Q: Which equation represents the fundamental accounting equation?

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

Question 1

Which of the following best describes the double entry system in financial accounting?

Accepted Answer

Every transaction affects at least two accounts, with equal debits and credits. 
$$	ext{Total Debits} = 	ext{Total Credits}$$

Question 2

A business purchased inventory for $5,000 on credit. Which accounts are affected and how?

Accepted Answer

Inventory is debited $$5,000; Accounts Payable is credited 5$$,000.

Question 3

Which equation represents the fundamental accounting equation?

Accepted Answer

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

Question 4

A sole proprietor withdraws $2,000 cash for personal use. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$2,000; Owner's Equity decreases by 2$$,000.

Question 5

Which of the following is NOT a purpose of preparing a trial balance?

Accepted Answer

To calculate net profit for the period.

Question 6

A business records depreciation of $1,000 on equipment. Which journal entry is correct?

Accepted Answer

Depreciation Expense is debited $$1,000; Accumulated Depreciation is credited 1$$,000.

Question 7

Which of the following best describes the accrual basis of accounting?

Accepted Answer

Revenues and expenses are recorded when they are earned or incurred, regardless of cash flow.

Question 8

A company discovers that a $500 payment for utilities was recorded as a payment for rent. What type of error is this?

Accepted Answer

Error of principle

Question 9

Which of the following transactions would require an adjusting entry at year-end?

Accepted Answer

A business pays for insurance covering the next 12 months.

Question 10

If a business has total assets of $$120,000 and total liabilities of 45$$,000, what is the owner's equity?

Accepted Answer

$$\75$$,000$

Question 11

Which of the following is an example of capital expenditure?

Accepted Answer

Purchasing a new delivery van for the business.

Question 12

A partnership agreement states that profits are to be shared in the ratio 3:2. If the profit for the year is $50,000, how much does Partner A receive?

Accepted Answer

$$\30$$,000$

Question 13

Which of the following is a feature of a limited company that distinguishes it from a sole proprietorship?

Accepted Answer

Limited liability for owners

Question 14

Which financial statement shows the financial position of a business at a specific point in time?

Accepted Answer

Balance Sheet

Question 15

A business writes off $800 as bad debts. What is the correct journal entry?

Accepted Answer

Bad Debts Expense is debited $$800; Accounts Receivable is credited 800.$$

Question 16

Which of the following is a real-life example of a compensating error?

Accepted Answer

An overstatement of sales by $$1,000 is offset by an overstatement of expenses by 1$$,000.

Question 17

Which formula is used to calculate the gross profit margin?

Accepted Answer

$$	ext{Gross Profit Margin} = \frac{	ext{Gross Profit}}{	ext{Sales}} 	imes 100$$

Question 18

A company’s trial balance does not balance. Which of the following is the most likely cause?

Accepted Answer

A transaction was recorded only on one side of the ledger.

Question 19

Which of the following best describes the purpose of the Statement of Cash Flows?

Accepted Answer

To show the sources and uses of cash during a period.

Question 20

A business has the following balances: Sales $$100,000, Cost of Goods Sold 60$$,000, Operating Expenses $25,000. What is the net profit?

Accepted Answer

$$\15$$,000$

Comprehensive Study Guide: Financial Accounting Core Topics

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