1. Current ratios and quick ratios usually provide a clear picture of the financ

Question

1. Current ratios and quick ratios usually provide a clear picture of the financial leverage employed by a firm.

2. Debits always increase an account, while credits decrease an account.

3. The two major sections of the statement of cash flows are sources of cash and uses of cash.

4. An accounting entity is considered to be any organization for which separate accounting data is gathered and processed.

5. Since the total of all the right-hand sides of accounts equals the total of left-hand sides, then the total amount of increases entered in the general ledger must equal the total amount of decreases.

6. The statement of financial position shows how well a company has performed over a period of time.

Explanation / Answer

1. False. Both are liquidity ratios.

2. False. When payable account is debited for example, it decreases the account. When a payable account is credited, it increases the account.

3. False. The major sections of a statement of cash flows are operating activities, investing activities and financing activities.

4. True.

5. True. Follows from the duality principle, that every debit must have an equal and corresponding credit.

6. False. The statement of financial position or the balance sheet is a position/status statement, and shows the financial position of the company as on a given date.

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