

The formula for calculating net income is total revenue minus total expenses equals net income.

The net income calculated for the income statement and the net income on the work sheet must be the same.

On an income statement, double lines are ruled across both amount columns to indicate that debits equal credits.

For a service business, the revenue reported on an income statement includes components for total expenses and net income.

The formula for calculating the total expenses component percentage is: total expenses divided by total sales equals total expenses component percentage.

The current capital to be reported on a balance sheet is calculated as: the capital amount balance plus net income equals current capital.

Component percentages on an income statement are calculated by dividing sales and total expenses by net income.

A component percentage is the percentage relationship between one financial statement item and the total that includes that item.

The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.

An income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss.

The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.

Information needed to prepare an income statement comes from the trial balance columns and the income statement columns of a work sheet.