Q: According to the accounting equation, which of the following is always true?

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

Question 1

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

Accepted Answer

To provide financial information about a company that is useful to external users in making economic decisions

Question 2

According to the accounting equation, which of the following is always true?

Accepted Answer

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

Question 3

Which of the following is NOT a qualitative characteristic of useful accounting information as described in the conceptual framework?

Accepted Answer

Profitability

Question 4

A company purchases equipment for $10,000 cash. Which principle requires that the equipment be recorded at the amount paid?

Accepted Answer

Historical Cost Principle

Question 5

Which of the following statements about the difference between financial and managerial accounting is correct?

Accepted Answer

Financial accounting reports are prepared for external users and must follow GAAP, while managerial accounting reports are for internal users and are not required to follow GAAP.

Question 6

Which of the following is an example of an asset?

Accepted Answer

Inventory

Question 7

A company recognizes revenue when it delivers goods to a customer, even if payment is received later. Which principle is being applied?

Accepted Answer

Revenue Recognition Principle

Question 8

Which of the following is a constraint in accounting that limits the amount of information provided in financial statements?

Accepted Answer

Cost Constraint

Question 9

If a company is assumed to continue operating into the foreseeable future, which accounting assumption is being applied?

Accepted Answer

Going Concern Assumption

Question 10

Which of the following best describes the matching principle?

Accepted Answer

Expenses are recognized in the same period as the revenues they help to generate.

Question 11

A company’s balance sheet shows total assets of $$50,000 and total liabilities of 30$$,000. What is the amount of equity?

Accepted Answer

$$20,000$$

Question 12

Which of the following is an example of a non-business entity?

Accepted Answer

University

Question 13

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

Accepted Answer

Statement of Budgets

Question 14

Which of the following best describes the 'faithful representation' qualitative characteristic?

Accepted Answer

Information is presented in a way that is neutral, complete, and free from error.

Question 15

A company’s income statement for the year shows revenues of $$100,000 and expenses of 70$$,000. What is the net income for the year?

Accepted Answer

$$30,000$$

Question 16

Which of the following is an enhancing qualitative characteristic of accounting information?

Accepted Answer

Timeliness

Question 17

Which of the following is a disadvantage of the corporate form of business organization?

Accepted Answer

Double taxation of income

Question 18

Which of the following best describes the periodicity assumption?

Accepted Answer

A company’s life can be divided into artificial time periods for reporting purposes.

Question 19

If a company’s assets increase by $$5,000 and its liabilities increase by 2$$,000, by how much does equity change?

Accepted Answer

$$3,000$$ increase

Question 20

Which of the following is an example of a gain as reported on the income statement?

Accepted Answer

Gain on sale of equipment

Introduction to Financial Accounting: Concepts, Principles, and Financial Statements

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