#1
Which accounting principle states that revenue should be recognized when it is earned, regardless of when the cash is received?
Revenue recognition principle
ExplanationRecognizes revenue when earned, not when cash is received.
#2
What is the fundamental accounting equation?
Assets = Liabilities + Owner's Equity
ExplanationEquation representing a company's financial position.
#3
Which financial statement summarizes a company's revenues and expenses over a period?
Income statement
ExplanationProvides overview of company's financial performance.
#4
Which financial statement provides information about a company's cash inflows and outflows from operating, investing, and financing activities?
Statement of cash flows
ExplanationDetails cash movements in different activities.
#5
What is the purpose of the general ledger in accounting?
To post transactions to individual accounts
ExplanationCentralized record of all financial transactions.
#6
What is the purpose of the chart of accounts in accounting?
To organize and classify accounts
ExplanationStructures and categorizes financial accounts.
#7
Which financial statement reports the changes in retained earnings for a specific period?
Statement of retained earnings
ExplanationDetails changes in the retained earnings account.
#8
Which of the following is not an asset account?
Accounts Payable
ExplanationAccounts payable is a liability, not an asset.
#9
What does the term 'depreciation' refer to in accounting?
Cost allocation of a long-term asset over its useful life
ExplanationAllocating long-term asset costs over its useful life.
#10
What is the purpose of the trial balance in accounting?
To identify errors in recording transactions
ExplanationChecks for balance and accuracy in accounting entries.
#11
What is the accounting equation after recording a transaction where a company borrows $10,000 from a bank?
Assets = Liabilities + Owner's Equity + $10,000
ExplanationNew liability increases assets and equity.
#12
What is the purpose of the statement of cash flows?
To explain the reasons for changes in cash and cash equivalents over a period
ExplanationDetails sources and uses of cash in a given time.
#13
Which of the following is a contra account?
Accumulated Depreciation
ExplanationReduces the value of a related account.
#14
What does the term 'conservatism' refer to in accounting?
Recording the lower of two values when uncertain
ExplanationPrinciple of caution in uncertain situations.
#15
Under the double-entry accounting system, what happens when a transaction is recorded?
One account is debited and another account is credited
ExplanationDual entry system ensures balance in accounting transactions.
#16
Which of the following is an example of an accrual accounting adjustment?
Recognizing depreciation expense
ExplanationAdjusts for non-cash expenses to reflect true financial position.