Understanding Business Transactions and Financial Statements

School: Harvard University - Course: ACCOUNTING 432 - Subject: Accounting

BAF3M Name Brandon Su Date: February 27, 2023 Score /53 Chapter 3—Test 1 1.Indicate whether each of the following statements is true or false by entering a T or an F in the space provided. Explain the reason for each F response in the space provided. /8 A.When business transactions occur, at least three of the individual balance sheet items must change.F -Only changes assets and capital, two things. B.A transaction takes place, leaving a business in a better financial position. Therefore Capital has most likely increased.T C.When equipment valued at $4000 is sold for $1000 cash, the items affected are Cash and Equipment.T D. The objectivity princple is an accounting standard related to source documents.T E.At the end of the month, the inventory of supplies has decreased by $350. This transaction causes Capital to increase.F -It causes capital to decrease. F.The business papers that inform the accounting department of transactions that require an accounting entry are called balance sheets.F -It is a source document 1K/U

Chapter 3 TestName _________________________________________ G.The owner's withdrawal of cash for personal use reduces Cash and Accounts Payable.F -It reduces Cash and Equity H.The formula for referencing cell B44 in the worksheet titled Balance Sheet is ='Balance Sheet'!B44 T 2.What is a business transaction? /2 An event in the business that causes changes to its financial position. 3.Why are the business papers mentioned in Question 1, Part F, kept on file? /2 They are called source documents and are kept on file for reference purposes and as proof of transactions. 4.State what effect the following transactions have on the total assets. Write I for an increase, D for a decrease, and NC for no change. /6 A.IOwner invested $85 000 cash in his business. B.IPurchased a delivery truck for $10 000, paying $2000 cash and the balance to be paid in 90 days. C.IBorrowed $10 000 from a bank. D.NCPurchased equipment for $2000 cash. E.NCCollected an account receivable, $500 cash. F.DSold a building for cash at a price lower than its cost.