#1
Which of the following financial statements reports a company's financial position at a specific point in time?
Income statement
Balance sheet
Statement of cash flows
Statement of retained earnings
#2
Which accounting principle states that assets should be recorded at their original cost?
Matching principle
Revenue recognition principle
Conservatism principle
Cost principle
#3
What does the term 'depreciation' refer to in accounting?
Increase in the value of an asset
Decrease in the value of an asset over time
The total value of a company's assets
The total value of a company's liabilities
#4
What is the purpose of the trial balance?
To record adjusting entries
To prepare financial statements
To ensure the equality of debits and credits
To reconcile bank statements
#5
What is the accounting equation?
Assets = Liabilities + Equity
Assets + Liabilities = Equity
Equity = Assets - Liabilities
Liabilities = Assets - Equity
#6
Which of the following is an example of a current liability?
Notes payable due in 3 years
Accounts payable
Bonds payable due in 10 years
Mortgage payable
#7
What is the accounting principle that requires businesses to use the same accounting methods and principles from period to period?
Matching Principle
Consistency Principle
Materiality Principle
Conservatism Principle
#8
What is the purpose of the cash flow statement?
To determine the company's net income
To report the company's cash inflows and outflows during a period
To summarize the company's financial position at a specific point in time
To analyze the company's revenue and expense trends
#9
Which financial statement summarizes a company's revenues and expenses over a period of time?
Balance sheet
Income statement
Statement of cash flows
Statement of retained earnings
#10
What is the purpose of the double-entry accounting system?
To ensure accuracy in recording financial transactions
To simplify financial reporting
To eliminate the need for trial balances
To speed up the recording process
#11
What is the formula to calculate the current ratio?
Current assets / Current liabilities
Current liabilities / Current assets
Total assets / Total liabilities
Total liabilities / Total assets
#12
Which of the following is a contra-account to accounts receivable?
Accumulated depreciation
Allowance for doubtful accounts
Unearned revenue
Inventory reserve
#13
Which of the following is an example of an operating expense?
Interest expense
Income tax expense
Cost of goods sold
Depreciation expense
#14
What is the purpose of the statement of cash flows?
To report the company's financial position at a specific point in time
To summarize the company's revenues and expenses over a period of time
To show how changes in balance sheet accounts and income affect cash and cash equivalents
To report the company's cash inflows and outflows during a period
#15
Which of the following is an example of a long-term liability?
Accounts payable
Short-term bank loan
Salaries payable
Bonds payable
#16
What does the term 'EBIT' stand for in accounting?
Earnings Before Income Tax
Earnings Before Interest and Taxes
Earnings Before Interest and Taxation
Earnings Before Interest and Tax
#17
What is the purpose of the adjusting entries in accounting?
To record transactions that involve the transfer of cash
To ensure that revenues and expenses are recognized in the period they are incurred
To reconcile discrepancies between the bank statement and the company's records
To close temporary accounts at the end of the accounting period
#18
Which of the following financial ratios measures a company's ability to pay off its short-term liabilities with its current assets?
Debt-to-Equity Ratio
Profit Margin Ratio
Current Ratio
Return on Assets Ratio
#19
Which of the following represents an increase in equity?
Purchase of inventory on credit
Payment of dividends to shareholders
Incurrence of operating expenses
Net income earned during the period
#20
Which of the following financial statements reports a company's changes in equity over a specific period?
Income statement
Balance sheet
Statement of changes in equity
Statement of cash flows
#21
What is the purpose of the Sarbanes-Oxley Act (SOX)?
To regulate the financial reporting of public companies
To prevent insider trading
To establish accounting standards for private companies
To regulate the salaries of corporate executives
#22
What is the formula to calculate return on equity (ROE)?
Net income / Total assets
Net income / Total equity
Net income / Total liabilities
Total equity / Net income
#23
Which of the following represents an outflow of cash from operating activities?
Proceeds from issuing long-term debt
Purchase of equipment
Dividends paid to shareholders
Proceeds from sale of investments
#24
What is the purpose of the accrual basis of accounting?
To record revenue when cash is received
To record expenses when cash is paid
To match revenues with expenses in the period they are earned or incurred
To record transactions only when they affect cash
#25
Which financial statement shows how changes in balance sheet accounts and income affect cash and cash equivalents?
Income statement
Balance sheet
Statement of cash flows
Statement of retained earnings