Q: Which of the following best describes the accounting equation?

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

Question 1

Which of the following best describes the accounting equation?

Accepted Answer

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

Question 2

A company purchased equipment for $10,000 cash. Which of the following is the correct journal entry?

Accepted Answer

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

Question 3

Which of the following transactions would increase both assets and liabilities?

Accepted Answer

Borrowing money from a bank

Question 4

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Calculating depreciation

Question 5

If a company fails to record accrued expenses at year-end, what is the effect on the financial statements?

Accepted Answer

Net income is overstated and liabilities are understated

Question 6

Which of the following accounts would be closed at the end of the accounting period?

Accepted Answer

Service Revenue

Question 7

A company writes a check for $500 to pay a utility bill. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$500; Owner's Equity decreases by 500$$

Question 8

Which of the following best describes the purpose of a trial balance?

Accepted Answer

To verify that total debits equal total credits after posting

Question 9

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

Accepted Answer

Recording prepaid rent as an expense at the end of the period

Question 10

A company receives $1,200 cash in advance for services to be performed next month. What is the correct journal entry?

Accepted Answer

Debit Cash $$1,200; Credit Unearned Revenue 1$$,200

Question 11

Which of the following is true regarding the matching principle?

Accepted Answer

Expenses should be recognized in the same period as the revenues they help to generate

Question 12

If a company’s bank statement shows a balance of $$5,000 and there are 500 in $$outstanding checks and $200 in deposits in transit, what is the adjusted cash balance?

Accepted Answer

$$4,700$$

Question 13

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

Accepted Answer

It is a probable future economic benefit

Question 14

Which of the following best describes the purpose of internal controls?

Accepted Answer

To safeguard assets and ensure the reliability of accounting records

Question 15

A company uses the allowance method for uncollectible accounts. If it estimates that $2,000 of accounts receivable will be uncollectible, what is the journal entry?

Accepted Answer

Debit Bad Debt Expense $$2,000; Credit Allowance for Doubtful Accounts 2$$,000

Question 16

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

Accepted Answer

FIFO

Question 17

A company purchased inventory for $8,000 on account. What is the effect on the accounting equation?

Accepted Answer

Assets increase by $$8,000; Liabilities increase by 8$$,000

Question 18

Which of the following is an example of a contra-asset account?

Accepted Answer

Accumulated Depreciation

Question 19

Which of the following is the correct formula for calculating depreciation using the straight-line method?

Accepted Answer

$$	ext{Depreciation Expense} = \frac{	ext{Cost} - 	ext{Salvage Value}}{	ext{Useful Life}}$$

Question 20

A company declared and paid a $1,000 cash dividend. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$1,000; Owner's Equity decreases by 1$$,000

Financial Accounting Final Exam Review: Key Topics and Learning Objectives

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