Question 1

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

Accepted Answer

To communicate financial information to external users for decision-making.

Question 2

Which of the following is NOT a typical external user of financial statements?

Accepted Answer

Company managers

Question 3

A company purchases equipment for $50,000 cash. Which of the following best describes the effect on the accounting equation?

Accepted Answer

One asset increases by $$50,000; another asset decreases by 50$$,000

Question 4

Which of the following equations correctly represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 5

Which financial statement would you consult to determine a company’s profitability over a period?

Accepted Answer

Income Statement

Question 6

A company 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 transactions would increase both assets and equity?

Accepted Answer

Earning revenue on account

Question 8

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

Accepted Answer

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

Question 9

If a company receives $10,000 cash from a customer for services to be performed next month, how should this be recorded?

Accepted Answer

Increase Cash and increase Unearned Revenue by $10,000

Question 10

Which of the following is an example of an accrual?

Accepted Answer

Recording revenue when earned, even if cash is not yet received

Question 11

A company’s income statement shows revenues of $$200,000 and expenses of 150$$,000. What is the net income?

Accepted Answer

$$Net\ Income = Revenues - Expenses = 200,000 - 150,000 = 50,000$$

Question 12

Which of the following best describes the purpose of the statement of cash flows?

Accepted Answer

To show the company’s cash inflows and outflows from operating, investing, and financing activities.

Question 13

Which of the following is NOT a component of the balance sheet?

Accepted Answer

Revenue

Question 14

If a company pays $5,000 in cash for rent expense, what is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$5,000; Equity decreases by 5$$,000

Question 15

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 16

A company issues shares to investors for $100,000 cash. What is the effect on the accounting equation?

Accepted Answer

Assets increase by $$100,000; Equity increases by 100$$,000

Question 17

Which of the following is an example of a liability?

Accepted Answer

Accounts Payable

Question 18

Which of the following transactions would NOT affect the total assets of a company?

Accepted Answer

Paying off a loan with cash

Question 19

Which of the following best describes retained earnings?

Accepted Answer

The cumulative net income of a company not distributed as dividends

Question 20

A company’s balance sheet shows assets of $$500,000 and equity of 200$$,000. What are the total liabilities?

Accepted Answer

$$Liabilities = Assets - Equity = 500,000 - 200,000 = 300,000$$

ACC 201 – Introduction to Financial Accounting and Reporting: Syllabus and Course Overview

Study Guide - Practice Questions