Question 1

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

Accepted Answer

To measure business activities, process data into financial statements, and communicate results to decision makers.

Question 2

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

Accepted Answer

Timeliness

Question 3

A company has assets of $$1,000 and liabilities of 600. $$What is the amount of equity?

Accepted Answer

$400

Question 4

Which equation correctly represents the accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 5

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

Accepted Answer

Inventories

Question 6

Which business organization form exposes its owners to unlimited liability?

Accepted Answer

Proprietorship

Question 7

Which principle requires that assets be recorded at their actual cost on the date of purchase?

Accepted Answer

Historical Cost Principle

Question 8

Which financial statement reports a company’s revenues and expenses for a period?

Accepted Answer

Income Statement

Question 9

If a company has beginning retained earnings of $$200,000, net income of 50$$,000, and dividends declared of $10,000, what is the ending retained earnings?

Accepted Answer

$$240,000$$

Question 10

Which of the following is NOT a component of stockholders’ equity?

Accepted Answer

Accounts Payable

Question 11

Which of the following activities would be classified as an investing activity on the statement of cash flows?

Accepted Answer

Purchasing property, plant, and equipment

Question 12

Which organization is responsible for formulating Generally Accepted Accounting Principles (GAAP) in the United States?

Accepted Answer

Financial Accounting Standards Board (FASB)

Question 13

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

Accepted Answer

Choosing not to manipulate earnings to meet targets, even if it is legal and profitable

Question 14

Which of the following is a measure of environmental performance in ESG reporting?

Accepted Answer

Total energy consumed

Question 15

A company’s income statement shows sales revenue of $$7,547,000 and cost of goods sold of 5$$,287,500. What is the gross margin?

Accepted Answer

$$2,259,500$$

Question 16

Which of the following best describes the role of artificial intelligence (AI) in accounting?

Accepted Answer

AI can analyze large datasets to identify trends and automate routine tasks.

Question 17

Which of the following is a professional accounting certification in the United States?

Accepted Answer

CPA

Question 18

Which of the following is a risk associated with improper use of technology in accounting?

Accepted Answer

Catastrophic decisions due to inaccurate data analysis

Question 19

Which of the following is an example of a financing activity on the statement of cash flows?

Accepted Answer

Issuing common stock to investors

Question 20

If a company’s assets increase by $$10,000 and its liabilities increase by 7$$,000, what is the change in equity?

Accepted Answer

$$3,000$$

Chapter 1: Financial Statements

Study Guide - Practice Questions

Study Guide - Flashcards