Question 1

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

Accepted Answer

To summarize and report financial information to external users such as investors and creditors.

Question 2

Which of the following is the correct form of the accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 3

A company purchases equipment for $10,000 cash. Which of the following correctly describes the effect on the accounting equation?

Accepted Answer

One asset increases by $$10,000; another asset decreases by 10$$,000; total assets remain unchanged.

Question 4

Which organization is primarily responsible for establishing accounting standards in the United States?

Accepted Answer

Financial Accounting Standards Board (FASB)

Question 5

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

Accepted Answer

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

Question 6

A business has total assets of $$120,000 and total liabilities of 80$$,000. What is the amount of equity?

Accepted Answer

$$Equity = Assets - Liabilities = 120,000 - 80,000 = 40,000$$

Question 7

Which of the following is NOT a component of internal control?

Accepted Answer

Revenue recognition

Question 8

A company uses the perpetual inventory system. It purchases $5,000 of inventory on account. Which journal entry is correct?

Accepted Answer

Debit Inventory $$5,000; Credit Accounts Payable 5$$,000

Question 9

Which of the following best describes the purpose of adjusting entries?

Accepted Answer

To update account balances before preparing financial statements.

Question 10

A company had net income of $$25,000 and average total assets of 200$$,000. What is the return on assets (ROA)?

Accepted Answer

$$ROA = \frac{Net\ Income}{Average\ Total\ Assets} = \frac{25,000}{200,000} = 0.125 = 12.5\%$$

Question 11

Which of the following is a real-world example of applying the lower-of-cost-or-market rule?

Accepted Answer

A retailer writes down the value of unsold winter coats at year-end because their market value is less than the original cost.

Question 12

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

Accepted Answer

Interest earned but not yet received or recorded.

Question 13

A company has current assets of $$50,000 and current liabilities of 25$$,000. What is the current ratio?

Accepted Answer

$$Current\ Ratio = \frac{Current\ Assets}{Current\ Liabilities} = \frac{50,000}{25,000} = 2.0$$

Question 14

Which of the following best describes the double-entry accounting system?

Accepted Answer

Each transaction affects at least two accounts, with debits equaling credits.

Question 15

A company uses straight-line depreciation for equipment costing $12,000 with a useful life of 4 years and no salvage value. What is the annual depreciation expense?

Accepted Answer

$$Depreciation\ Expense = \frac{Cost - Salvage\ Value}{Useful\ Life} = \frac{12,000 - 0}{4} = 3,000$$

Question 16

Which of the following is an example of an ethical issue in accounting?

Accepted Answer

Intentionally overstating revenue to meet earnings targets.

Question 17

A company has sales of $$100,000, cost of goods sold of 60$$,000, and operating expenses of $25,000. What is the gross profit percentage?

Accepted Answer

$$Gross\ Profit\ Percentage = \frac{Gross\ Profit}{Net\ Sales} 	imes 100 = \frac{100,000 - 60,000}{100,000} 	imes 100 = 40\%$$

Question 18

Which of the following is the correct journal entry to close the revenue account at the end of the period?

Accepted Answer

Debit Revenue; Credit Income Summary

Question 19

A company has beginning inventory of $$8,000, purchases of 22$$,000, and ending inventory of $6,000. What is the cost of goods sold?

Accepted Answer

$$COGS = Beginning\ Inventory + Purchases - Ending\ Inventory = 8,000 + 22,000 - 6,000 = 24,000$$

Question 20

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

Accepted Answer

To ensure the company’s cash records match the bank statement and to identify errors or fraud.

Principles of Financial Accounting: Course Syllabus and Core Topics Overview

Study Guide - Practice Questions

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