Q: Which equation represents the basic accounting equation?

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

Q: What is the formula for calculating net income?

$$\text{Net Income} = \text{Revenues} - \text{Expenses}$$

Question 1

Which of the following best describes the primary purpose of financial statements according to Generally Accepted Accounting Principles (GAAP)?

Accepted Answer

To report the results of a company's activities to various user groups for decision-making purposes.

Question 2

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 3

Which equation represents the basic accounting equation?

Accepted Answer

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

Question 4

Which of the following is NOT a component of the four general-purpose financial statements?

Accepted Answer

Statement of Inventory Turnover

Question 5

A business purchases equipment for $10,000 cash. How will this transaction affect the accounting equation?

Accepted Answer

Increase assets and decrease assets by $10,000 (no net change)

Question 6

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

Accepted Answer

Matching Principle

Question 7

If a company has assets of $$50,000 and liabilities of 20$$,000, what is the owner's equity?

Accepted Answer

$$\30$$,000$

Question 8

Which of the following transactions would NOT affect the balance sheet?

Accepted Answer

Recording depreciation expense

Question 9

A company receives $5,000 cash for services to be performed next month. How should this be recorded under accrual accounting?

Accepted Answer

As a liability (unearned revenue) in the current month

Question 10

Which of the following best describes professional ethics in accounting?

Accepted Answer

Ensuring financial statements are accurate, honest, and comply with regulations

Question 11

A company has the following balances: Cash $$8,000, Accounts Receivable 2$$,000, Inventory $$5,000, Accounts Payable 3$$,000. What is the total current assets?

Accepted Answer

$$\15$$,000$

Question 12

Which financial statement shows a company's profitability over a specific period?

Accepted Answer

Income Statement

Question 13

If a company issues common stock for $25,000 cash, what is the effect on the accounting equation?

Accepted Answer

Increase assets and increase owner's equity by $25,000

Question 14

Which of the following is an example of a real-world application of financial statement analysis?

Accepted Answer

A bank evaluating a loan application by reviewing a company's balance sheet and income statement

Question 15

What is the formula for calculating net income?

Accepted Answer

$$	ext{Net Income} = 	ext{Revenues} - 	ext{Expenses}$$

Question 16

A company pays $1,200 for a one-year insurance policy. How should this be recorded initially?

Accepted Answer

As a prepaid asset

Question 17

Which of the following is a limitation of financial statements?

Accepted Answer

They may not reflect current market values of assets

Question 18

A company has revenues of $$40,000 and expenses of 28$$,000. What is the net income?

Accepted Answer

$$\12$$,000$

Question 19

Which of the following best illustrates the concept of accrual accounting?

Accepted Answer

Recording revenue when it is earned, regardless of when cash is received

ACG 2021 Financial Accounting for Decisions: Course Syllabus & Schedule Study Guide

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