Which of the following is not a basic accounting principle?
A) Cost Principle
B) Matching Principle
C) Revenue Recognition Principle
D) Historical Cost Principle
Answer: B
What is the primary purpose of financial accounting?
A) To assist management in decision-making
B) To record day-to-day transactions
C) To prepare financial statements for external users
D) To manage internal controls
Answer: C
Which financial statement summarizes the financial position of a company at a specific point in time?
A) Income Statement
B) Cash Flow Statement
C) Balance Sheet
D) Statement of Retained Earnings
Answer: C
What does the accrual basis of accounting recognize?
A) Revenues and expenses when cash is received or paid
B) Revenues when cash is received and expenses when cash is paid
C) Revenues and expenses when they are incurred
D) Revenues when they are earned and expenses when they are incurred
Answer: D
Which account type normally has a credit balance?
A) Revenue Accounts
B) Asset Accounts
C) Expense Accounts
D) Liability Accounts
Answer: D
What does the term “GAAP” stand for in accounting?
A) Generally Accepted Auditing Principles
B) Generally Accepted Accounting Principles
C) General Accounting and Auditing Procedures
D) General Accounting and Audit Principles
Answer: B
Which financial statement reports revenues and expenses over a period of time?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
Answer: B
Which type of account represents what a business owes to others?
A) Revenue Accounts
B) Liability Accounts
C) Asset Accounts
D) Equity Accounts
Answer: B
What is the purpose of the trial balance?
A) To list all transactions of a business
B) To prepare financial statements
C) To verify the equality of debits and credits
D) To calculate the net income of a business
Answer: C
Which accounting equation is correct?
A) Assets = Liabilities + Owner’s Equity
B) Assets = Liabilities – Owner’s Equity
C) Assets + Liabilities = Owner’s Equity
D) Assets – Liabilities = Owner’s Equity
Answer: A
What is the purpose of the Cash Flow Statement?
A) To report the financial position of a business
B) To summarize the changes in equity during a period
C) To show the cash receipts and cash payments of a business
D) To provide information about the assets, liabilities, and equity of a business
Answer: C
Which financial statement shows the profitability of a business over a period of time?
A) Balance Sheet
B) Income Statement
C) Cash Flow Statement
D) Statement of Changes in Equity
Answer: B
What does the term “debit” mean in accounting?
A) An increase in liabilities
B) An increase in owner’s equity
C) A decrease in assets
D) The left side of an account
Answer: D
Which account type represents what a business owns?
A) Revenue Accounts
B) Liability Accounts
C) Equity Accounts
D) Asset Accounts
Answer: D
Which accounting principle states that expenses should be recognized in the same period as the revenues to which they relate?
A) Matching Principle
B) Cost Principle
C) Revenue Recognition Principle
D) Materiality Principle
Answer: A
Which financial statement reports changes in equity during a period?
A) Income Statement
B) Balance Sheet
C) Cash Flow Statement
D) Statement of Changes in Equity
Answer: D
What is the formula for calculating Net Income?
A) Net Income = Revenues – Expenses
B) Net Income = Revenues + Expenses
C) Net Income = Assets – Liabilities
D) Net Income = Liabilities – Equity
Answer: A
Which account type normally has a debit balance?
A) Liability Accounts
B) Revenue Accounts
C) Expense Accounts
D) Equity Accounts
Answer: C
What is the main purpose of the Balance Sheet?
A) To show the profitability of a business
B) To summarize cash flows
C) To report the financial position of a business at a specific point in time
D) To show changes in equity
Answer: C
Which financial statement explains the changes in cash and cash equivalents during a period?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Changes in Equity
Answer: C
What is the purpose of adjusting entries in accounting?
A) To correct errors in previous financial statements
B) To record day-to-day transactions
C) To calculate the Net Income of a business
D) To finalize the financial statements
Answer: A
Which account type represents the owner’s claim on the assets of a business?
A) Liability Accounts
B) Revenue Accounts
C) Equity Accounts
D) Asset Accounts
Answer: C
Which principle states that assets should be recorded at their original cost on the balance sheet?
A) Matching Principle
B) Revenue Recognition Principle
C) Historical Cost Principle
D) Materiality Principle
Answer: C
What does the term “credit” mean in accounting?
A) An increase in assets
B) A decrease in liabilities
C) The right side of an account
D) An increase in owner’s equity
Answer: C
Which financial statement summarizes the changes in equity from the beginning of a period to the end?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Changes in Equity
Answer: D
Which principle guides the allocation of expenses to the periods in which related revenues are recognized?
A) Cost Principle
B) Matching Principle
C) Revenue Recognition Principle
D) Conservatism Principle
Answer: B
What is the primary function of accounting?
A) To record financial transactions
B) To manage payroll
C) To prepare tax returns
D) To manage inventory
Answer: A
Which financial statement provides details about the cash receipts and cash payments of a business?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Changes in Equity
Answer: C
What is the main purpose of the Income Statement?
A) To show the financial position of a business
B) To report the changes in equity
C) To provide details about cash flows
D) To report the profitability of a business over a period
Answer: D
Which financial statement is also known as the Statement of Financial Position?
A) Income Statement
B) Balance Sheet
C) Cash Flow Statement
D) Statement of Changes in Equity
Answer: B
Which term refers to the process of dividing expenses among multiple accounting periods?
A) Accrual
B) Allocation
C) Amortization
D) Depreciation
Answer: B
What does the term “journal entry” mean in accounting?
A) A record of all financial transactions
B) A summary of accounts payable
C) A formal report for shareholders
D) A manual of accounting policies
Answer: A
Which account type represents what a business owes to its creditors?
A) Asset Accounts
B) Equity Accounts
C) Liability Accounts
D) Revenue Accounts
Answer: C
What is the purpose of financial ratios in accounting?
A) To calculate taxes owed by a business
B) To compare financial performance across different companies
C) To prepare financial statements
D) To manage payroll
Answer: B
Which accounting principle requires that financial statements be based on actual costs incurred in business transactions?
A) Matching Principle
B) Materiality Principle
C) Cost Principle
D) Conservatism Principle
Answer: C
What is the purpose of the Statement of Cash Flows?
A) To report the profitability of a business
B) To show the changes in equity during a period
C) To summarize the cash receipts and payments of a business
D) To report the financial position of a business
Answer: C
Which account type represents the revenue earned by a business?
A) Liability Accounts
B) Equity Accounts
C) Revenue Accounts
D) Asset Accounts
Answer: C
Which principle requires that financial statements should be prepared with the expectation that a business will remain in operation indefinitely?
A) Matching Principle
B) Going Concern Principle
C) Revenue Recognition Principle
D) Conservatism Principle
Answer: B
What is the main role of an auditor in accounting?
A) To prepare financial statements
B) To manage payroll
C) To verify the accuracy of financial statements
D) To calculate taxes
Answer: C
Which statement summarizes the changes in equity during a period from transactions and other events?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Changes in Equity
Answer: D
Which financial statement provides information about the cash flows of a business?
A) Income Statement
B) Balance Sheet
C) Cash Flow Statement
D) Statement of Changes in Equity
Answer: C
Which term refers to the systematic allocation of the cost of an asset over its useful life?
A) Accrual
B) Allocation
C) Amortization
D) Depreciation
Answer: D
What is the purpose of financial analysis in accounting?
A) To prepare tax returns
B) To manage inventory
C) To compare financial performance and make decisions
D) To record financial transactions
Answer: C
Which accounting principle states that expenses should be recognized when they are incurred, regardless of when cash is paid?
A) Matching Principle
B) Revenue Recognition Principle
C) Historical Cost Principle
D) Expense Recognition Principle
Answer: D
Which financial statement shows the net income or loss of a business for a specific period?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Changes in Equity
Answer: B
What does the term “ledger” mean in accounting?
A) A record of all financial transactions
B) A summary of accounts payable
C) A formal report for shareholders
D) A manual of accounting policies
Answer: A
Which account type represents the owner’s investments in the business?
A) Asset Accounts
B) Equity Accounts
C) Liability Accounts
D) Revenue Accounts
Answer: B
What does the term “financial statement analysis” involve?
A) Recording financial transactions
B) Managing payroll
C) Examining financial statements to make business decisions
D) Preparing tax returns
Answer: C
Which principle states that financial statements should use conservative estimates and avoid overstating assets or income?
A) Matching Principle
B) Materiality Principle
C) Cost Principle
D) Conservatism Principle
Answer: D
What is the purpose of the Statement of Retained Earnings?
A) To report the financial position of a business
B) To provide details about cash flows
C) To summarize changes in equity from transactions with owners
D) To show the profitability of a business over a period
Answer: C