Question 1

Which of the following best describes the primary purpose of the Income Statement in financial accounting?

Accepted Answer

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

Question 2

A company purchased inventory for $10,000 on account. Which of the following journal entries correctly records this transaction using accrual accounting?

Accepted Answer

Debit Inventory $$10,000; Credit Accounts Payable 10$$,000

Question 3

Which of the following is NOT a component of the Statement of Cash Flows?

Accepted Answer

Retained earnings activities

Question 4

A company has the following balances: Total Assets = $$120,000; Total Liabilities = 80$$,000. What is the amount of Stockholders’ Equity?

Accepted Answer

$40,000

Question 5

Which of the following best describes the matching principle in accrual accounting?

Accepted Answer

Expenses are matched with the revenues they help to generate in the same period.

Question 6

A company’s beginning inventory was $$5,000, purchases during the year were 20$$,000, and ending inventory was $7,000. What is the cost of goods sold (COGS) for the year?

Accepted Answer

$18,000

Question 7

Which of the following is an example of an internal control procedure?

Accepted Answer

Requiring two signatures on checks above $5,000

Question 8

A company has net income of $$50,000, dividends paid of 10$$,000, and beginning retained earnings of $30,000. What is the ending retained earnings balance?

Accepted Answer

$$70,000 = 30$$,000 + $$50,000 - 10$$,000$

Question 9

Which financial statement would you use to evaluate a company’s liquidity?

Accepted Answer

Balance Sheet

Question 10

A company’s current assets are $$25,000 and current liabilities are 20$$,000. What is the current ratio?

Accepted Answer

$$1.25 = \frac{25,000}{20,000}$$

Question 11

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

Accepted Answer

Borrowing $10,000 from a bank

Question 12

Which of the following best describes the purpose of the Statement of Retained Earnings?

Accepted Answer

To report the changes in retained earnings from net income and dividends over a period.

Question 13

A company sold merchandise for $15,000 on account. What is the effect on the accounting equation?

Accepted Answer

Increase assets and increase equity

Question 14

Which of the following is a real-world example of an investing activity on the Statement of Cash Flows?

Accepted Answer

Purchasing new equipment for a manufacturing plant

Question 15

A company’s total sales are $$100,000, cost of goods sold is 60$$,000, and operating expenses are $25,000. What is the net income?

Accepted Answer

$$15,000 = 100,000 - 60,000 - 25,000$$

Question 16

Which of the following best describes the role of financial accounting for external users?

Accepted Answer

To provide standardized financial information to investors, creditors, and regulators

Question 17

A company’s accounts receivable increased by $5,000 during the year. What does this indicate about the company’s cash collections from customers?

Accepted Answer

Cash collections were less than sales revenue by $5,000

Question 18

Which of the following is a key implication of using accrual accounting instead of cash accounting?

Accepted Answer

Financial statements reflect economic events when they occur, not necessarily when cash changes hands.

Question 19

A company issues $50,000 of common stock for cash. Which of the following best describes the effect on the company’s financial statements?

Accepted Answer

Increase assets and increase equity

Question 20

Which of the following best describes the purpose of internal controls in a business?

Accepted Answer

To safeguard assets and ensure the accuracy of accounting records

ACCT 201: Introduction to Financial Accounting – Syllabus and Course Structure Study Guide

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