Which of the Following Statements Correctly Describes the Effect of Accruing

question 109

Multiple Choice

Which of the following statements correctly describes the effect of accruing interest revenue at year-end?

• A)Income from operations increases.
• B)The net profit margin ratio does not change.
• C)The total asset turnover ratio increases.
• D)The return on assets ratio is affected.

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Definitions:

Drawing Account

An account used to record withdrawals made by an owner from the business for personal use.

Owner's Capital Account

An equity account that represents the owner's invested capital plus any retained earnings or minus any withdrawals.

First Closing Entry

The first journal entry in the closing process that transfers revenue and the expense account balances to the owner’s capital account as either a net income or a net loss.

Owner's Equity

The residual interest in the assets of a business after all liabilities are deducted, essentially the owner's share of the company's net assets.