Question 1

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

Accepted Answer

To communicate financial information to external users for decision-making.

Question 2

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

Accepted Answer

Company managers

Question 3

A company purchased equipment for $50,000 cash. Which of the following is the correct journal entry?

Accepted Answer

Debit Equipment $$50,000; Credit Cash 50$$,000

Question 4

Which equation correctly 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

$$ Owner\'s Equity = Assets - Liabilities = 120,000 - 80,000 = 40,000 $$

Question 6

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

Accepted Answer

Purchasing inventory on account

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 earned $$25,000 in revenue and incurred 18$$,000 in expenses during the year. What is the net income?

Accepted Answer

$$ Net\ Income = Revenue - Expenses = 25,000 - 18,000 = 7,000 $$

Question 9

Which of the following best describes accrual accounting?

Accepted Answer

Revenues and expenses are recorded when they are earned or incurred, regardless of cash flow.

Question 10

A company paid $2,000 for a one-year insurance policy on January 1. What is the correct adjusting entry at March 31?

Accepted Answer

Debit Insurance Expense $$500; Credit Prepaid Insurance 500$$

Question 11

Which of the following is a limitation of financial accounting?

Accepted Answer

It does not provide detailed information for internal decision-making.

Question 12

Which principle requires that expenses be matched with revenues in the period in which they are incurred?

Accepted Answer

Matching Principle

Question 13

A company issues common stock for $10,000 cash. What is the effect on the accounting equation?

Accepted Answer

$$ Assets \uparrow 10,000; Owner\'s Equity \uparrow 10,000 $$

Question 14

Which of the following is an example of a financing activity on the statement of cash flows?

Accepted Answer

Issuing bonds to raise capital

Question 15

If a company’s assets increase by $$15,000 and liabilities increase by 10$$,000, what is the change in owner’s equity?

Accepted Answer

$$ \Delta Owner\'s\ Equity = \Delta Assets - \Delta Liabilities = 15,000 - 10,000 = 5,000 $$

Question 16

Which of the following is NOT a component of the balance sheet?

Accepted Answer

Revenues

Question 17

A company receives $5,000 cash from a customer for services to be performed next month. What is the correct journal entry?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 18

Which of the following best describes the role of GAAP in financial accounting?

Accepted Answer

GAAP provides standardized guidelines for preparing financial statements.

Question 19

A company paid $$1,200 for supplies. At year-end, 400 of $$supplies remain unused. What is the supplies expense for the year?

Accepted Answer

$$ Supplies\ Expense = Amount\ Purchased - Amount\ Remaining = 1,200 - 400 = 800 $$

Question 20

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

Accepted Answer

Recording depreciation expense at year-end

BUS 214 – Financial Accounting Syllabus and Course Structure

Study Guide - Practice Questions