1. If total assets are $500,000 and total liabilities are $300,000, what is the amount of equity?
A. $800,000
B. $200,000
C. $300,000
D. $500,000
2. What type of account is 'Unearned Revenue'?
A. Revenue Account
B. Expense Account
C. Asset Account
D. Liability Account
3. What is the purpose of a trial balance?
A. To prepare the income statement.
B. To ensure that debits and credits are equal in the general ledger.
C. To calculate net income.
D. To present the financial position of a company.
4. Which accounting principle requires financial statements to be understandable, relevant, reliable, and comparable?
A. Going Concern Principle
B. Materiality Principle
C. Qualitative Characteristics of Accounting Information
D. Cost Principle
5. What does 'Equity' represent in the accounting equation?
A. The debts of the company.
B. The resources owned by the company.
C. The owners' stake in the company.
D. The revenues earned by the company.
6. The 'going concern' principle assumes that a business will:
A. Be liquidated in the near future.
B. Continue to operate indefinitely.
C. Be profitable in the next accounting period.
D. Expand its operations significantly.
7. Which of the following is NOT a characteristic of liabilities?
A. Present obligation
B. Arising from past events
C. Expected to result in an outflow of resources
D. Represents ownership in the company
8. Which of the following is considered a 'contra-asset' account?
A. Accounts Payable
B. Accumulated Depreciation
C. Sales Revenue
D. Salaries Expense
9. Which of the following is NOT considered an intangible asset?
A. Patents
B. Copyrights
C. Trademarks
D. Inventory
10. In double-entry bookkeeping, every transaction affects at least:
A. One account
B. Two accounts
C. Three accounts
D. Four accounts
11. What is the fundamental accounting equation that forms the basis of the balance sheet?
A. Assets = Liabilities + Equity
B. Assets + Liabilities = Equity
C. Assets = Equity - Liabilities
D. Revenue - Expenses = Net Income
12. What is the primary difference between financial accounting and managerial accounting?
A. Financial accounting is for internal users; managerial accounting is for external users.
B. Financial accounting is governed by GAAP; managerial accounting is not.
C. Financial accounting focuses on future projections; managerial accounting focuses on past performance.
D. There is no significant difference between them.
13. Which of the following transactions would increase both assets and equity?
A. Payment of salaries expense.
B. Purchase of equipment on credit.
C. Sale of services for cash.
D. Repayment of a bank loan.
14. An example of a current asset is:
A. Land
B. Buildings
C. Accounts Receivable
D. Equipment
15. Which of the following is an example of a financing activity on the statement of cash flows?
A. Purchase of equipment
B. Sale of goods to customers
C. Issuance of bonds payable
D. Payment of salaries
16. Which financial statement shows the financial position of a company at a specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Retained Earnings
17. What is the effect on the accounting equation when a company declares and pays a cash dividend?
A. Assets increase and Equity increases.
B. Assets decrease and Equity decreases.
C. Assets decrease and Liabilities increase.
D. No effect on the accounting equation.
18. Which financial statement reports a company's financial performance over a period of time?
A. Balance Sheet
B. Statement of Cash Flows
C. Income Statement
D. Statement of Retained Earnings
19. What is the normal balance of an expense account?
A. Credit
B. Debit
C. Either Debit or Credit
D. Depends on the specific expense
20. Depreciation is the process of allocating the cost of a/an:
A. Current asset
B. Intangible asset
C. Long-term asset (Property, Plant, and Equipment)
D. Inventory
21. Which of the following is an example of an operating activity on the statement of cash flows?
A. Sale of equipment
B. Payment of salaries to employees
C. Issuance of common stock
D. Purchase of land
22. What is the purpose of adjusting entries?
A. To correct errors in journal entries.
B. To bring account balances up to date at the end of an accounting period.
C. To close temporary accounts.
D. To prepare the statement of cash flows.
23. If a company uses the FIFO (First-In, First-Out) inventory costing method during a period of rising prices, which of the following is true?
A. Cost of Goods Sold will be higher.
B. Ending Inventory will be lower.
C. Net Income will be higher.
D. Gross Profit will be lower.
24. The 'matching principle' in accounting primarily aims to:
A. Match assets with liabilities on the balance sheet.
B. Match revenues with expenses in the same accounting period.
C. Match cash inflows with cash outflows.
D. Match the beginning and ending balances of accounts.
25. Which of the following ratios is a measure of a company's liquidity?
A. Debt-to-Equity Ratio
B. Gross Profit Margin
C. Current Ratio
D. Return on Assets
26. What is the purpose of closing entries in the accounting cycle?
A. To adjust account balances.
B. To prepare the trial balance.
C. To transfer balances of temporary accounts to retained earnings.
D. To record daily transactions.
27. What is the 'cost principle' in accounting?
A. Assets should be recorded at their fair market value.
B. Expenses should be recognized when cash is paid.
C. Assets should be recorded at their historical cost.
D. Revenue should be recognized when cash is received.
28. Which inventory costing method generally results in the highest net income during periods of inflation?
A. FIFO (First-In, First-Out)
B. LIFO (Last-In, First-Out)
C. Weighted-Average
D. Specific Identification
29. The Statement of Cash Flows categorizes cash flows into which three main activities?
A. Investing, Financing, and Operating
B. Revenue, Expense, and Equity
C. Assets, Liabilities, and Equity
D. Current, Non-current, and Long-term
30. What is the formula for calculating Gross Profit?
A. Revenue - Operating Expenses
B. Revenue - Cost of Goods Sold
C. Net Income + Operating Expenses
D. Revenue - Total Expenses
