ASU ACC 231- Final Exam Questions
with complete solution 2025/2026
State the 4 financial statements and in the order they should be prepared. Why must they be completed
in that order? - correct answer ✔Income statementStatement of Retained EarningsBalance
SheetStatement of Cash FlowsNet income is added in the statement of retained earnings and the ending
balance of retained earnings goes in the equity section of the balance sheet. Net income also belongs in
the first line in the statement of cash flows (indirect method).
List the 4 types of businesses. - correct answer ✔Corporation, sole proprietorship, partnership, LLC.
What is the accounting equation? - correct answer ✔A = L + OE
Assets = Liabilities + Owner's Equity
What is another word for statement of operations and what does it consist of? - correct answer
✔Another word for statement of operations is Income Statement. It consists of revenues and expenses,
gains and losses and even cost of goods sold.
What is the purpose of the statement of retained earnings? What is added and what is deducted from
the beginning balance? - correct answer ✔The profit left over and kept in the business after expenses,
taxes, and dividends are paid. Net income is added. Dividends are deducted.
What is another word for the statement of financial position and what does it consist of? - correct
answer ✔Another word for the statement of financial position is the balance sheet. It consists of assets,
liabilities, and equity.
What is double-entry accounting and what is the purpose of a t-account? - correct answer ✔Double-
entry accounting is where a transaction affects two or more accounts and t accounts are used to
visualize a transaction and apply debits and credits.
, To increase an asset account, is it a debit or a credit? - correct answer ✔Debit.
Revenues and expenses are income statement accounts that fall under assets. True or False. - correct
answer ✔False. Revenues and expenses fall under equity.
To increase a stockholder's equity account, is it a debit or credit? - correct answer ✔Credit.
What can be done to correct an accounting error in the books? - correct answer ✔Journal entry.
What is DEAD and what is RED and where does it apply? - correct answer ✔Debit, Expenses, Assets,
Dividends (Accounts with debit balances)
Revenues, Expenses, and Dividends (Temporary accounts)
What is the difference between accrual and deferral? - correct answer ✔Accrual is cash not yet paid.
Deferral is cash paid in advance.
What does 2/10, n/30 mean? - correct answer ✔2% off if paid within 10 days, or net 30 days to pay.
Which statement does inventory, and the cost of inventory sold go? - correct answer ✔Cost of
inventory sold goes in the income statement (COGS). Inventory goes under assets in the balance sheet
as a current asset.
What is the difference between gross profit and net income? - correct answer ✔Gross profit = Sales
revenue - Cost of goods soldNet income = Gross profit - Admin/ Operating expenses
What business would use the Specific Identification method? - correct answer ✔Car dealership or
jewelry store.
with complete solution 2025/2026
State the 4 financial statements and in the order they should be prepared. Why must they be completed
in that order? - correct answer ✔Income statementStatement of Retained EarningsBalance
SheetStatement of Cash FlowsNet income is added in the statement of retained earnings and the ending
balance of retained earnings goes in the equity section of the balance sheet. Net income also belongs in
the first line in the statement of cash flows (indirect method).
List the 4 types of businesses. - correct answer ✔Corporation, sole proprietorship, partnership, LLC.
What is the accounting equation? - correct answer ✔A = L + OE
Assets = Liabilities + Owner's Equity
What is another word for statement of operations and what does it consist of? - correct answer
✔Another word for statement of operations is Income Statement. It consists of revenues and expenses,
gains and losses and even cost of goods sold.
What is the purpose of the statement of retained earnings? What is added and what is deducted from
the beginning balance? - correct answer ✔The profit left over and kept in the business after expenses,
taxes, and dividends are paid. Net income is added. Dividends are deducted.
What is another word for the statement of financial position and what does it consist of? - correct
answer ✔Another word for the statement of financial position is the balance sheet. It consists of assets,
liabilities, and equity.
What is double-entry accounting and what is the purpose of a t-account? - correct answer ✔Double-
entry accounting is where a transaction affects two or more accounts and t accounts are used to
visualize a transaction and apply debits and credits.
, To increase an asset account, is it a debit or a credit? - correct answer ✔Debit.
Revenues and expenses are income statement accounts that fall under assets. True or False. - correct
answer ✔False. Revenues and expenses fall under equity.
To increase a stockholder's equity account, is it a debit or credit? - correct answer ✔Credit.
What can be done to correct an accounting error in the books? - correct answer ✔Journal entry.
What is DEAD and what is RED and where does it apply? - correct answer ✔Debit, Expenses, Assets,
Dividends (Accounts with debit balances)
Revenues, Expenses, and Dividends (Temporary accounts)
What is the difference between accrual and deferral? - correct answer ✔Accrual is cash not yet paid.
Deferral is cash paid in advance.
What does 2/10, n/30 mean? - correct answer ✔2% off if paid within 10 days, or net 30 days to pay.
Which statement does inventory, and the cost of inventory sold go? - correct answer ✔Cost of
inventory sold goes in the income statement (COGS). Inventory goes under assets in the balance sheet
as a current asset.
What is the difference between gross profit and net income? - correct answer ✔Gross profit = Sales
revenue - Cost of goods soldNet income = Gross profit - Admin/ Operating expenses
What business would use the Specific Identification method? - correct answer ✔Car dealership or
jewelry store.
