Question 1

Which of the following best describes the accounting equation used to analyze business transactions?

Accepted Answer

Assets $$=$$ Liabilities $$+$$ Equity

Question 2

A company purchases equipment for $10,000 cash. Which of the following correctly shows the effect on the accounting equation?

Accepted Answer

Assets increase by $$10,000 (equipment) and decrease by 10$$,000 (cash); no net change in total assets

Question 3

Which of the following statements about accrual and cash-basis accounting is correct?

Accepted Answer

Accrual accounting recognizes revenue when earned and expenses when incurred, regardless of cash flow.

Question 4

A business receives $2,000 for services to be performed next month. What is the correct journal entry under accrual accounting?

Accepted Answer

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

Question 5

Which of the following is NOT a component of internal control over cash?

Accepted Answer

Allowing one employee to handle all cash receipts and disbursements

Question 6

A company uses the straight-line method to depreciate a machine costing $12,000 with a useful life of 4 years and no salvage value. What is the annual depreciation expense?

Accepted Answer

Annual depreciation $$=$$ $$\frac{\12$$,000}{4}$$ $$=$$ $$\$$3,000$$

Question 7

Which of the following is the correct sequence for the steps in the accounting cycle?

Accepted Answer

Journalize transactions, post to ledger, prepare trial balance, adjust entries, prepare financial statements, close accounts

Question 8

A company’s bank statement shows a balance of $$5,000. The company’s books show a balance of 4$$,800. Outstanding checks total $$300, and deposits in transit total 200. $$What is the adjusted bank balance after reconciliation?

Accepted Answer

Adjusted bank balance $$=$$ $$5,000 - 300 + 200$$ $$=$$ $$4,900$$

Question 9

Which of the following best describes the purpose of closing entries in the accounting cycle?

Accepted Answer

To transfer the balances of temporary accounts to permanent accounts

Question 10

A company uses the allowance method for uncollectible accounts. If estimated uncollectibles are $$1,500 and the Allowance for Doubtful Accounts has a 200 $$credit balance, what is the required adjustment?

Accepted Answer

Debit Bad Debt Expense $$1,300; Credit Allowance for Doubtful Accounts 1$$,300

Question 11

Which inventory costing method results in the highest net income during periods of rising prices?

Accepted Answer

FIFO (First-In, First-Out)

Question 12

A company issues 1,000 shares of $$1 par value common stock for 10$$,000 cash. What is the correct journal entry?

Accepted Answer

Debit Cash $$10,000; Credit Common Stock 1$$,000; Credit Paid-in Capital in Excess of Par $9,000

Question 13

Which of the following is a characteristic unique to corporations compared to proprietorships and partnerships?

Accepted Answer

Ability to issue stock to raise capital

Question 14

A company pays $500 for a one-year insurance policy on January 1. What adjusting entry is required at March 31?

Accepted Answer

Debit Insurance Expense $$125; Credit Prepaid Insurance 125$$

Question 15

Which of the following is NOT a current liability?

Accepted Answer

Bonds Payable due in 10 years

Question 16

A company uses a perpetual inventory system. It purchases inventory for $5,000 on account. What is the correct journal entry?

Accepted Answer

Debit Inventory $$5,000; Credit Accounts Payable 5$$,000

Question 17

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

Accepted Answer

Matching Principle

Question 18

A company has total assets of $$50,000, total liabilities of 20$$,000, and equity of $$30,000. If the company pays off 5$$,000 of its liabilities, what is the new equity?

Accepted Answer

New equity $$=$$ $$30,000$$

Question 19

Which of the following is the correct formula for calculating the ending balance of retained earnings?

Accepted Answer

Ending Retained Earnings $$=$$ Beginning Retained Earnings $$+$$ Net Income $$-$$ Dividends

Principles of Financial Accounting I: Course Syllabus and Core Concepts

Study Guide - Practice Questions

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