#1
Which of the following is a fundamental accounting equation?
Assets = Liabilities + Equity
ExplanationEquation representing the relationship between a company's resources, debts, and ownership.
#2
What does GAAP stand for in accounting?
Generally Accepted Accounting Principles
ExplanationStandards ensuring consistency and accuracy in financial reporting.
#3
Which financial ratio measures a company's ability to meet short-term obligations with its most liquid assets?
Current Ratio
ExplanationIndicator of a company's liquidity and ability to cover short-term debts.
#4
Which financial statement shows a company's financial position at a specific point in time?
Balance Sheet
ExplanationSnapshot of a company's assets, liabilities, and equity at a given moment.
#5
Which financial statement shows the cash inflows and outflows from operating, investing, and financing activities?
Statement of Cash Flows
ExplanationSummary of cash movements, revealing a company's liquidity and financial health.
#6
Which financial statement reports a company's revenues and expenses over a period of time?
Income Statement
ExplanationSummary of a company's financial performance over a specific period.
#7
In accounting, what does the term 'depreciation' refer to?
Recording the cost of assets as an expense over their useful lives
ExplanationAllocating asset costs over their expected lifespan to match revenue generation.
#8
What is the formula to calculate Return on Investment (ROI)?
ROI = (Net Income / Total Assets) * 100
ExplanationMeasure of profitability relative to investment, indicating efficiency in asset utilization.
#9
What is the purpose of double-entry bookkeeping?
To record each financial transaction in at least two accounts
ExplanationEnsuring accuracy by recording both sides of a transaction.
#10
What does the term 'accrual basis accounting' mean?
Recording transactions when they occur rather than when cash changes hands
ExplanationRecognizing revenue and expenses when earned or incurred, not when cash exchanges.
#11
Which accounting principle requires that assets and liabilities should be recorded at their original purchase price?
Cost Principle
ExplanationAssets and liabilities are initially recorded at historical cost.