Question 1

Which of the following best describes the purpose of the accounting equation $$Assets = Liabilities + Owner's	ext{ }Equity in $$financial accounting?

Accepted Answer

It demonstrates that a company's resources are financed by creditors and owners.

Question 2

A company purchased equipment for $$\10$$,000$ cash. Which of the following is the correct effect on the accounting equation?

Accepted Answer

Increase one asset (equipment) by $$\10$$,000$$ and decrease another asset (cash) by $$\$$10,000.$$

Question 3

Which of the following is NOT a qualitative characteristic of useful accounting information?

Accepted Answer

Profitability

Question 4

Which financial statement would you use to determine a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 5

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

Accepted Answer

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

Question 6

A company earned $$\5$$,000$ in revenue on account. What is the effect on the accounting equation?

Accepted Answer

Increase assets and increase owner's equity by $$\5$$,000$.

Question 7

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

Accepted Answer

Segregation of duties

Question 8

If a company fails to record an adjusting entry for accrued expenses, what is the effect on the financial statements?

Accepted Answer

Liabilities are understated and net income is overstated.

Question 9

Which of the following is NOT a component of Environmental, Social, and Governance (ESG) reporting?

Accepted Answer

Product pricing

Question 10

A company has current assets of $$\50$$,000$$ and current liabilities of $$\$$30,000. $$What is the current ratio?

Accepted Answer

$$Current\ Ratio = \frac{Current\ Assets}{Current\ Liabilities} = \frac{50,000}{30,000} = 1.67$$

Question 11

Which of the following transactions would NOT affect the net working capital of a company?

Accepted Answer

Paying off a short-term loan with cash

Question 12

Which of the following best describes the purpose of a bank reconciliation?

Accepted Answer

To ensure that the company's cash records match the bank's records.

Question 13

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

Accepted Answer

Recording prepaid insurance as an expense.

Question 14

Which of the following is a limitation of financial statements?

Accepted Answer

They may not reflect current market values of assets.

Question 15

A company discovers a $$\2$$,000$ error in recording supplies expense. Which is the correct journal entry to correct this error if supplies expense was overstated?

Accepted Answer

Debit Supplies $$\2$$,000$$; Credit Supplies Expense $$\$$2,000$$

Question 16

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

Accepted Answer

Calculating the company's tax liability

Question 17

Which of the following best describes the fraud triangle?

Accepted Answer

It identifies opportunity, pressure, and rationalization as factors leading to fraud.

Question 18

If a company has total assets of $$\120$$,000$$ and total liabilities of $$\$$80,000$$, what is the owner's equity?

Accepted Answer

$$Owner's\ Equity = Total\ Assets - Total\ Liabilities = 120,000 - 80,000 = 40,000$$

Question 19

Which of the following is an example of a real-world application of internal controls?

Accepted Answer

A company requires two signatures on checks over $$\5$$,000$.

Question 20

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

Accepted Answer

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

Financial Accounting Exam 1 Study Guide: Key Concepts and Procedures

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