Question 1

Which of the following best describes the main purpose of accounting in a business environment?

Accepted Answer

To measure business activities, turn information into reports, and provide results to decision makers.

Question 2

Which organization is primarily responsible for creating and governing accounting standards in the United States?

Accepted Answer

Financial Accounting Standards Board (FASB)

Question 3

A business has assets of $$45,000 and liabilities of 18$$,000. What is the amount of equity?

Accepted Answer

$27,000

Question 4

Which of the following is NOT a characteristic of the monetary unit assumption?

Accepted Answer

Financial statements can be prepared using any unit of measurement, such as hours or units produced.

Question 5

Which of the following transactions would NOT be recorded in the accounting records?

Accepted Answer

A change in the market value of land owned by the business.

Question 6

Which financial statement reports the assets, liabilities, and owner’s equity of a business as of a specific date?

Accepted Answer

Balance sheet

Question 7

If a company earns service revenue on account, which accounts are affected and how?

Accepted Answer

Increase Accounts Receivable (Asset); Increase Service Revenue (Equity)

Question 8

Which principle requires that assets and services be recorded at their actual cost, not market value?

Accepted Answer

Cost principle

Question 9

A company has the following balances: Beginning Capital $$10,000; Owner Contribution 5$$,000; Net Income $$3,000; Owner Withdrawal 2$$,000. What is the ending capital?

Accepted Answer

$16,000

Question 10

Which of the following best describes the difference between financial accounting and managerial accounting?

Accepted Answer

Financial accounting provides information to external users; managerial accounting provides information to internal users.

Question 11

Which of the following is an example of a liability?

Accepted Answer

Accounts Payable

Question 12

A company’s net income for the year is $$12,000. Beginning total assets were 60$$,000 and ending total assets were $84,000. What is the company’s return on assets (ROA)?

Accepted Answer

$$\frac{12,000}{(60,000 + 84,000) \div 2} = 17.1\%$$

Question 13

Which of the following is NOT a section of the statement of cash flows?

Accepted Answer

Profitability activities

Question 14

Which of the following would increase equity?

Accepted Answer

Owner contributions and revenues

Question 15

Which of the following best describes the economic entity assumption?

Accepted Answer

A business is treated as separate from its owners and other businesses.

Question 16

A company pays $1,000 for rent expense in cash. What is the effect on the accounting equation?

Accepted Answer

Decrease asset (Cash); Decrease equity (Rent Expense)

Question 17

Which of the following is a key difference between U.S. GAAP and IFRS?

Accepted Answer

IFRS allows periodic revaluation of some assets to market value, while U.S. GAAP generally uses historical cost.

Question 18

Which of the following is NOT a reason why ethics are important in accounting?

Accepted Answer

To help companies appear more profitable than they are.

Question 19

Which of the following best describes the purpose of an audit?

Accepted Answer

To examine a company’s financial statements and records and give an opinion on their fairness.

Question 20

A company has the following balances: Cash $$8,000; Furniture (cost) 9$$,000; Accounts Payable $$6,000; Owner’s personal home 400$$,000. According to the economic entity assumption, which amounts are reported on the company’s balance sheet?

Accepted Answer

Cash $$8,000; Furniture 9$$,000; Accounts Payable $6,000

Financial Accounting: Chapter 1 – Accounting and the Business Environment (A2 Easy English Edition)

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