Q: Which equation represents the fundamental accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$$

Q: A company has the following balances: Assets $$50,000, Liabilities 20$$,000. What is the Owner’s Equity?

$$\text{Owner's Equity} = \text{Assets} - \text{Liabilities} = 50,000 - 20,000 = 30,000$$

Q: A company earned $$15,000 in revenue and incurred 9$$,000 in expenses during the year. What is the net income?

$$\text{Net Income} = \text{Revenue} - \text{Expenses} = 15,000 - 9,000 = 6,000$$

Question 1

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

Accepted Answer

To communicate the business entity’s results of operations and financial position to external users.

Question 2

According to U.S. GAAP, which of the following statements is TRUE regarding the preparation of financial statements?

Accepted Answer

Financial statements must include a balance sheet, income statement, statement of cash flows, and statement of shareholders’ equity.

Question 3

A company records revenue when cash is received, regardless of when the goods or services are delivered. Which accounting method is being used?

Accepted Answer

Cash basis accounting

Question 4

Which of the following is NOT a component of the accounting environment as described in the course objectives?

Accepted Answer

Tax codes

Question 5

A business purchases equipment for $10,000 cash. Which of the following journal entries correctly records this transaction?

Accepted Answer

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

Question 6

Which equation represents the fundamental accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Owner's Equity}$$

Question 7

Which of the following best describes the difference between U.S. GAAP and IFRS?

Accepted Answer

GAAP is more rules-based, while IFRS is more principles-based.

Question 8

A company has the following balances: Assets $$50,000, Liabilities 20$$,000. What is the Owner’s Equity?

Accepted Answer

$$	ext{Owner's Equity} = 	ext{Assets} - 	ext{Liabilities} = 50,000 - 20,000 = 30,000$$

Question 9

Which of the following is an example of an adjusting entry?

Accepted Answer

Recognizing accrued interest expense at the end of the period.

Question 10

After closing the general ledger, which accounts will have a zero balance?

Accepted Answer

Temporary accounts (revenues, expenses, dividends)

Question 11

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

Accepted Answer

Balance Sheet

Question 12

A company earned $$15,000 in revenue and incurred 9$$,000 in expenses during the year. What is the net income?

Accepted Answer

$$	ext{Net Income} = 	ext{Revenue} - 	ext{Expenses} = 15,000 - 9,000 = 6,000$$

Question 13

Which of the following is a real-world example of a liability?

Accepted Answer

A loan payable to a financial institution.

Question 14

Which of the following best describes the purpose of the statement of cash flows?

Accepted Answer

To report the company’s cash inflows and outflows from operating, investing, and financing activities.

Question 15

A company issues common stock for $25,000 cash. Which section of the statement of cash flows will this transaction appear in?

Accepted Answer

Financing activities

Question 16

Which of the following is a constraint in the accounting environment?

Accepted Answer

Materiality

Question 17

A company has the following transactions during the year: 
- Purchased inventory for $$5,000 cash
- Sold inventory for 8$$,000 cash
- Paid $2,000 for utilities
What is the company’s net cash flow from operating activities?

Accepted Answer

$$	ext{Net Cash Flow} = 8,000 - 5,000 - 2,000 = 1,000$$

Question 18

Which of the following is an example of an asset?

Accepted Answer

Prepaid insurance

Question 19

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

Accepted Answer

Matching principle

Question 20

A company prepares its financial statements at the end of the year. It discovers that a $1,000 expense was incurred but not yet paid or recorded. What adjusting entry should be made?

Accepted Answer

Debit Expense $$1,000; Credit Accounts Payable 1$$,000

Principles of Financial Accounting (ACCT 2301) – Course Syllabus and Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards