Question 1

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

Accepted Answer

To communicate an organization’s financial activities to external stakeholders for informed decision-making

Question 2

According to the IFRS Conceptual Framework, which of the following is a fundamental qualitative characteristic of useful financial information?

Accepted Answer

Relevance

Question 3

A company purchases equipment for $10,000 cash. Which accounts are affected and how?

Accepted Answer

Increase Equipment (asset), Decrease Cash (asset)

Question 4

Which of the following best describes the accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 5

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

Accepted Answer

Balance Sheet

Question 6

A business receives $5,000 in advance for services to be performed next month. What is the correct journal entry at the time of receipt?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 7

Which of the following transactions would require an adjusting entry at the end of the period?

Accepted Answer

Accruing salaries earned by employees but not yet paid

Question 8

Under the accrual basis of accounting, when should revenue be recognized?

Accepted Answer

When the performance obligation is satisfied

Question 9

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

Accepted Answer

Each transaction affects at least two accounts, maintaining the balance of the accounting equation

Question 10

A company’s trial balance does not balance. Which of the following is the most likely cause?

Accepted Answer

A debit entry was made without a corresponding credit entry

Question 11

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries earned by employees but not yet paid

Question 12

If a company has current assets of $$50,000 and current liabilities of 25$$,000, what is its current ratio?

Accepted Answer

$$2.0$$

Question 13

Which of the following best describes the purpose of closing entries at the end of an accounting period?

Accepted Answer

To transfer the balances of temporary accounts to retained earnings

Question 14

A company’s balance sheet shows total assets of $$200,000 and total liabilities of 120$$,000. What is the amount of equity?

Accepted Answer

$$80,000$$

Question 15

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

Accepted Answer

Statement of Retained Assets

Question 16

If a company’s net income is $$30,000, dividends paid are 5$$,000, and beginning retained earnings are $10,000, what is the ending retained earnings?

Accepted Answer

$$35,000$$ (\$$10,000 + \30$$,000 - \$$5,000)$$

Question 17

Which of the following ratios measures a company’s financial leverage?

Accepted Answer

Debt-to-Equity Ratio

Question 18

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 generate

Question 19

A company pays $2,400 for a one-year insurance policy on October 1. What is the insurance expense recognized by December 31 under accrual accounting?

Accepted Answer

$$600 (3/12$$ 	imes \$$2,400)$$

Question 20

Which section of the cash flow statement would the purchase of new equipment for cash appear in?

Accepted Answer

Investing Activities

Comprehensive Study Notes: Financial Accounting Chapters 1-4

Study Guide - Practice Questions