Question 1

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

Accepted Answer

To provide useful information to users for making economic decisions.

Question 2

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

Accepted Answer

Customers

Question 3

Which business organization type provides the greatest protection from personal liability for its owners?

Accepted Answer

Corporation

Question 4

According to the cost principle, how should assets be recorded in the financial statements?

Accepted Answer

At their historical purchase price

Question 5

Which of the following best represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Stockholders' Equity$$

Question 6

A company has total assets of $$\50$$,000$$ and total liabilities of $$\$$20,000. $$What is the amount of stockholders' equity?

Accepted Answer

$$\30$$,000$

Question 7

Which financial statement summarizes a company's revenues and expenses for a period of time?

Accepted Answer

Income Statement

Question 8

Which of the following transactions would increase retained earnings?

Accepted Answer

Earning net income

Question 9

If a company pays $$\5$$,000$$ in dividends and reports net income of $$\$$12,000$$ for the year, by how much will retained earnings increase?

Accepted Answer

$$\7$$,000$

Question 10

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

Accepted Answer

Accounts Payable

Question 11

Which financial statement would you consult to determine if a company can pay its short-term debts as they come due?

Accepted Answer

Balance Sheet

Question 12

A company has the following balances: Revenues $$\100$$,000$$, Expenses $$\$$70,000$$, and Dividends $$\10$$,000$$. What is the ending balance in retained earnings if the beginning balance was $$\$$20,000$$?

Accepted Answer

$$\40$$,000$

Question 13

Which of the following best describes the separate entity concept?

Accepted Answer

A business is considered distinct from its owners for accounting purposes.

Question 14

Which of the following is an example of a liability?

Accepted Answer

Notes Payable

Question 15

Which principle requires that only transactions measurable in monetary terms are recorded in the accounting records?

Accepted Answer

Monetary Principle

Question 16

If a company issues common stock for $$\15$$,000$ cash, what is the effect on the accounting equation?

Accepted Answer

$$Assets$$ and $$Stockholders' Equity$$ both increase by $$\15$$,000$

Question 17

Which financial statement shows the cash inflows and outflows from operating, investing, and financing activities?

Accepted Answer

Statement of Cash Flows

Question 18

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

Accepted Answer

Recording depreciation expense

Question 19

A company purchases equipment for $$\25$$,000$ cash. Which of the following is the immediate effect on the accounting equation?

Accepted Answer

$$No net effect on total assets$$

Question 20

Which of the following best describes the relationship among the four major financial statements?

Accepted Answer

Net income from the income statement increases retained earnings on the statement of retained earnings, which is reported in stockholders' equity on the balance sheet, and cash flows reconcile to the cash balance on the balance sheet.

Introduction to Financial Accounting and Financial Statements

Study Guide - Practice Questions

Study Guide - Flashcards