Question 1

Which of the following best describes the primary function of accounting?

Accepted Answer

Measurement of economic events and summarizing and reporting in financial statements for users.

Question 2

Which of the following is NOT a characteristic of a sole proprietorship?

Accepted Answer

Indefinite life

Question 3

A company issues shares to raise funds for expansion. This is an example of which type of business activity?

Accepted Answer

Financing activity

Question 4

Which of the following statements about corporations is TRUE?

Accepted Answer

Corporations have an indefinite life and limited legal liability.

Question 5

Which of the following roles is considered an internal user of accounting information?

Accepted Answer

Production Manager

Question 6

What is the main difference between accounting and finance?

Accepted Answer

Accounting prepares and communicates financial statements, while finance analyzes and plans for the future.

Question 7

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

Accepted Answer

Purchasing machinery for production

Question 8

A partnership differs from a corporation in that:

Accepted Answer

A partnership has unlimited liability for its owners.

Question 9

Which of the following users would most likely use accounting information to decide whether to lend money to a business?

Accepted Answer

Creditor

Question 10

Which of the following is a key function of financial accounting?

Accepted Answer

Communicating financial information to external users

Question 11

If a company purchases a vehicle for use in its operations, which type of activity is this?

Accepted Answer

Investing activity

Question 12

Which of the following best describes the role of the CFO in a company?

Accepted Answer

Manages the company’s financial activities and reports to the CEO

Question 13

Which of the following is NOT a type of business activity?

Accepted Answer

Auditing activity

Question 14

A company’s board of directors is primarily responsible for:

Accepted Answer

Overseeing the management team and overall operations

Question 15

Which of the following is a benefit of forming a corporation compared to a sole proprietorship?

Accepted Answer

Indefinite life and easy transfer of ownership

Question 16

Which equation correctly represents the basic accounting equation?

Accepted Answer

$Assets = Liabilities + Owner\'s\ Equity$

Question 17

Which of the following is an example of a service-based business?

Accepted Answer

A law firm providing legal advice

Question 18

Which of the following is a primary use of accounting information for internal users?

Accepted Answer

To make decisions about buying, selling, or holding assets

Question 19

Which of the following is NOT a characteristic of a partnership?

Accepted Answer

Separate legal entity

Question 20

Which of the following best describes the purpose of capital allocation in business?

Accepted Answer

To allocate resources (money) efficiently through debt and equity markets

Introduction to Financial Accounting: Concepts, Users, and Business Structures

Study Guide - Practice Questions