What Is The Primary Purpose Of Financial Accounting? Exam Quiz

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Financial Accounting Quizzes & Trivia

Questions and Answers
  • 1. 
    • A. 

      Retained Earnings

    • B. 

      Net Income

    • C. 

      Common Stock

    • D. 

      Total Assets

  • 2. 
    A list of all accounts and their balances after updating account balances for adjusting entries is referred to as:
    • A. 

      A trial balance

    • B. 

      An adjusted trial balance

    • C. 

      A post-closing trial balance

    • D. 

      An accounting trial balance

  • 3. 
    • A. 

      Using source documents to analyze accounts affected

    • B. 

      Recording transactions

    • C. 

      Making payments on all amounts owed

    • D. 

      Analyzing transactions for their effect on the accounting equation

  • 4. 
    The primary difference between accrual-basis and cash-basis accounting is:
    • A. 

      The timing of when revenues and expenses are recorded

    • B. 

      Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting

    • C. 

      Accrual-basis accounting violates both the revenue recognition and matching principles

    • D. 

      Adjusting entries are only a necessary part of cash-basis accounting

  • 5. 
    External events include all of the following except:
    • A. 

      Paying employee salaries

    • B. 

      Purchasing equipment

    • C. 

      Using office supplies

    • D. 

      Collecting and account receivable

  • 6. 
    Receiving assets from customers before services are performed results in:
    • A. 

      Prepaid assets

    • B. 

      Service revenue

    • C. 

      Unearned revenue

    • D. 

      Accounts receivable

  • 7. 
    • A. 

      Determine the amount of tax liability owed to the government

    • B. 

      Communicate business transactions to internal management

    • C. 

      Measure business transactions and communicate those measures to external users to make decisions

    • D. 

      Measure the profitability of the company in order to assist in employees with making decisions

  • 8. 
    Receiving cash from an account receivable:
    • A. 

      Increases a revenue and decreases an asset

    • B. 

      Decreases a liability and increases an asset

    • C. 

      Increases an asset and increases a revenue

    • D. 

      Increases one asset and decreases another asset

  • 9. 
    The form of business organization that is legally separate from its owners is a: 
    • A. 

      Partnership

    • B. 

      Sole Proprietership

    • C. 

      Corporation

    • D. 

      Separate Entity

  • 10. 
    When a payment is made on an account payable:
    • A. 

      Assets and stockholders' equity decrease

    • B. 

      Assets and liabilities decrease

    • C. 

      Liabilities and revenues decrease

    • D. 

      Assets and expenses decrease

  • 11. 
    Liabilities normally carry a____balance and are shown in the____
    • A. 

      Debit; Statement of Stockholders' Equity

    • B. 

      Debit; Income Statement

    • C. 

      Credit; Balance Sheet

    • D. 

      Debit; Balance Sheet

  • 12. 
    On April 1, a $4,800 premium on a one year insurance policy on equipment was paid and charged to Prepaid Insurance. At the end of the year, the financial statements would report:
    • A. 

      Insurance Expense $4800; Prepaid Insurance $0

    • B. 

      Insurance Expense $3600; Prepaid Insurance $1200

    • C. 

      Insurance Expense $3650; Prepaid Insurance $4800

    • D. 

      Insurance Expense $1200; Prepaid Insurance $3600

  • 13. 
    Net income can best be describes as:
    • A. 

      Net cash received by a company during the year

    • B. 

      Revenues minus expenses

    • C. 

      The amount of profits retained in a company for the year

    • D. 

      Resources owned by a company

  • 14. 
    The retained earnings account had a beginning credit balance of $26000. During the period, the business had a net loss $12000 and the company paid dividends of $8000. The ending balance in the retained earnings account is:
    • A. 

      $6000

    • B. 

      $30000

    • C. 

      $22000

    • D. 

      $14000

  • 15. 
    Childers Service Company provides services to customers totaling $3000, for which it billed customers. How would the transaction be recorded?
    • A. 

      Debit Cash $3000, Credit Service Revenue $3000

    • B. 

      Debit Accounts Receivable $3000, Credit Service Revenue $3000

    • C. 

      Debit Accounts Receivable $3000, Credit Cash $3000

    • D. 

      Debit Service Revenue $3000, Credit Accounts Receivable $3000

  • 16. 
    At the beginning of December, Global Corporation had $2000 in supplies on hand. During the month, supplies purchased amounted to $3000, but by the end of the month the supplies balance was only $800. What is the appropriate month-end adjusting entry?
    • A. 

      Debit Cash $4200, Credit Supplies $4200

    • B. 

      Debit Supplies $4200, Credit Supplies Expense $4200

    • C. 

      Debit Supplies Expense $4200, Credit Supplies $4200

    • D. 

      Debit Cash $800, Credit Supplies $800

  • 17. 
    Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are:
    • A. 

      Debit Rent Expense, Credit Cash

    • B. 

      Debit Prepaid Rent, Credit Rent Expense

    • C. 

      Debit Prepaid Rent, Credit Cash

    • D. 

      Debit Cash, Credit Prepaid Rent

  • 18. 
    The two categories of stockholders' equity usually found in the balance sheet of a corporation are: 
    • A. 

      Common Stock

    • B. 

      Assets and Liabilities

    • C. 

      Common Stock and Retained Earnings

    • D. 

      Revenues and Expenses

  • 19. 
    When a company makes and end-of-period adjusting entry which includes a credit to Prepaid Rent, the debit is usually made to:
    • A. 

      Cash

    • B. 

      Rent Expense

    • C. 

      Rent Payable

    • D. 

      Rent Receivable

  • 20. 
    When a company pays $2500 dividends to its stockholders, the transaction should be recorded as:
    • A. 

      Debit Cash; Credit Dividends

    • B. 

      Debit Retained Earnings; Credit Dividends

    • C. 

      Debit Dividends; Credit Cash

    • D. 

      Debit Dividends; Credit Accounts Payable

  • 21. 
    On July 7, 2012, Saints Inc. received $10,000 in cash from a customer for services to be provided on October 10, 2012. Which of the following describes how the transaction should be recorded on July 7, 2012?
    • A. 

      Debit Cash $10,000; Credit Service Revenue $10,000

    • B. 

      Debit Accounts Receivable $10,000; Credit Service Revenue $10,000

    • C. 

      Debit Cash $10,000, Credit Unearned Revenue $10,000

    • D. 

      Debit Unearned Revenue $10,000, Credit Cash $10,000

  • 22. 
    Transactions of a company that include the purchase and sale of long-term productive assets are referred to as: 
    • A. 

      Investing activities

    • B. 

      Financing activities

    • C. 

      Expenditure activities

    • D. 

      Operating activities

  • 23. 
    • A. 

      Accounting equation

    • B. 

      Revenue recognition

    • C. 

      Matching principle

    • D. 

      Conservatism

  • 24. 
    Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?
    • A. 

      Received $600 from customers for services to be provided in May

    • B. 

      Paid $1800 for a six-month insurance policy covering the period July 1--December 31

    • C. 

      Paid $700 for an advertisement that appeared in the April 17 edition of the Las Vegas Sun newspaper

    • D. 

      Received $300 from customers for services performed in March.

  • 25. 
    On July 31, ALOE Inc. received $5000 cash from a customer who previously purchased ALOE's products on account. What should ALOE Inc. record at the time it receives cash?
    • A. 

      Debit Accounts Receivable, $5000; Credit Cash $5000

    • B. 

      Debit Cash $5000; Credit Accounts Receivable $5000

    • C. 

      Debit Cash $5000; Credit Accounts Payable $5000

    • D. 

      Debit Cash $5000; Credit Service Revenue $5000

  • 26. 
    When a company provides services on account, which of the following would be recorded using cash-basis accounting?
    • A. 

      Debit to cash

    • B. 

      Debit to service revenue

    • C. 

      Credit to unearned revenue

    • D. 

      No entry would be recorded

  • 27. 
    A company receives a $50,000 cash deposit from a customer on October 15 but will not provide services until November 20. Which of the following statements is true?
    • A. 

      The company records service revenue on October 15

    • B. 

      The company records cash collection November 20

    • C. 

      The company records an unearned revenue on October 15

    • D. 

      The company records nothing on October 15

  • 28. 
    • A. 

      Entries are necessary due to the conservatism principle

    • B. 

      Entries can be done at the beginning or end of the accounting period

    • C. 

      They zero the balance of all income statement accounts

    • D. 

      They are a necessary part of accrual-basis accounting

  • 29. 
    Making insurance payments in advance is an example of:
    • A. 

      An accrued revenue

    • B. 

      An accrued expense

    • C. 

      An unearned revenue

    • D. 

      A prepaid expense

  • 30. 
    The closing entry for expenses includes:
    • A. 

      A debit to dividends and a credit to all expense accounts

    • B. 

      A debit to retained earnings and a credit to all expense accounts

    • C. 

      A debit to revenues and a credit to retained earnings

    • D. 

      A debit to revenues and a credit to all expense accounts

  • 31. 
    The following amounts are reported in the ledger of Mariah Company: Assets                                               $80,000 Liabilities                                            36,000 Retained Earnings                            12,000 What is the balance of the Common Stock account?
    • A. 

      $44,000

    • B. 

      $32,000

    • C. 

      $48,000

    • D. 

      $42,000

  • 32. 
    The primary purpose of closing entries is to:
    • A. 

      Prove the equality of the debit and credit entries in the general journal

    • B. 

      Ensure that all assets and liabilities are recognized in the appropriate period

    • C. 

      Update the balance of retained earnings and prepare revenue, expense, and dividend accounts for next period's transactions

    • D. 

      Assure that adjusting entries balance

  • 33. 
    The closing process includes which of the following?
    • A. 

      Closing the balance of the retained earnings account to 0

    • B. 

      Closing the balance of the only dividends account to 0

    • C. 

      Closing the balances of only revenue and expense accounts to 0

    • D. 

      Closing the balances of revenue, expense and dividend accounts to 0

  • 34. 
    Generally Accepted Accounting Principles (GAAP) re best defined as:
    • A. 

      Standards or methods for presenting financial accounting information

    • B. 

      Government-mandated rules that companies must follow

    • C. 

      Rules that best estimate profitability for a company

    • D. 

      The group of individuals that create and enforce all accounting rules

  • 35. 
    A list of all accounts and their balances after posting closing entries is referred to as: 
    • A. 

      A trial balance

    • B. 

      An adjusted trial balance

    • C. 

      A post-closing trial balance

    • D. 

      An accounting trial balance

  • 36. 
    • A. 

      The change in retained earnings equals net income less dividends

    • B. 

      Equality of revenue and expense transactions over time

    • C. 

      Resources of the company equal creditors' and owners' claims to those resources

    • D. 

      Financing activities equal investing and operating activities

  • 37. 
    The revenue recognition principle states that: 
    • A. 

      Revenue should be recognized in the period the cash is received

    • B. 

      Revenue should be recognized in the period earned

    • C. 

      Revenue should be recognized in the balance sheet

    • D. 

      Revenue is a component of common stock

  • 38. 
    If a company has stockholders' equity of $60,000 at the end of the year, which of the following statements must be true?
    • A. 

      The company;s assets exceed liabilities by $60,000

    • B. 

      The company has issued $60,000 of common stock

    • C. 

      Net income for the year equals $60,000

    • D. 

      Total revenues earned during the year equal $60,000

  • 39. 
    • A. 

      Adjust the balances of asset and liability accounts for unrecorded activity during the period

    • B. 

      Transfer the balances of temporary accounts to common stock

    • C. 

      Reduce the balances of the temporary accounts to 0 to prepare them for measuring activity in the next period

    • D. 

      Both b and c

  • 40. 
    Posting is the process of:
    • A. 

      Analyzing the impact of the transaction of the accounting equation

    • B. 

      Obtaining information about external transactions from source documents

    • C. 

      Transferring the debit and credit information from the journal to individual accounts in the general ledger

    • D. 

      Listing all accounts and their balances at a particular date

  • 41. 
    Limited liability means:
    • A. 

      Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket

    • B. 

      Liabilities of a company cannot exceed its assets

    • C. 

      Companies are not allowed to borrow unless they're profitable

    • D. 

      Companies are less likely to be sued if they are formed as a corporation

  • 42. 
    The owners' interest in a corporation is called
    • A. 

      Dividends

    • B. 

      Assets

    • C. 

      Liabilities

    • D. 

      Stockholders' equity

  • 43. 
    Adjusting entries: 
    • A. 

      Often include the cash account

    • B. 

      Usually are recorded at the beginning of the accounting period

    • C. 

      Always involve at least one income statement account and one balance sheet account

    • D. 

      Adjust the balance of revenue and expense accounts to 0

  • 44. 
    • A. 

      Resources owned

    • B. 

      Cash received from a customer

    • C. 

      Amounts earned from providing goods and services to a customer

    • D. 

      Dividends paid to stockholders

  • 45. 
    • A. 

      Liabilities, stockholders' equity, and revenues

    • B. 

      Dividends, liabilities, and assets

    • C. 

      Expenses, dividends, and stockholders' equity

    • D. 

      Assets, dividends, and expenses

  • 46. 
    The financial statement that represents activity over the entire life of the company is the:
    • A. 

      Income statement

    • B. 

      Statement of financial accounting

    • C. 

      Balance sheet

    • D. 

      Statement of cash flows

  • 47. 
    • A. 

      Cash is a temporary account

    • B. 

      Permanent accounts represent activity over the entire life of the company

    • C. 

      Permanent accounts must be closed at the end of every reporting period

    • D. 

      Temporary accounts represent activity over the previous three years

  • 48. 
    • A. 

      Balance sheet, statement of stockholders' equity, and income statement

    • B. 

      Balance sheet, income statement, and statement of stockholders' equity

    • C. 

      Statement of stockholders' equity, income statement, and balance sheet

    • D. 

      Income statement, statement of stockholders' equity, and balance sheet

  • 49. 
    A trial balance can best be explained as a list of:
    • A. 

      The income statement accounts used to calculate net income

    • B. 

      Revenue, expense, and dividend accounts used to show the balances of the components of retained earnings

    • C. 

      The balance sheet accounts used to show the equality of the accounting equation

    • D. 

      All accounts and their balances at a particular date

  • 50. 
    The financial statement(s) that record activity over and interval of time is/are the: 
    • A. 

      Income statement

    • B. 

      Balance sheet

    • C. 

      Balance sheet and income statement

    • D. 

      Income statement and statement of cash flows