Question 1

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

Accepted Answer

To provide financial information that helps investors and creditors make informed decisions.

Question 2

Which equation represents the fundamental accounting equation?

Accepted Answer

$Assets = Liabilities + Owners' Equity$

Question 3

On the income statement, which of the following is NOT considered part of income?

Accepted Answer

Owner's equity contributions

Question 4

A company pays $5,000 in advance for rent. How should this transaction be recorded?

Accepted Answer

Debit Prepaid Expenses $5,000; Credit Cash $5,000

Question 5

Which statement reports a company's accumulated net earnings since its inception?

Accepted Answer

Statement of Retained Earnings

Question 6

Which of the following is a current asset?

Accepted Answer

Inventory expected to be sold within one year

Question 7

Which activity is classified as a financing activity in the statement of cash flows?

Accepted Answer

Issuing shares to raise capital

Question 8

If a company receives $2,000 from a customer for services to be performed next month, how is this recorded?

Accepted Answer

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

Question 9

Which qualitative characteristic ensures that financial information can be compared across different companies?

Accepted Answer

Comparability

Question 10

What is the effect on the accounting equation when a company pays a $1,000 cash dividend to shareholders?

Accepted Answer

Decrease in assets and decrease in retained earnings

Question 11

Which of the following is NOT a core principle of the CPA Code of Professional Conduct?

Accepted Answer

Profit maximization

Question 12

A company purchases equipment for $10,000 cash. Which accounts are affected and how?

Accepted Answer

Debit Equipment $10,000; Credit Cash $10,000

Question 13

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

Accepted Answer

Going-concern assumption

Question 14

Which of the following transactions would increase both assets and liabilities?

Accepted Answer

Purchasing office supplies on credit

Question 15

What is the correct rule for recording an increase in an asset account?

Accepted Answer

Debit the asset account

Question 16

Which financial statement provides a snapshot of a company's financial position at a specific date?

Accepted Answer

Balance Sheet

Question 17

If total debits equal total credits in the trial balance, what does this indicate?

Accepted Answer

The ledger is in balance and financial statements can be prepared

Question 18

Which of the following is an example of an operating activity?

Accepted Answer

Cash received from customers for sales

Question 19

Which account is increased by a credit entry?

Accepted Answer

Liabilities

Question 20

A company records revenue when it earns it, regardless of when cash is received. Which principle is this?

Accepted Answer

Revenue recognition principle

Financial Accounting Fundamentals: Study Notes (Chapters 1 & 2)

Study Guide - Practice Questions