Question 1

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

Accepted Answer

To communicate financial information about a business to external users such as investors and creditors.

Question 2

Which of the following is NOT a component of the basic financial statements?

Accepted Answer

Budget Report

Question 3

A company purchases equipment for $10,000 cash. Which accounting principle requires this transaction to be recorded at its purchase price?

Accepted Answer

Historical Cost Principle

Question 4

Which equation correctly represents the fundamental accounting equation?

Accepted Answer

$$Assets = Liabilities + Owner's Equity$$

Question 5

If a company has total assets of $$50,000 and total liabilities of 20$$,000, what is the owner's equity?

Accepted Answer

$$30,000$$

Question 6

Which of the following transactions would increase both assets and liabilities?

Accepted Answer

Purchasing inventory on credit

Question 7

A business pays $2,000 in cash for rent expense. How does this transaction affect the accounting equation?

Accepted Answer

Decrease assets and decrease owner's equity

Question 8

Which financial statement shows a company’s financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 9

If a company earned $$5,000 in revenue and incurred 3$$,000 in expenses during the period, what is the net income?

Accepted Answer

$$2,000$$

Question 10

Which of the following best describes the matching principle?

Accepted Answer

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

Question 11

A company receives $1,000 cash from a customer for services to be performed next month. How should this transaction be recorded?

Accepted Answer

Increase cash and increase unearned revenue (liability)

Question 12

Which of the following is a limitation of financial accounting information?

Accepted Answer

It may not reflect the current market value of assets.

Question 13

Which ratio is commonly used to assess a firm's profitability?

Accepted Answer

Return on Assets (ROA)

Question 14

If a company’s total revenues are $$100,000 and total expenses are 80$$,000, what is the profit margin?

Accepted Answer

$$Profit\ Margin = \frac{Net\ Income}{Total\ Revenue} = \frac{20,000}{100,000} = 0.20$$

Question 15

Which of the following is NOT a typical user of financial accounting information?

Accepted Answer

Company managers for internal planning

Question 16

A company’s cash flow statement reports cash flows from operating, investing, and financing activities. Which activity would include cash paid for purchasing equipment?

Accepted Answer

Investing activities

Question 17

Which of the following best describes accrual accounting?

Accepted Answer

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

Question 18

A company issues shares to raise capital. How does this transaction affect the accounting equation?

Accepted Answer

Increase assets and increase owner's equity

Question 19

Which of the following is an example of a non-current asset?

Accepted Answer

Equipment

Question 20

A company’s trial balance shows total debits of $$120,000 and total credits of 115$$,000. What does this indicate?

Accepted Answer

There is a $5,000 error that must be investigated.

ACC 201 – Introduction to Financial Accounting and Reporting: Syllabus and Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards