Q: Which of the following is the correct expanded accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Owner, Capital} - \text{Owner, Withdrawals} + \text{Revenues} - \text{Expenses}$$

Question 1

Which of the following best describes the primary purpose of accounting in business?

Accepted Answer

To identify, record, and communicate an organization's business activities.

Question 2

Which of the following is NOT considered an external user of accounting information?

Accepted Answer

Production managers

Question 3

A company purchases $5,000 of supplies on credit. Which accounts are affected and how?

Accepted Answer

Supplies increase by $$5,000; Accounts Payable increases by 5$$,000.

Question 4

Which of the following best explains the revenue recognition principle?

Accepted Answer

Revenue is recorded when goods or services are provided to customers and at the amount expected to be received.

Question 5

A company paid $2,400 for a 24-month insurance policy on December 1. Using accrual accounting, what amount of insurance expense should be recognized in December?

Accepted Answer

$100

Question 6

Which of the following is the correct expanded accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Owner, Capital} - 	ext{Owner, Withdrawals} + 	ext{Revenues} - 	ext{Expenses}$$

Question 7

If a company has total assets of $$50,000 and total liabilities of 20$$,000, what is the debt ratio?

Accepted Answer

$$\frac{20,000}{50,000} = 0.4$$

Question 8

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

Accepted Answer

Recording the portion of prepaid rent that has expired as rent expense.

Question 9

A company earned $$10,000 in revenue and incurred 7$$,000 in expenses during the year. What is the profit margin if net sales equal $10,000?

Accepted Answer

$$\frac{10,000 - 7,000}{10,000} = 0.3$$

Question 10

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

Accepted Answer

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

Question 11

Which of the following is NOT a qualitative characteristic of accounting information according to the conceptual framework?

Accepted Answer

Profitability

Question 12

A company receives $3,000 cash in advance for services to be performed over 60 days. At the end of 5 days, what is the correct adjusting entry?

Accepted Answer

Debit Unearned Revenue $$250; Credit Service Revenue 250$$

Question 13

Which of the following best describes the matching (expense recognition) principle?

Accepted Answer

Expenses are recorded in the same period as the revenues they help generate.

Question 14

If a company’s trial balance does not balance, which of the following is the LEAST likely cause?

Accepted Answer

A transaction was recorded twice, once as a debit and once as a credit.

Question 15

Which of the following is the correct formula for Return on Assets (ROA)?

Accepted Answer

$$	ext{ROA} = \frac{	ext{Net Income}}{	ext{Average Total Assets}}$$

Question 16

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries earned by employees but not yet paid at the end of the period.

Question 17

Which of the following is a correct adjusting entry for depreciation using the straight-line method?

Accepted Answer

Debit Depreciation Expense; Credit Accumulated Depreciation

Question 18

Which of the following is a constraint in accounting that limits the information provided in financial statements?

Accepted Answer

Cost-benefit constraint

Question 19

A company’s adjusted trial balance shows total debits of $$100,000 and total credits of 100$$,000. What does this indicate?

Accepted Answer

The ledger is in balance, but errors may still exist in the accounts.

Question 20

Which of the following best describes the purpose of the statement of owner’s equity?

Accepted Answer

To report changes in equity from net income (or loss) and owner investments and withdrawals over a period.

Fundamental Principles of Financial Accounting: Chapter 1 Study Notes

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