Question 1

Which of the following best describes the accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 2

A company purchases equipment for $10,000 cash. Which of the following best describes the effect on the accounting equation?

Accepted Answer

Increase one asset and decrease another asset by $10,000

Question 3

Which financial statement reports a company’s financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 4

Which of the following is NOT a component of stockholders’ equity?

Accepted Answer

Accounts Payable

Question 5

Which principle requires that assets be recorded at their original purchase price?

Accepted Answer

Historical Cost Principle

Question 6

A company’s net income is calculated as:

Accepted Answer

$$Net\ Income = Total\ Revenues - Total\ Expenses$$

Question 7

Which of the following is an example of a current asset?

Accepted Answer

Accounts Receivable

Question 8

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

Accepted Answer

To report cash receipts and cash payments during the period

Question 9

Which of the following is a long-term liability?

Accepted Answer

Notes Payable (due in 10 years)

Question 10

Which of the following is NOT a required financial statement under GAAP?

Accepted Answer

Statement of Marketing Activities

Question 11

Which assumption states that the business will continue operating into the foreseeable future?

Accepted Answer

Continuity (Going-Concern) Assumption

Question 12

Which of the following best describes the relationship between the income statement and the statement of retained earnings?

Accepted Answer

Net income from the income statement is added to retained earnings

Question 13

Which of the following is a key component of ESG (Environmental, Social, Governance) reporting?

Accepted Answer

Board Structure

Question 14

A company has total assets of $$120,000 and total liabilities of 70$$,000. What is the amount of equity?

Accepted Answer

$$50,000$$

Question 15

Which of the following is NOT a typical activity reported in the statement of cash flows?

Accepted Answer

Marketing activities

Question 16

Which of the following is an example of an ethical consideration in accounting?

Accepted Answer

Ensuring that financial statements fairly represent the company’s financial position

Question 17

Which of the following best describes the entity assumption?

Accepted Answer

The business is separate from its owners and other entities

Question 18

Which of the following would be classified as a current liability?

Accepted Answer

Accounts Payable

Question 19

Which of the following is a primary purpose of the income statement?

Accepted Answer

To show the company’s profitability over a period

Question 20

Which of the following is a real-world example of an investing activity on the statement of cash flows?

Accepted Answer

Purchasing new machinery for the factory

Chapter 1: Financial Statements – Foundations of Financial Accounting

Study Guide - Practice Questions