Question 1

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

Accepted Answer

To provide financial information for making economic decisions.

Question 2

Which user of accounting information would most likely be interested in a company’s ability to repay loans?

Accepted Answer

Creditors

Question 3

Which accounting principle requires that financial statements be prepared using a stable currency?

Accepted Answer

Stable-monetary-unit concept

Question 4

A small private company keeps its records on a cash basis but prepares its financial statements using GAAP. What is this process called?

Accepted Answer

Conversion to accrual basis for financial statement preparation

Question 5

Which of the following is NOT a characteristic of a corporation?

Accepted Answer

Unlimited liability for owners

Question 6

Which accounting concept ensures that only relevant and reliable information is included in financial statements?

Accepted Answer

Materiality

Question 7

Which professional body is responsible for regulating public companies in the United States?

Accepted Answer

Public Companies Accounting Oversight Board (PCAOB)

Question 8

Which accounting principle states that a business will continue to operate indefinitely unless there is evidence to the contrary?

Accepted Answer

Going-concern concept

Question 9

A company prepares a budget for the next year. Which type of accounting information is this?

Accepted Answer

Forecasted financial information

Question 10

Which of the following is a key reason for the existence of ethics in accounting?

Accepted Answer

To ensure objectivity and integrity in financial reporting

Question 11

Which of the following is a distinctive feature of a sole proprietorship?

Accepted Answer

Single owner with unlimited liability

Question 12

Which accounting concept is most closely associated with the phrase 'substance over form'?

Accepted Answer

Faithful representation

Question 13

Which of the following statements about GAAP is correct?

Accepted Answer

GAAP provides the basis for preparing financial statements.

Question 14

Which accounting concept requires that expenses be matched with revenues in the period in which they are incurred?

Accepted Answer

Matching concept

Question 15

A business entity is preparing its financial statements. Which concept ensures that the business is treated as separate from its owners?

Accepted Answer

Entity concept

Question 16

Which of the following is a benefit of incorporating a business, even if there is only one shareholder?

Accepted Answer

Limited liability protection

Question 17

Which accounting principle requires that assets be recorded at their original purchase price?

Accepted Answer

Cost principle

Question 18

Which of the following is a key feature of a partnership?

Accepted Answer

Shared ownership and shared liability

Question 19

Which of the following is a major theme in accounting that ensures information is provided in a timely manner?

Accepted Answer

Timeliness

Question 20

A company is considering whether to report a small expense. Which accounting concept would guide the decision?

Accepted Answer

Materiality

Accounting and the Business Environment: Foundations and Key Concepts

Study Guide - Practice Questions