Question 1

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

Accepted Answer

To communicate financial information to external users for decision-making.

Question 2

Which statement is TRUE regarding the accounting cycle?

Accepted Answer

It starts with the identification and analysis of transactions and ends with the preparation of financial statements.

Question 3

A company purchased equipment for $$10,000. It estimates the equipment will last 5 years and have a residual value of 2$$,000. Using straight-line depreciation, what is the annual depreciation expense?

Accepted Answer

$1,600

Question 4

Which of the following is NOT considered an asset on the balance sheet?

Accepted Answer

Accounts Payable

Question 5

If a business receives $5,000 cash from a customer for services to be performed next month, how should this transaction be recorded?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 6

Which equation correctly represents the basic accounting equation?

Accepted Answer

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

Question 7

A company paid $1,200 for a one-year insurance policy on January 1. What is the adjusting entry at March 31?

Accepted Answer

Debit Insurance Expense $$300; Credit Prepaid Insurance 300$$

Question 8

Which of the following is a limitation of financial accounting?

Accepted Answer

It does not include non-financial information relevant to decision-making.

Question 9

Which principle requires that expenses be matched with revenues in the period in which they are incurred?

Accepted Answer

Matching Principle

Question 10

A business has the following account balances: Cash $$8,000; Accounts Receivable 4$$,000; Inventory $$6,000; Accounts Payable 5$$,000; Owner's Equity $13,000. What is the total assets?

Accepted Answer

$18,000

Question 11

Which of the following transactions would NOT affect the accounting equation?

Accepted Answer

Signing a contract to purchase inventory next month

Question 12

If a company uses the perpetual inventory system, which entry is required when inventory is sold?

Accepted Answer

Debit Cost of Goods Sold; Credit Inventory

Question 13

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

Accepted Answer

To update account balances before preparing financial statements.

Question 14

A company has total assets of $$50,000 and total liabilities of 20$$,000. What is the owner's equity?

Accepted Answer

$30,000

Question 15

Which of the following is an example of an accrual?

Accepted Answer

Recording interest expense incurred but not yet paid

Question 16

Which financial statement shows a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 17

A company earned $$12,000 in service revenue, incurred 7$$,000 in expenses, and the owner withdrew $$2,000. What is the ending owner's equity if beginning owner's equity was 10$$,000?

Accepted Answer

$13,000

Question 18

Which of the following is NOT a required element of the financial statements?

Accepted Answer

Statement of Retained Earnings (for sole proprietorships)

Question 19

If a company fails to record depreciation expense, what is the effect on the financial statements?

Accepted Answer

Assets are overstated; net income is overstated.

Question 20

Which of the following best describes the accrual basis of accounting?

Accepted Answer

Revenues are recorded when earned and expenses when incurred, regardless of cash flow.

Introduction to Financial Accounting – Course Syllabus and Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards