Introduction to Accounting: Master the Basics of Financial Reporting

Question 1

According to the International Accounting Standards Board (IASB), which of the following is NOT a primary objective of financial accounting?

Accepted Answer

Influencing managerial behavior

Answer

Providing information to external users

Answer

Measuring the financial performance and position of a company

Answer

Recording financial transactions

Question 2

The accounting equation is best defined as:

Accepted Answer

Assets + Liabilities = Equity

Answer

Assets = Liabilities - Equity

Answer

Equity - Assets = Liabilities

Answer

Liabilities = Equity - Assets

Question 3

Which of the following is a characteristic of a sole proprietorship?

Accepted Answer

Unlimited liability

Answer

Separate legal entity

Answer

Taxed as a corporation

Answer

Owned by multiple individuals

Question 4

What is the main purpose of a trial balance?

Accepted Answer

To check the accuracy of accounting records

Answer

To prepare financial statements

Answer

To close the accounting books

Answer

To calculate depreciation

Question 5

Which of the following is NOT a basic accounting principle?

Accepted Answer

Fair market value

Answer

Going concern

Answer

Materiality

Answer

Historical cost

Question 6

What is the purpose of an audit?

Accepted Answer

To express an opinion on the fairness of financial statements

Answer

To detect fraud

Answer

To improve internal controls

Answer

To prepare tax returns

Question 7

What is the difference between a debit and a credit?

Accepted Answer

Debits increase assets and decrease liabilities/equity; Credits increase liabilities/equity and decrease assets

Answer

Debits increase liabilities and equity and decrease assets; Credits increase assets and decrease liabilities/equity

Answer

Debits decrease assets and increase liabilities/equity; Credits decrease liabilities/equity and increase assets

Answer

Debits decrease liabilities and equity and increase assets; Credits decrease assets and increase liabilities/equity

Question 8

Which of the following transactions would be recorded as a debit to Accounts Receivable?

Accepted Answer

Sale of goods on account

Answer

Receipt of cash from a customer

Answer

Payment of an expense

Answer

Purchase of inventory

Question 9

How has the scope of accounting evolved over time?

Accepted Answer

Expanded to include financial reporting, auditing, and management accounting

Answer

Narrowed to focus solely on financial reporting

Answer

Remained unchanged over time

Question 10

What is the primary purpose of financial reporting?

Accepted Answer

To provide useful financial information about an organization to its users.

Answer

To express an opinion on the fairness of management's financial statements.

Answer

To comply with legal and regulatory requirements.

Question 11

The fundamental accounting equation is:

Accepted Answer

Assets = Liabilities + Equity

Answer

Liabilities = Assets + Equity

Answer

Equity = Assets + Liabilities

Answer

Equity = Liabilities - Assets

Question 12

The primary external users of accounting information are:

Accepted Answer

Investors and creditors

Answer

Employees and government agencies

Answer

Owners and managers

Answer

Suppliers and customers

Question 13

Which of the following is NOT a common type of business organization?

Answer

Sole proprietorship

Answer

Partnership

Answer

Limited liability company (LLC)

Answer

Co-operative

Question 14

The primary purpose of a trial balance is to:

Accepted Answer

Ensure the accounting equation is balanced

Answer

Present a summary of accounts

Answer

Record transactions

Answer

Prepare financial statements

Question 15

Double-entry bookkeeping in accounting involves:

Accepted Answer

Recording each transaction using two entries

Answer

Balancing the accounting equation

Answer

Preventing errors in accounting

Answer

Providing a detailed chronological record of transactions

Question 16

Which financial statement summarises the financial position of a business at a specific point in time?

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of changes in equity

Question 17

The key distinction between a capital expenditure and a revenue expenditure is that:

Accepted Answer

Capital expenditures benefit the business over multiple periods, while revenue expenditures benefit only the current period.

Answer

Revenue expenditures are larger than capital expenditures.

Answer

Capital expenditures are always recorded as assets, while revenue expenditures are not.

Answer

Revenue expenditures are tax-deductible, while capital expenditures are not.

Question 18

An example of a fixed asset is:

Accepted Answer

Land

Answer

Inventory

Answer

Accounts receivable

Answer

Short-term investments

Question 19

Depreciation is primarily used to:

Accepted Answer

Allocate the cost of a capital asset over its useful life

Answer

Increase the value of a capital asset

Answer

Reduce the tax liability of a business

Answer

Record the sale of a capital asset

Question 20

What is the fundamental accounting equation?

Accepted Answer

Assets = Liabilities + Owner's Equity

Answer

Revenue - Expenses = Profit

Answer

Debit = Credit

Answer

Cash + Inventory = Current Assets

Question 21

Which business form provides limited liability to owners?

Accepted Answer

Limited company

Answer

Sole proprietorship

Answer

Partnership

Answer

Co-operative

Question 22

What is the primary purpose of a trial balance?

Accepted Answer

Verify the accuracy of accounting entries

Answer

Prepare financial statements

Answer

Allocate expenses to departments

Answer

Calculate depreciation expense

Question 23

Which financial statement reflects a company's financial performance?

Accepted Answer

Income statement

Answer

Balance sheet

Answer

Cash flow statement

Answer

Statement of changes in equity

Question 24

Distinguish between an asset and a liability.

Accepted Answer

Assets are owned, while liabilities are owed.

Answer

Liabilities are owned, while assets are owed.

Answer

Assets are expenses, while liabilities are revenues.

Answer

Assets are liabilities, while liabilities are assets.

Question 25

What is the purpose of using double-entry accounting?

Accepted Answer

Ensure accurate and complete recording of transactions.

Answer

Simplify accounting procedures.

Answer

Prevent fraud.

Answer

Calculate business profit or loss.

Question 26

Describe the historical cost principle in accounting. Discuss its benefits and drawbacks. In what situations might it be suitable to deviate from this principle?

Accepted Answer

A benefit of the historical cost principle is that it offers a consistent foundation for comparing financial data over time.

Answer

The historical cost principle requires assets to be recorded at their current market value.

Answer

The historical cost principle should be strictly adhered to in all circumstances.

Question 27

How does accrual accounting impact the recording of revenue and expenses in financial reporting?

Accepted Answer

Accrual accounting matches revenues earned with related expenses incurred, providing a clearer picture of a company's performance.

Answer

Accrual accounting recognizes revenue when cash is received and expenses when cash is paid.

Answer

Accrual accounting delays the recognition of revenue until cash is received, making it more conservative than cash-basis accounting.

Question 28

Which of the following is NOT a fundamental accounting principle?

Accepted Answer

Assets should be recorded at their historical cost.

Answer

Revenues should be recorded when earned.

Answer

Expenses should be matched to the revenues they generate.

Question 29

What is the primary purpose of accounting?

Accepted Answer

To provide financial information to both internal and external users.

Answer

To create financial statements that comply with legal requirements.

Answer

To detect fraud and prevent financial losses.

Answer

To manage cash flow and ensure business profitability.

Question 30

What is the primary purpose of accounting?

Accepted Answer

To provide financial information that helps users make informed decisions about a business.

Answer

To only record all financial transactions of a business.

Answer

To exclusively calculate taxes owed by a business.

Answer

To primarily prevent fraud and theft within a business.

Question 31

Which of the following is the fundamental accounting equation?

Accepted Answer

Assets = Liabilities + Equity

Answer

Debt to Equity Ratio = Total Debt / Total Equity

Answer

Cash Flow = Operating Activities + Investing Activities + Financing Activities

Answer

Revenue - Expenses = Net Income

Question 32

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

Accepted Answer

Suppliers

Answer

Investors

Answer

Creditors

Answer

Government agencies

Question 33

Which of the following accounting principles requires that transactions be recorded in the period in which they occur?

Accepted Answer

Accrual accounting

Answer

Cash basis accounting

Answer

Matching principle

Answer

Going concern principle

Question 34

Which of the following is a type of financial statement that shows the financial position of a company at a specific point in time?

Accepted Answer

Balance sheet

Answer

Cash flow statement

Answer

Statement of changes in equity

Answer

Income statement

Question 35

What is the purpose of depreciation?

Accepted Answer

To allocate the cost of a long-term asset over its useful life

Answer

To reduce the taxable income of a company

Answer

To increase the value of an asset

Question 36

Which of the following is the primary objective of accounting?

Accepted Answer

To provide financial information to users for decision-making

Answer

To minimize taxes

Answer

To maximize profits

Question 37

Which of the following BEST defines accounting?

Accepted Answer

The process of recording, classifying, summarizing, and reporting financial transactions to provide information for decision-making.

Answer

The preparation of financial statements only for external users

Question 38

Who are the main users of accounting information?

Accepted Answer

Both internal users (e.g., management, employees) and external users (e.g., investors, creditors)

Answer

Only external users

Answer

Only internal users

Question 39

Which of the following is NOT a key element of the accounting equation?

Accepted Answer

Revenue

Answer

Liabilities

Answer

Assets

Answer

Equity

Question 40

Which type of business organization has unlimited liability for its owners?

Accepted Answer

Sole proprietorship

Answer

Corporation

Answer

Partnership

Answer

Limited liability company (LLC)

Question 41

Which characteristic distinguishes accrual accounting?

Accepted Answer

Revenues are recognized when earned, regardless of cash flow timing

Answer

Revenues are recognized only when cash is received

Answer

Expenses are recorded only when cash is paid

Question 42

What is the primary purpose of an income statement?

Accepted Answer

To report the revenues, expenses, and net income/loss over a specific time span

Answer

To summarize changes in owner's equity

Answer

To report a company's assets, liabilities, and equity

Question 43

What type of ratio is used to analyze a company's liquidity?

Accepted Answer

Liquidity ratio

Answer

Balance sheet

Answer

Accounting equation

Answer

Income statement

Question 44

What is the primary purpose of a trial balance?

Accepted Answer

To verify the mathematical accuracy of the accounting records

Answer

To prepare financial statements

Answer

To summarize account balances

Question 45

Which of the following is a step in the accounting cycle?

Accepted Answer

Recording transactions in a journal

Answer

Preparing a cash flow statement

Answer

Distributing dividends

Answer

Auditing financial statements

Question 46

Who is a primary user of accounting information?

Accepted Answer

Investors

Answer

Educators

Answer

Politicians

Answer

Artists

Question 47

What is the primary purpose of accounting?

Accepted Answer

To provide financial information to users for decision-making.

Answer

To regulate businesses

Answer

To collect taxes

Question 48

How does the legal form of a business affect its accounting practices?

Accepted Answer

It determines the accounting standards that the business must follow.

Answer

It has no impact on accounting practices.

Answer

It affects the amount of taxes the business must pay.

Question 49

Which of the following is an example of an asset?

Accepted Answer

Cash

Answer

Salary expense

Answer

Rent

Answer

Lost customer

Question 50

What is the purpose of the accounting cycle?

Accepted Answer

To record, classify, and summarize financial transactions to produce financial statements.

Answer

To calculate taxes

Answer

To manage cash flow

Question 51

Which of the following is a type of financial statement?

Accepted Answer

Balance sheet

Answer

Tax return

Answer

Purchase order

Answer

Payroll register