Question 1

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

Accepted Answer

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

Question 2

Which of the following is NOT a qualitative characteristic of accounting information according to the conceptual framework?

Accepted Answer

Profitability

Question 3

A company purchases equipment for $50,000 cash. According to the cost principle, at what amount should the equipment be recorded?

Accepted Answer

$50,000

Question 4

Which of the following users would most likely rely on management accounting information?

Accepted Answer

A company’s production manager

Question 5

Which of the following is the correct expanded accounting equation?

Accepted Answer

$$Assets = Liabilities + Owner's Capital + Revenues - Expenses - Withdrawals$$

Question 6

A business owner invests $100,000 cash into their company. What is the effect on the accounting equation?

Accepted Answer

Increase assets and increase owner’s equity

Question 7

Which of the following best describes the going-concern assumption?

Accepted Answer

A business will continue operating for the foreseeable future

Question 8

Which of the following transactions would NOT affect owner’s equity?

Accepted Answer

The business borrows money from a bank

Question 9

Which of the following is a key difference between IFRS and ASPE in Canada?

Accepted Answer

IFRS is required for publicly accountable enterprises, while ASPE is for private enterprises

Question 10

A company provides consulting services on account for $20,000. Which accounts are affected and how?

Accepted Answer

Increase Accounts Receivable and increase Revenue by $20,000

Question 11

Which of the following best describes the purpose of an audit performed by a CPA?

Accepted Answer

To express an opinion on whether the financial statements fairly reflect economic events

Question 12

Which of the following is an example of a liability?

Accepted Answer

Accounts Payable

Question 13

Which of the following statements about the stable-monetary-unit assumption is correct?

Accepted Answer

It allows accountants to ignore inflation in normal circumstances

Question 14

Which of the following is the correct order for preparing the primary financial statements?

Accepted Answer

Income Statement, Statement of Owner’s Equity, Balance Sheet, Cash Flow Statement

Question 15

A company has assets of $$500,000 and liabilities of 350$$,000. What is the owner’s equity?

Accepted Answer

$$150,000$$

Question 16

Which of the following is an example of the economic-entity assumption?

Accepted Answer

A sole proprietor keeps business and personal transactions separate

Question 17

If a company’s total revenues are $$120,000 and total expenses are 90$$,000, what is the net income?

Accepted Answer

$$30,000$$

Question 18

Which of the following best describes the materiality constraint?

Accepted Answer

Only transactions that would affect a decision maker’s decision are considered material

Question 19

Which of the following is NOT a responsibility of a professional accountant under the CPA Code of Professional Conduct?

Accepted Answer

Maximizing profits for the company at any cost

Question 20

A company pays $5,000 cash to settle an account payable. What is the effect on the accounting equation?

Accepted Answer

Decrease assets and decrease liabilities by $5,000

Chapter 1: Accounting and the Business Environment – Study Notes

Study Guide - Practice Questions