Question 1

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

Accepted Answer

To communicate financial information to external stakeholders such as investors and creditors.

Question 2

Which of the following is NOT one of the four basic financial statements?

Accepted Answer

Budgeted Income Statement

Question 3

A company purchased equipment for $50,000 cash. Which of the following is the correct journal entry?

Accepted Answer

Debit Equipment $$50,000; Credit Cash 50$$,000

Question 4

Which equation correctly represents the accounting equation?

Accepted Answer

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

Question 5

If a company has total assets of $$120,000 and total liabilities of 70$$,000, what is the owner's equity?

Accepted Answer

$$Owner's\ Equity = Assets - Liabilities = 120,000 - 70,000 = 50,000$$

Question 6

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

Accepted Answer

Borrowing money from a bank

Question 7

Which of the following best describes accrual accounting?

Accepted Answer

Recording revenues when earned and expenses when incurred, regardless of cash flow.

Question 8

A company earned $$10,000 in revenue, of which 7$$,000 was received in cash and $3,000 is on account. What is the total revenue recognized under accrual accounting?

Accepted Answer

$$10,000$$

Question 9

Which of the following is an example of a current liability?

Accepted Answer

Accounts Payable

Question 10

If a company pays $2,000 for a one-year insurance policy, what is the correct adjusting entry at the end of the first month?

Accepted Answer

Debit Insurance Expense $$166.67; Credit Prepaid Insurance 166.67$$

Question 11

Which of the following best describes the matching principle?

Accepted Answer

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

Question 12

A company has the following balances: Cash $$5,000, Accounts Receivable 3$$,000, Inventory $$2,000, Equipment 10$$,000, Accounts Payable $4,000. What is the total current assets?

Accepted Answer

$$5,000 + 3,000 + 2,000 = 10,000$$

Question 13

Which of the following is the correct formula for calculating net income?

Accepted Answer

$$Net\ Income = Revenues - Expenses$$

Question 14

A company made a sale on account for $1,500. What is the effect on the accounting equation?

Accepted Answer

Increase assets and increase owner's equity

Question 15

Which of the following transactions would NOT affect the balance sheet?

Accepted Answer

Recording depreciation expense

Question 16

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

Accepted Answer

Recording depreciation expense at year-end

Question 17

A company has revenues of $$80,000, expenses of 50$$,000, and dividends of $$10,000. What is the ending retained earnings if beginning retained earnings were 20$$,000?

Accepted Answer

$$Ending\ Retained\ Earnings = 20,000 + (80,000 - 50,000) - 10,000 = 40,000$$

Question 18

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

Accepted Answer

To show the sources and uses of cash during a period

Question 19

Which of the following is NOT a characteristic of useful financial information according to the conceptual framework?

Accepted Answer

Profitability

ACCT 201 Financial Accounting Syllabus – University of Pittsburgh-Bradford

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