If two companies in the same industry use different methods to value inventory, this makes comparisons more difficult but not impossible.

a. True b. False

2. An increase in a company's revenue and expense accounts will automatically cause an increase in net income for the period.

a. True b. False

3. Spring Market has an inventory turnover ratio of 15 times. Fall Market has a turnover of 14 times. Fall is more effective in managing inventory.

a. True b. False

4. One measure of a company's overall long-term financial health is the debt-to-equity ratio.

a. True b. False

5. Recognition is the process of formally recording or incorporating an item into the financial statements.

a. True b. False


6. The process of recording an item in the financial statements is called measurement.

a. True b. False

7. Using matching under the accrual method, expenses are recognized when revenue is earned.

a. True b. False

8. All financial statements are prepared using the accrual basis of accounting.

a. True b. False

9. An external event involves interaction between an entity and its environment.

a. True b. False

10. Under the cost principle, assets are always carried at their current market value.

a. True b. False


11. The accounting equation must balance after each transaction.

a. True b. False

12. Only events that can be measured will be reflected in the journal entries.

a. True b. False