Question 1

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

Accepted Answer

To provide information to external users for decision-making purposes.

Question 2

Which of the following is NOT a user of financial accounting information?

Accepted Answer

Customers' suppliers

Question 3

Which organization is primarily responsible for establishing Generally Accepted Accounting Principles (GAAP) in the United States?

Accepted Answer

Financial Accounting Standards Board (FASB)

Question 4

Given the following information, calculate the owner's equity:

Assets: $$ \120$$,000 $$
Liabilities: $$ \$$45,000 $$

Which formula should be used, and what is the owner's equity?

Accepted Answer

Owner's Equity = Assets - Liabilities; $$ \75$$,000 $

Question 5

Which of the following accounts normally has a credit balance?

Accepted Answer

Accounts Payable

Question 6

A company receives $$ \2$$,000 $ cash in advance for services to be performed next month. What is the correct journal entry?

Accepted Answer

Debit Cash $$ \2$$,000 $$, Credit Unearned Revenue $$ \$$2,000 $$

Question 7

Which principle requires that expenses be recorded in the same period as the revenues they help generate?

Accepted Answer

Matching Principle

Question 8

A company purchased equipment for $$ \10$$,000 $ cash. What is the effect on the accounting equation?

Accepted Answer

Increase one asset and decrease another asset

Question 9

Which of the following transactions would require an adjusting journal entry at the end of the period?

Accepted Answer

Accrued interest expense not yet paid

Question 10

A company had the following account balances before adjustments:

Supplies (beginning): $$ \1$$,500 $$
Supplies on hand at year-end: $$ \$$400 $$

What is the required adjusting entry?

Accepted Answer

Debit Supplies Expense $$ \1$$,100 $$, Credit Supplies $$ \$$1,100 $$

Question 11

Which of the following best describes the order in which financial statements should be prepared?

Accepted Answer

Income Statement, Statement of Equity, Balance Sheet

Question 12

Which of the following is a temporary account that must be closed at the end of the accounting period?

Accepted Answer

Service Revenue

Question 13

If a company fails to record adjusting entries for accrued expenses, what is the effect on the financial statements?

Accepted Answer

Liabilities are understated and net income is overstated.

Question 14

Which of the following best describes the double-entry accounting system?

Accepted Answer

Each transaction must be recorded in at least two accounts, with debits equaling credits.

Question 15

A company earned $$ \5$$,000 $ in service revenue on account. What is the correct journal entry?

Accepted Answer

Debit Accounts Receivable $$ \5$$,000 $$, Credit Service Revenue $$ \$$5,000 $$

Question 16

Which of the following statements about the trial balance is TRUE?

Accepted Answer

It lists all accounts and their balances at a specific point in time.

Question 17

Which of the following is an example of accrual basis accounting?

Accepted Answer

Recording revenue when earned, regardless of when cash is received.

Question 18

A company pays $$ \1$$,200 $ for a one-year insurance policy on October 1. What adjusting entry is required on December 31?

Accepted Answer

Debit Insurance Expense $$ \300$$ $$, Credit Prepaid Insurance $$ \$$300 $$

Question 19

Which of the following best describes the purpose of closing entries?

Accepted Answer

To transfer the balances of temporary accounts to retained earnings or capital.

Question 20

After posting closing entries, which of the following accounts will have a zero balance?

Accepted Answer

Service Revenue

Financial Accounting: Core Concepts and the Accounting Cycle

Study Guide - Practice Questions