1. When cash is paidbeforethe expense is incurred to generate revenue, costs are stated as:

a)Stockholders's equity.b) Prepaid (asset).c) Receivable (asset).d) Payable (liability).

2. Which of the following statements is true? a) When net income is negative, retained earnings decrease, all other things being equal. B) When operating income is positive, revenue is greater than expenses. c) When net income is positive, Shareholders' equity increases, all other things being equal. d) All of the answers are acceptable.

3. During June, the Grass is Greener Company mows 100 lawns a week; the company was paid in advance during May by those customers. The company uses the accrual basis of accounting. How will these events affect the company's financial statements? a) The transactions have no effect on the balance sheet. b) The income statement shows the effects of the transactions in May. c) The income statement shows the effects of the transactions in June. d) The balance sheet shows no effect from the transactions in May.