#1
Which of the following financial statements reports a company's financial position at a specific point in time?
Balance sheet
ExplanationReports financial position at a specific time.
#2
Which accounting principle states that assets should be recorded at their original cost?
Cost principle
ExplanationAssets recorded at original cost.
#3
What does the term 'depreciation' refer to in accounting?
Decrease in the value of an asset over time
ExplanationAsset value decrease over time.
#4
What is the purpose of the trial balance?
To ensure the equality of debits and credits
ExplanationEnsures equality of debits and credits.
#5
What is the accounting equation?
Assets = Liabilities + Equity
ExplanationFundamental accounting equation.
#6
Which of the following is an example of a current liability?
Accounts payable
ExplanationExample of current liability.
#7
What is the accounting principle that requires businesses to use the same accounting methods and principles from period to period?
Consistency Principle
ExplanationRequires consistency in accounting methods.
#8
What is the purpose of the cash flow statement?
To report the company's cash inflows and outflows during a period
ExplanationReports cash inflows and outflows.
#9
Which financial statement summarizes a company's revenues and expenses over a period of time?
Income statement
ExplanationSummarizes revenues and expenses.
#10
What is the purpose of the double-entry accounting system?
To ensure accuracy in recording financial transactions
ExplanationEnsures accuracy in recording transactions.
#11
What is the formula to calculate the current ratio?
Current assets / Current liabilities
ExplanationCurrent assets divided by current liabilities.
#12
Which of the following is a contra-account to accounts receivable?
Allowance for doubtful accounts
ExplanationContra-account to accounts receivable.
#13
Which of the following is an example of an operating expense?
Cost of goods sold
ExplanationExample of operating expense.
#14
What is the purpose of the statement of cash flows?
To report the company's cash inflows and outflows during a period
ExplanationReports cash inflows and outflows.
#15
Which of the following is an example of a long-term liability?
Bonds payable
ExplanationExample of long-term liability.
#16
What does the term 'EBIT' stand for in accounting?
Earnings Before Interest and Taxes
ExplanationAcronym for earnings.
#17
What is the purpose of the adjusting entries in accounting?
To ensure that revenues and expenses are recognized in the period they are incurred
ExplanationEnsures recognition of revenues and expenses.
#18
Which of the following financial ratios measures a company's ability to pay off its short-term liabilities with its current assets?
Current Ratio
ExplanationMeasures short-term liability payment ability.
#19
Which of the following represents an increase in equity?
Net income earned during the period
ExplanationIncrease in equity.
#20
Which of the following financial statements reports a company's changes in equity over a specific period?
Statement of changes in equity
ExplanationReports equity changes.
#21
What is the purpose of the Sarbanes-Oxley Act (SOX)?
To regulate the financial reporting of public companies
ExplanationRegulates financial reporting of public companies.
#22
What is the formula to calculate return on equity (ROE)?
Net income / Total equity
ExplanationCalculation for return on equity.
#23
Which of the following represents an outflow of cash from operating activities?
Dividends paid to shareholders
ExplanationOutflow of cash from operating activities.
#24
What is the purpose of the accrual basis of accounting?
To match revenues with expenses in the period they are earned or incurred
ExplanationMatches revenues with expenses.
#25
Which financial statement shows how changes in balance sheet accounts and income affect cash and cash equivalents?
Statement of cash flows
ExplanationShows cash and cash equivalents changes.