Q: The accounting equation is:

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Question 1

Which of the following best describes the purpose of the Income Statement?

Accepted Answer

To summarize revenues and expenses and determine net income for a period.

Question 2

Which of the following is NOT considered an asset?

Accepted Answer

Unearned Revenue

Question 3

A company earned $$12,000 in revenue and incurred 7$$,500 in expenses during the year. What is the net income?

Accepted Answer

$$\4$$,500$

Question 4

Which of the following statements about the accrual basis of accounting is TRUE?

Accepted Answer

Revenue is recognized when earned, regardless of when cash is received.

Question 5

If a company pays $2,000 for a one-year insurance policy on January 1, which adjusting entry is needed at March 31?

Accepted Answer

Debit Insurance Expense $$\500$, Credit Prepaid Insurance $$\$$500$$

Question 6

Which account increases with a credit?

Accepted Answer

Accounts Payable

Question 7

The accounting equation is:

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 8

Which of the following is a business transaction?

Accepted Answer

Paying cash for office supplies.

Question 9

A company has assets of $$\50$$,000$$ and liabilities of $$\$$20,000. $$What is the equity?

Accepted Answer

$$\30$$,000$

Question 10

Which of the following is a nominal (temporary) account?

Accepted Answer

Service Revenue

Question 11

Which principle requires expenses to be recorded in the same period as the related revenues?

Accepted Answer

Expense Matching Principle

Question 12

After closing entries are made, which account will have a zero balance?

Accepted Answer

Dividends

Question 13

Which of the following is the correct order of preparing financial statements?

Accepted Answer

Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows

Question 14

A company received $$\5$$,000$ cash in advance for services to be performed next month. What is the correct journal entry?

Accepted Answer

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

Question 15

Which of the following is NOT a current asset?

Accepted Answer

Equipment

Question 16

If a company earned $$\8$$,000$$ in revenue and incurred $$\$$3,000 in $$expenses, but only received $$\5$$,000$ in cash, what is the net income under accrual accounting?

Accepted Answer

$$\8$$,000 - \$$3,000 = \5$$,000$

Question 17

Which of the following is the correct adjusting entry for accrued revenue at year-end?

Accepted Answer

Debit Accounts Receivable, Credit Service Revenue

Question 18

Which account is debited when closing out expenses at the end of the period?

Accepted Answer

Retained Earnings

Question 19

A company has beginning retained earnings of $$\10$$,000$$, net income of $$\$$4,000$$, and dividends of $$\1$$,500$. What is the ending retained earnings?

Accepted Answer

$$\10$$,000 + \$$4,000 - \1$$,500 = \$$12,500$$

Question 20

Which of the following is an example of a deferred expense?

Accepted Answer

Rent paid in advance

Financial Accounting: Unit 1 Exam Study Guide

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