Describes Financial Accounting Quiz Questions
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Which of the following best describes financial accounting?
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Artistic Presentation
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Information measurement/communication process
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Matematical procedure
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Behavioral psychology
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This quiz assesses key concepts in financial accounting, focusing on the measurement and communication of financial information, types of activities (financing and investing), and understanding of essential financial statements such as the balance sheet and income statement.
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- 2.
1 / 1 point Which definition best describes financial accounting?
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Process of measuring income taxes owed to the government
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System of maintaining communication with a company's customers and suppliers
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Procedures designed to enhance the company's image to potential investors
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Measuring a company's business activities and communicating those measurements to external parties
Correct Answer
A. Measuring a company's business activities and communicating those measurements to external partiesExplanation
The correct answer is "Measuring a company's business activities and communicating those measurements to external parties." This definition accurately describes financial accounting as the process of measuring and recording a company's financial transactions and activities, and then communicating this information to external stakeholders such as investors, creditors, and regulators. Financial accounting involves preparing financial statements, such as the balance sheet, income statement, and cash flow statement, which provide a comprehensive overview of a company's financial performance and position.Rate this question:
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- 3.
Which of the following is a financing activity?
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Paying utilities for the month
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Issuing common stock to investors
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Selling equipment for cash
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Purchasing office supplies
Correct Answer
A. Issuing common stock to investorsExplanation
Issuing common stock to investors is considered a financing activity because it involves raising funds from external sources, specifically investors, in exchange for ownership in the company. This activity directly impacts the company's capital structure and represents an inflow of cash, which is classified as a financing activity in the statement of cash flows.Rate this question:
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- 4.
Which of the following is an investing activity?
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Purchasing land
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Paying dividends to stockholders
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Repaying amounts borrowed from the bank
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Purchasing advertising on a local radio station
Correct Answer
A. Purchasing landExplanation
Purchasing land is considered an investing activity because it involves the acquisition of a long-term asset that is expected to generate future economic benefits. This transaction represents an investment in a physical asset with the intention of earning a return through appreciation, rental income, or future development. It is a capital expenditure that is classified as an investing activity in the statement of cash flows.Rate this question:
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- 5.
Which financial statement reports a company's assets and liabilities?
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Income statement
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Statement of cash flows
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Balance sheet
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Statement of stockholders' equity
Correct Answer
A. Balance sheetExplanation
The balance sheet is the correct answer because it is the financial statement that reports a company's assets and liabilities. It provides a snapshot of the company's financial position at a specific point in time by listing its assets (such as cash, inventory, and property) and liabilities (such as loans, accounts payable, and accrued expenses). The balance sheet also shows the company's equity, which is the difference between its assets and liabilities. Overall, the balance sheet is an important tool for investors, creditors, and analysts to assess a company's financial health and stability.Rate this question:
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- 6.
Which financial statement shows a company's revenues and expenses?
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Income statement
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Statement of stockholders equity
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Balance sheet
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Statement of cash flows
Correct Answer
A. Income statementExplanation
The income statement shows a company's revenues and expenses. It provides a summary of the company's financial performance over a specific period of time, typically a month, quarter, or year. The statement starts with the company's revenues, which are the amounts earned from the sale of goods or services. Then, it deducts the expenses incurred by the company to generate those revenues. The result is the net income or net loss for the period, which indicates the company's profitability. Therefore, the income statement is the financial statement that shows a company's revenues and expenses.Rate this question:
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- 7.
Which of the following best describes an important function of financial accounting?
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To increase the number of customers for a company.
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To support the efficient distribution of society's resources.
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To provide managers with useful information related to human resources
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Support government initiatives through taxation of company profits.
Correct Answer
A. To support the efficient distribution of society's resources.Explanation
Financial accounting plays a crucial role in supporting the efficient distribution of society's resources. It helps in providing accurate and reliable financial information about an organization's performance, financial position, and cash flows. This information is essential for various stakeholders, including investors, creditors, and government regulators, to make informed decisions regarding the allocation of resources. By ensuring transparency and accountability in financial reporting, financial accounting contributes to the effective allocation of resources in an economy, promoting economic growth and stability.Rate this question:
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- 8.
Which body has the primary responsibility for the establishment of Generally Accepted Accounting Principles?
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American Institute of Certified Public Accountants (AICPA).
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International Accounting Standards Board (IASB).
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Securities and Exchange Commission (SEC).
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Financial Accounting Standards Board (FASB).
Correct Answer
A. Financial Accounting Standards Board (FASB).Explanation
The Financial Accounting Standards Board (FASB) has the primary responsibility for establishing Generally Accepted Accounting Principles (GAAP). GAAP is a set of accounting standards and principles that guide the preparation of financial statements. The FASB is an independent organization that sets these standards in the United States. The American Institute of Certified Public Accountants (AICPA) is a professional organization that provides guidance and support to accountants, but it does not have the primary responsibility for establishing GAAP. The International Accounting Standards Board (IASB) is responsible for setting International Financial Reporting Standards (IFRS), which are used in many countries outside of the United States. The Securities and Exchange Commission (SEC) is a regulatory agency that oversees financial markets and enforces securities laws, but it does not establish GAAP.Rate this question:
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- 9.
Traditional careers in public accounting include
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Auditors
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Tax preparers/planners
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Business consultants
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All of the above
Correct Answer
A. All of the aboveExplanation
The correct answer is "all of the above" because traditional careers in public accounting involve various roles such as auditors, tax preparers/planners, and business consultants. Auditors are responsible for examining financial records and ensuring compliance with regulations. Tax preparers/planners assist individuals and businesses in managing their taxes. Business consultants provide advice and guidance to organizations on various aspects of their operations. Therefore, all of these roles are considered traditional careers in public accounting.Rate this question:
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- 10.
A component of relevant accounting information includes:
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Faithful representation
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Materiality
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Predictive value
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Consistency
Correct Answer
A. Predictive valueExplanation
Predictive value refers to the ability of accounting information to provide insights and make accurate predictions about future events or outcomes. This means that the information is useful for decision-making purposes and can help users anticipate and plan for future scenarios. It is an important component of relevant accounting information as it enables users to make informed decisions based on the potential impact of certain events or actions.Rate this question:
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- 11.
1 / 1 point Which of the following does not represent an external business transaction?
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Purchasing office supplies
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Paying employees salaries
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Expiration of an insurance policy over time
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Providing services to customers
Correct Answer
A. Expiration of an insurance policy over timeExplanation
The expiration of an insurance policy over time is not considered an external business transaction because it does not involve any exchange of goods, services, or money with an external party. It is a contractual agreement that ends based on a predetermined period or condition.Rate this question:
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- 12.
Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits?
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Use source documents to determine accounts affected by the transaction
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Preparing a trial balance
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Analyze the impact of the transaction on the accounting equation.
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Post the transaction to the T-account in the general ledger.
Correct Answer
A. Preparing a trial balanceExplanation
Preparing a trial balance involves listing all the accounts and their respective debit and credit balances. The purpose of preparing a trial balance is to ensure that the total debits equal the total credits, which helps in identifying any errors or discrepancies in the recording of transactions. By comparing the total debits and total credits, it helps to ensure the accuracy and completeness of the accounting records before preparing financial statements.Rate this question:
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- 13.
Which of the following transactions causes an increase in total liabilities?
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Pay maintenance expense for the current month.
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Provide services to customers on account.
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Pay dividends to stockholders.
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Purchase office supplies on account.
Correct Answer
A. Purchase office supplies on account.Explanation
When a company purchases office supplies on account, it means that they are buying the supplies but not paying for them immediately. Instead, they will owe the amount to the supplier in the future. This creates a liability for the company as they now have an obligation to pay for the supplies. Therefore, purchasing office supplies on account causes an increase in total liabilities.Rate this question:
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- 14.
Which of the following transactions causes a decrease in stockholders' equity?
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Pay salaries expense for the current month.
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Repay amount borrowed from the bank.
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Provide services to customers for cash.
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Provide services to customers on account.
Correct Answer
A. Pay salaries expense for the current month.Explanation
Paying salaries expense for the current month causes a decrease in stockholders' equity because it is an expense that reduces the company's net income. When salaries are paid, it decreases the company's retained earnings, which is a component of stockholders' equity. This transaction represents an outflow of cash and a decrease in the company's overall financial position.Rate this question:
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- 15.
0 / 1 point Which of the following is possible for a particular business transaction?
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Increase assets; decrease liabilities.
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Decrease assets; increase stockholders' equity.
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Decrease assets; increase expenses.
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Decrease liabilities; increase expenses.
Correct Answer
A. Decrease assets; increase expenses.Explanation
In a business transaction, it is possible for assets to decrease and expenses to increase. This can happen when a company spends money on expenses such as salaries, rent, or supplies, which reduces their assets.Rate this question:
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- 16.
1 / 1 point A debit is used to decrease which of the following accounts?
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Salaries Expense
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Accounts Payable
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Dividends
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Supplies
Correct Answer
A. Accounts PayableExplanation
A debit is used to decrease the balance in the Accounts Payable account. When a company pays off its outstanding debts or reduces the amount owed to its creditors, a debit entry is made to decrease the Accounts Payable balance. This helps to accurately reflect the decrease in the company's liabilities.Rate this question:
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- 17.
1 / 1 point A credit is used to decrease which of the following accounts?
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Service Revenue
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Common stock
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Salaries Payable
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Cash
Correct Answer
A. CashExplanation
Cash is an asset account, and a credit is used to decrease asset accounts. Therefore, when a credit is used, it decreases the cash account.Rate this question:
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- 18.
Purchasing office supplies on account for $100 is recorded as:
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Supplies 100 Accounts Payable 100
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Cash 100 Supplies 100
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Supplies 100 Cash 100
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Accounts Payable 100 Supplies 100
Correct Answer
A. Supplies 100 Accounts Payable 100Explanation
When purchasing office supplies on account for $100, the correct recording is to debit the Supplies account for $100 and credit the Accounts Payable account for $100. This reflects an increase in the Supplies asset and an increase in the liability owed to the supplier.Rate this question:
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- 19.
Transferring the debit and credit information from a journal to individual accounts in the general ledger is referred to as:
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Balancing
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Analyzing
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Posting
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Journalizing
Correct Answer
A. PostingExplanation
Posting refers to the process of transferring the debit and credit information from a journal to individual accounts in the general ledger. This step is crucial in the accounting cycle as it helps organize and summarize financial transactions in a systematic manner. By posting, the information recorded in the journal is accurately reflected in the respective accounts, allowing for easy tracking and analysis of financial data.Rate this question:
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- 20.
1 / 1 point Which of the following is true about a trial balance?
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Only income statement accounts are shown
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Total debit amounts should always equal total credit amounts
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Only balance sheet accounts are shown
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The trial balance shows the change in all account balances over the accounting period
Correct Answer
A. Total debit amounts should always equal total credit amountsExplanation
The correct answer is "Total debit amounts should always equal total credit amounts." In accounting, a trial balance is a statement that lists all the general ledger accounts and their balances. It is used to ensure that the total debits equal the total credits in the accounting system, which is a fundamental principle of double-entry bookkeeping. This balance is important for ensuring the accuracy of the financial records and detecting any errors or discrepancies in the accounts.Rate this question:
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- 21.
On September 9, Clearmore Services receives a request for services from a customer. The service is scheduled for September 15. On September 15, the service is provided and the customer pays one week later on September 22. According to the revenue recognition principle, on which date should Clearmore Services record service revenue?
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September 9 (date of service request).
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September 15 (date of service).
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September 22 (date of cash receipt).
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Evenly over the three dates.
Correct Answer
A. September 15 (date of service).Explanation
According to the revenue recognition principle, revenue should be recorded when the service is provided. In this case, the service was provided on September 15, so Clearmore Services should record the service revenue on that date.Rate this question:
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- 22.
On March 4, Tonkawa Law asks Green Lawn Services for basic lawn maintenance totaling $200. Green Lawn provides maintenance on March 8, and Tonkawa pays for the lawn maintenance on March 12. According to the matching principle, on which date should Tonkawa record lawn maintenance expense?
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March 4 (date of request).
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March 8 (date of lawn maintenance service).
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March 12 (date of cash payment).
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Evenly over the three dates
Correct Answer
A. March 8 (date of lawn maintenance service).Explanation
According to the matching principle, expenses should be recorded in the same period as the revenue they help generate. In this case, the lawn maintenance service provided by Green Lawn on March 8 is directly related to the request made by Tonkawa on March 4. Therefore, the expense should be recorded on March 8, the date of the lawn maintenance service.Rate this question:
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- 23.
Refer to the information in question 1. Using cash-basis accounting, on which date should Clearmore Services record service revenue?
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September 9 (date of service request).
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September 15 (date of service).
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September 22 (date of cash receipt).
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Evenly over the three dates
Correct Answer
A. September 22 (date of cash receipt).Explanation
Clearmore Services should record service revenue on September 22, the date of cash receipt, when using cash-basis accounting. This method recognizes revenue when cash is received, rather than when the service is provided or requested. Therefore, the revenue should be recorded on the date when the cash is actually received.Rate this question:
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- 24.
Refer to the information in self-study question 2. Using cash-basis accounting, on which date should Tonkawa record lawn maintenance expense?
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March 4 (date of request
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March 8 (date of lawn maintenance service
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March 12 (date of cash payment
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Evenly over the three dates.
Correct Answer
A. March 12 (date of cash payment -
- 25.
Which of the following is a characteristic of adjusting entries
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Used in cash-basis accounting
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Recorded at the beginning of the accounting period
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Reduces the balances of revenue accounts to zero
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Allows for proper application of the revenue recognition principle (revenues) or the matching principle (expenses).
Correct Answer
A. Allows for proper application of the revenue recognition principle (revenues) or the matching principle (expenses).Explanation
Adjusting entries are necessary in accrual accounting to ensure that revenues and expenses are recognized in the appropriate accounting period. These entries allow for the proper application of the revenue recognition principle, which states that revenue should be recognized when it is earned, and the matching principle, which states that expenses should be recognized in the same period as the revenue they help generate. Adjusting entries are not used in cash-basis accounting, are recorded at the end of the accounting period, and do not reduce the balances of revenue accounts to zero.Rate this question:
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- 26.
Chan Sports purchases one year of rent on November 1 for $12,000 ($1,000 per month), debiting Prepaid Rent. On December 31, Chan Sports would record the following year-end adjusting entry
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Rent Expense 2,000 Prepaid Rent 2,000
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Rent Expense10,000 Prepaid Rent10,000
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Rent Expense12,000 Prepaid rent 12,000
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No entry is required on December 31 because full cash payment was made on November 1.
Correct Answer
A. Rent Expense10,000 Prepaid Rent10,000Explanation
The correct answer is Rent Expense10,000 Prepaid Rent10,000. This is because the prepaid rent of $12,000 was initially recorded as an asset when it was purchased on November 1. However, at the end of the year on December 31, $10,000 worth of rent has been used up or expired. Therefore, the adjusting entry is made to recognize the expense of $10,000 and reduce the prepaid rent by the same amount. This ensures that the financial statements reflect the correct amount of rent expense for the year.Rate this question:
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- 27.
The balance of retained earnings in the adjusted trial balance
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Equals the balance of retained earnings after closing entries
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Equals the balance of retained earnings at the beginning of the accounting period
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Is not shown
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Is the amount shown for retained earnings in the balance sheet
Correct Answer
A. Equals the balance of retained earnings at the beginning of the accounting periodExplanation
The balance of retained earnings in the adjusted trial balance is equal to the balance of retained earnings at the beginning of the accounting period. This means that any adjustments made during the accounting period, such as closing entries, have been accounted for and the final balance of retained earnings matches the beginning balance. This is important for accurately reporting the financial position of a company and ensuring that all changes in retained earnings are properly recorded.Rate this question:
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- 28.
Which of the following describes the information reported in the income statement
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Net cash flows from operating, investing, and financing activities
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Changes in stockholders' equity through changes in common stock and retained earnings
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Net income for the period calculated as revenues minus expenses
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Equality of total assets with total liabilities plus stockholders' equity.
Correct Answer
A. Net income for the period calculated as revenues minus expensesExplanation
The income statement reports the net income for a specific period, which is calculated by subtracting expenses from revenues. This statement provides information on the profitability of a company and shows if it is generating a profit or a loss. It does not include information on cash flows from operating, investing, and financing activities, changes in stockholders' equity, or the equality of total assets with total liabilities plus stockholders' equity.Rate this question:
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- 29.
Which of the following describes the closing process
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Record external events for the period so that financial statements can be prepared
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Transfer the balances of temporary accounts (revenues, expenses, and dividends) to retained earnings.
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Record activities that have occurred but that have not been recorded by the end of the accounting period.
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Store all source documents used to record transactions throughout the period.
Correct Answer
A. Transfer the balances of temporary accounts (revenues, expenses, and dividends) to retained earnings.Explanation
The closing process in accounting refers to the steps taken at the end of an accounting period to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to the retained earnings account. This process ensures that the temporary accounts are reset to zero for the next accounting period and that the net income or loss is properly reflected in the retained earnings account. It allows for accurate financial statements to be prepared and provides a clear starting point for the next accounting period.Rate this question:
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- 30.
Which of the following accounts is listed in a post-closing trial balance?
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Salaries Payable
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Dividends
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Advertising expense
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Service revenue
Correct Answer
A. Salaries PayableExplanation
Salaries Payable is listed in a post-closing trial balance because it is an account that represents the amount of salaries owed to employees at the end of an accounting period. This account is not closed at the end of the period and is carried forward to the next period. The post-closing trial balance includes all balance sheet accounts that have not been closed, and Salaries Payable falls into this category.Rate this question:
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Current Version
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Mar 20, 2023Quiz Edited by
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Dec 05, 2011Quiz Created by
Gmprice123