$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

$$\text{Total revenue and gains} - \text{Total expenses and losses}$$

$$\text{Inventory period} + \text{Receivable period}$$

Question 1

Which of the following best describes the accounting equation fundamental to the balance sheet?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 2

A company purchases a machine for $10,000 cash. How does this transaction affect the accounting equation?

Accepted Answer

No net change in total assets; cash decreases by $$10,000, equipment increases by 10$$,000

Question 3

Which of the following is NOT considered a current asset?

Accepted Answer

Property, plant, and equipment (PPE)

Question 4

If a company has total assets of $$100,000 and total liabilities of 60$$,000, what is its equity?

Accepted Answer

$$40,000$$

Question 5

Which financial statement reports a company’s revenues and expenses over a period of time?

Accepted Answer

Statement of Financial Performance (Income Statement)

Question 6

A company’s net income is calculated as:

Accepted Answer

$$	ext{Total revenue and gains} - 	ext{Total expenses and losses}$$

Question 7

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

Accepted Answer

Property, plant, and equipment (PPE)

Question 8

Which principle requires that financial transactions be recorded when they occur, not when cash is received or paid?

Accepted Answer

Accrual basis

Question 9

A company has current assets of $$50,000 and current liabilities of 30$$,000. What is its net working capital?

Accepted Answer

$$20,000$$

Question 10

Which of the following is a qualitative characteristic that enhances the usefulness of financial information?

Accepted Answer

Comparability

Question 11

If a company pays $5,000 in dividends, how does this affect retained earnings?

Accepted Answer

Retained earnings decrease by $5,000

Question 12

Which of the following is NOT a component of equity?

Accepted Answer

Accounts payable

Question 13

Which assumption in financial reporting states that a business will continue to operate in the foreseeable future?

Accepted Answer

Going concern

Question 14

A company’s operating cycle is calculated as:

Accepted Answer

$$	ext{Inventory period} + 	ext{Receivable period}$$

Question 15

Which of the following is a liability?

Accepted Answer

Accounts payable

Question 16

Which financial statement shows cash flows from operating, investing, and financing activities?

Accepted Answer

Statement of Cash Flows

Question 17

If a company’s total revenue is $$120,000, cost of goods sold is 70$$,000, and operating expenses are $30,000, what is its operating profit?

Accepted Answer

$$20,000$$

Question 18

Which of the following is a reason why a business needs money?

Accepted Answer

To operate day-to-day (pay salaries and rent)

Question 19

Which of the following is a source of money for a business classified as equity?

Accepted Answer

Shareholders buying stocks

Question 20

Which of the following best describes the role of accounting in business?

Accepted Answer

It measures and communicates financial information to decision makers

Financial Accounting Fundamentals: Lecture 1 & Chapter 1 Study Notes

Study Guide - Practice Questions