Question 1

Which of the following best describes the primary purpose of financial accounting?

Accepted Answer

To communicate financial information about a business to external users such as investors and creditors.

Question 2

Which of the following is NOT considered an external user of financial statements?

Accepted Answer

Company managers

Question 3

A business purchased equipment for $10,000 cash. Which of the following journal entries correctly records this transaction?

Accepted Answer

Debit Equipment $$10,000; Credit Cash 10$$,000

Question 4

Which equation represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Owner's Equity$$

Question 5

If a company has total assets of $$120,000 and total liabilities of 80$$,000, what is the owner's equity?

Accepted Answer

$$Owner's	ext{ Equity} = Assets - Liabilities = 120,000 - 80,000 = 40,000$$

Question 6

Which of the following transactions would increase both assets and liabilities?

Accepted Answer

Purchasing inventory on credit

Question 7

Which financial statement shows a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 8

A company made a sale on account for $5,000. What is the effect on the accounting equation?

Accepted Answer

Increase assets and increase owner's equity

Question 9

Which of the following is an example of an adjusting journal entry?

Accepted Answer

Recognizing accrued interest expense at year-end

Question 10

Which formula is used to calculate Cost of Goods Sold (COGS)?

Accepted Answer

$$COGS = Beginning	ext{ Inventory} + Purchases - Ending	ext{ Inventory}$$

Question 11

A company had beginning inventory of $$8,000, purchases of 12$$,000, and ending inventory of $5,000. What is the cost of goods sold?

Accepted Answer

$$COGS = 8,000 + 12,000 - 5,000 = 15,000$$

Question 12

Which of the following is NOT a component of the financial statements?

Accepted Answer

Trial Balance

Question 13

Which account type is increased by credits?

Accepted Answer

Liabilities

Question 14

A company paid $2,000 for a one-year insurance policy on July 1. What adjusting entry is needed at December 31?

Accepted Answer

Debit Insurance Expense $$1,000; Credit Prepaid Insurance 1$$,000

Question 15

Which of the following best describes the matching principle?

Accepted Answer

Expenses should be matched with the revenues they help to generate in the same period.

Question 16

Which formula is used to calculate net income?

Accepted Answer

$$Net	ext{ Income} = Revenues - Expenses$$

Question 17

A company has revenues of $$50,000 and expenses of 35$$,000. What is its net income?

Accepted Answer

$$Net	ext{ Income} = 50,000 - 35,000 = 15,000$$

Question 18

Which of the following is an ethical responsibility of an accountant?

Accepted Answer

Ensuring financial statements are accurate and comply with regulations

Question 19

Which statement about the accrual basis of accounting is correct?

Accepted Answer

Revenues and expenses are recognized when earned or incurred, regardless of when cash is exchanged.

Question 20

Which of the following best describes the purpose of the Statement of Cash Flows?

Accepted Answer

To provide information about a company's cash receipts and cash payments during a period.

ACCT*1220 Introductory Financial Accounting – Course Syllabus and Study Guide

Study Guide - Practice Questions