#1
What is the accounting equation?
Assets = Liabilities + Equity
ExplanationThe accounting equation represents the fundamental balance in a company's financial position.
#2
Which financial statement represents the financial position of a company at a specific point in time?
Balance Sheet
ExplanationThe balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific moment.
#3
Which financial statement provides a summary of a company's cash inflows and outflows during a specific period?
Statement of Cash Flows
ExplanationThe Statement of Cash Flows presents the sources and uses of cash in a company's operations, investing, and financing activities.
#4
Which financial statement reports the changes in equity during a specific period?
Statement of Retained Earnings
ExplanationThe Statement of Retained Earnings outlines changes in a company's retained earnings over a defined period.
#5
In financial accounting, what is the purpose of the trial balance?
To detect errors in accounting entries
ExplanationThe trial balance identifies errors in accounting entries by ensuring debits and credits match.
#6
What does GAAP stand for in accounting?
Generally Accepted Accounting Principles
ExplanationGAAP is the set of standard accounting principles and procedures widely accepted in the industry.
#7
What is the purpose of the income statement?
To report the profitability of a company over a period
ExplanationThe income statement summarizes a company's revenues, expenses, and profits or losses over a specific time frame.
#8
What is the formula for calculating Return on Assets (ROA)?
Net Income / Average Total Assets
ExplanationROA measures a company's profitability by comparing net income to its average total assets.
#9
What is the purpose of the cash flow statement's operating activities section?
To report the cash transactions related to the primary business operations
ExplanationThe operating activities section details cash transactions associated with a company's core business functions.
#10
Which accounting method records revenues and expenses when they are actually received or paid, not when they are incurred or accrued?
Cash Basis Accounting
ExplanationCash Basis Accounting recognizes transactions when cash is exchanged, not when they are incurred.
#11
Which accounting principle requires recording expenses in the period in which they are incurred, regardless of when the payment is made?
Matching Principle
ExplanationThe Matching Principle mandates matching expenses with the revenues they help generate in the same accounting period.
#12
What is the purpose of the statement of retained earnings?
To explain changes in the equity section of the balance sheet
ExplanationThe statement of retained earnings details changes in the equity section, including dividends and net income.
#13
What is the purpose of the statement of comprehensive income?
To explain changes in equity due to non-owner transactions
ExplanationThe statement of comprehensive income elucidates changes in equity resulting from non-owner transactions.
#14
What is the accounting equation after a $5,000 payment is made on account, assuming no other transactions?
Assets = Liabilities - Equity + $5,000
ExplanationThe accounting equation is adjusted after a $5,000 payment on account by decreasing equity.
#15
What is the purpose of the statement of changes in equity?
To explain changes in the equity section of the balance sheet
ExplanationThe statement of changes in equity clarifies alterations in the equity section of the balance sheet over a specific period.