When using a perpetual inventory system, the Purchases account is debited when merchandise is acquired.

An advantage to the LIFO method of accounting for inventory is that it values the cost of goods sold at current replacement costs.

Accumulated Depreciation is considered a liability because it has a credit balance.

Revenues, Expenses, Drawing, and the Owner’s Capital accounts are considered owner’s equity accounts.

Owner's equity represents the creditor's claims to the assets.

Each time a business records revenue using the accrual method the account Cash is increased.

The current ratio is calculated by dividing the Total Assets by Total Liabilities.

Liquidity is a measure of how quickly an asset can be converted into cash.

Merchandise Inventory is reported in the long-term assets section of the balance sheet.

Cost of goods sold is reported on the balance sheet.

An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.

Receiving a payment from a customer on account would increase assets and owner's equity.

Receiving a payment from a customer on account would increase assets and owner's equity.

Accrued expenses are expenses that have not been paid but incurred.

Sales less sales discounts and sales returns and allowances equals gross profit.

If during a period assets increase more than liabilities, then owner's equity decreases.

Borrowing cash from the bank causes assets to increase and liabilities to decrease.

Purchasing equipment using cash causes total assets to increase.

Rent expense and taxes payable are both elements of the income statement.

The balance sheet is prepared before the income statement.

The allowance for uncollectible accounts is a contra asset account representing the amount of accounts receivable that we do not expect to collect.

Inventory is reported as a current asset because companies expect to convert it to cash in the near term.

Using the first-in, first-out method (FIFO), the first units purchased are assumed to be the last ones sold.

A multiple-step income statement reports multiple levels of profitability, such as gross profit, operating income, income before income taxes, and net income.

Net sales minus cost of goods sold is referred to as operating income.