Q: Which equation represents the fundamental accounting equation?

$$ \text{Assets} = \text{Liabilities} + \text{Owner's Equity} $$

Q: A company has the following balances: Assets $$50,000, Liabilities 20$$,000. What is the Owner’s Equity?

$$ \text{Owner's Equity} = \text{Assets} - \text{Liabilities} = 50,000 - 20,000 = 30,000 $$

Question 1

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

Accepted Answer

To communicate the business entity’s results of operations and financial position to external users.

Question 2

According to U.S. GAAP, which of the following statements is TRUE regarding the preparation of financial statements?

Accepted Answer

Financial statements must include a balance sheet, income statement, statement of cash flows, and statement of shareholders’ equity.

Question 3

A company records revenue when cash is received, regardless of when the goods or services are delivered. This is an example of:

Accepted Answer

Cash basis accounting

Question 4

Which of the following is NOT a component of the accounting environment as described in the course objectives?

Accepted Answer

Marketing strategies

Question 5

A business purchased equipment for $10,000 cash. Which of the following journal entries correctly records this transaction?

Accepted Answer

Debit Equipment $$10,000; Credit Cash 10$$,000

Question 6

Which equation represents the fundamental accounting equation?

Accepted Answer

$$ 	ext{Assets} = 	ext{Liabilities} + 	ext{Owner's Equity} $$

Question 7

Which of the following best describes the difference between accrual and cash basis accounting?

Accepted Answer

Accrual basis records revenues and expenses when they are earned or incurred, regardless of cash flow; cash basis records only when cash is received or paid.

Question 8

A company has the following balances: Assets $$50,000, Liabilities 20$$,000. What is the Owner’s Equity?

Accepted Answer

$$ 	ext{Owner's Equity} = 	ext{Assets} - 	ext{Liabilities} = 50,000 - 20,000 = 30,000 $$

Question 9

Which of the following is a key difference between U.S. GAAP and IFRS?

Accepted Answer

GAAP is more rules-based, while IFRS is more principles-based.

Question 10

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

Accepted Answer

Receipt of cash for services to be performed next month.

Question 11

A company earned $5,000 in revenue but has not yet received payment. Under accrual accounting, which journal entry should be recorded?

Accepted Answer

Debit Accounts Receivable $$5,000; Credit Revenue 5$$,000

Question 12

Which of the following best describes the purpose of closing the general ledger at the end of the accounting period?

Accepted Answer

To transfer balances from temporary accounts to permanent accounts.

Question 13

A company’s income statement shows revenues of $$100,000 and expenses of 70$$,000. What is the net income?

Accepted Answer

$$ 	ext{Net Income} = 	ext{Revenues} - 	ext{Expenses} = 100,000 - 70,000 = 30,000 $$

Question 14

Which of the following is an example of a liability?

Accepted Answer

Accounts Payable

Question 15

A company’s balance sheet shows total assets of $$80,000 and total liabilities of 50$$,000. If the company issues new shares worth $10,000, what will be the new Owner’s Equity?

Accepted Answer

$$ 	ext{Owner's Equity} = 	ext{Assets} - 	ext{Liabilities} + 	ext{New Shares} = 80,000 - 50,000 + 10,000 = 40,000 $$

Question 16

Which financial statement would you use to determine a company’s liquidity?

Accepted Answer

Balance Sheet

Question 17

A company paid $2,000 for a one-year insurance policy on January 1. At the end of March, what adjusting entry should be made?

Accepted Answer

Debit Insurance Expense $$500; Credit Prepaid Insurance 500$$

Question 18

Which of the following is a financial analysis technique used to interpret financial statements?

Accepted Answer

Ratio analysis

Question 19

A company’s cash flow statement shows the following: Cash from operations $$15,000, Cash from investing (5$$,000), Cash from financing $2,000. What is the net change in cash?

Accepted Answer

$$ 	ext{Net Change in Cash} = 15,000 + (-5,000) + 2,000 = 12,000 $$

Principles of Financial Accounting (ACCT 2301) Syllabus and Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards