#1
Which of the following is an example of a business transaction?
A company purchasing inventory on credit
ExplanationTypical transaction involving exchange of goods with deferred payment.
#2
Which financial statement reports a company's revenues and expenses over a specific period?
Income Statement
ExplanationSummary of financial performance within a timeframe.
#3
What does the term 'GAAP' stand for in accounting?
Generally Accepted Accounting Principles
ExplanationStandard guidelines for financial reporting.
#4
Which financial statement shows the financial position of a company at a specific point in time?
Balance Sheet
ExplanationSnapshot of assets, liabilities, and equity.
#5
Which of the following is a contra asset account?
Accumulated Depreciation
ExplanationAccount offsetting the value of an asset.
#6
What is the purpose of the double-entry accounting system?
To ensure that all transactions are recorded accurately
ExplanationMethod to maintain transactional balance and accuracy.
#7
Which financial statement provides an overview of a company's cash inflows and outflows during a specific period?
Statement of Cash Flows
ExplanationSummary of cash movement over a timeframe.
#8
What is the accounting equation?
Assets = Liabilities + Equity
ExplanationFundamental equation representing a company's financial position.
#9
Which of the following is considered a contra account?
Accumulated Depreciation
ExplanationAccount reducing the value of a related asset account.
#10
What is the purpose of a trial balance?
To ensure that debits equal credits
ExplanationTool for verifying accuracy in recording transactions.
#11
What is the purpose of the adjusting entries?
To update account balances for accrual accounting
ExplanationEntries to align financial records with accrual accounting principles.
#12
Which accounting principle states that expenses should be recorded in the same period as the revenues they help to generate?
Matching Principle
ExplanationGuideline for timing the recognition of expenses.
#13
What is the purpose of the cash flow statement?
To provide information about a company's cash receipts and cash payments
ExplanationPresentation of cash inflows and outflows.
#14
What is the formula for calculating the return on equity (ROE)?
(Net Income / Total Equity) * 100
ExplanationMeasure of profitability relative to shareholder investment.
#15
Under the cash basis of accounting, when are revenues recognized?
When cash is received
ExplanationRecognition of revenue upon actual receipt of cash.
#16
Which of the following is considered a long-term liability?
Bonds Payable due in 5 years
ExplanationObligations payable over an extended period.
#17
What does the term 'EBITDA' stand for in financial analysis?
Earnings Before Interest, Taxes, Depreciation, and Amortization
ExplanationIndicator of operational profitability.
#18
Which accounting principle states that revenue should be recognized when it is earned, regardless of when cash is received?
Revenue Recognition Principle
ExplanationGuideline for recognizing revenue.
#19
Which of the following is not a component of the accounting cycle?
Analyzing market trends
ExplanationActivity unrelated to standard accounting processes.