OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
Multiple Choice
1. LO 3.1 That a business may only report activities on financial statements that are specifically
related to company operations, not those activities that affect the owner personally, is known as
which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
A
2. LO 3.1 That companies can present useful information in shorter time periods such as years,
quarters, or months is known as which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
D
3. LO 3.1 The system of using a monetary unit, such as the US dollar, to value the transaction is
known as which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
B
4. LO 3.1 Which of the following terms is used when assuming a business will continue to
operate in the foreseeable future?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
C
5. LO 3.1 The independent, nonprofit organization that sets financial accounting and reporting
standards for both public- and private-sector businesses that use generally accepted accounting
principles (GAAP) in the United States is which of the following?
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
Page 1 of 58
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
A
6. LO 3.1 The standards, procedures, and principles companies must follow when preparing their
financial statements are known as which of the following?
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
B
7. LO 3.1 These are used by the FASB, and it is a set of concepts that guide financial reporting.
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
D
8. LO 3.1 This is the independent federal agency protecting the interests of investors, regulating
stock markets, and ensuring companies adhere to GAAP requirements.
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
C
9. LO 3.1 Which of the following is the principle that a company must recognize revenue in the
period in which it is earned; it is not considered earned until a product or service has been
provided?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
Solution
A
10. LO 3.1 Which of the following is the principle that a business must report any business
activities that could affect what is reported on the financial statements?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
Solution
D
11. LO 3.1 Also known as the historical cost principle, ________ states that everything the
company owns or controls (assets) must be recorded at their value at the date of acquisition.
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
Page 2 of 58
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
D. full disclosure principle
Solution
C
12. LO 3.1 Which of the following principles matches expenses with associated revenues in the
period in which the revenues were generated?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
Solution
B
13. LO 3.2 Which of the following does not accurately represent the accounting equation?
A. Assets – Liabilities = Stockholders’ Equity
B. Assets – Stockholders’ Equity = Liabilities
C. Assets = Liabilities + Stockholders’ Equity
D. Assets + Liabilities = Stockholders’ Equity
Solution
D. All of the others are forms of the algebraic formula Assets = Liabilities + Stockholder’s
Equity
14. LO 3.2 Which of these statements is false?
A. Assets = Liabilities + Equity
B. Assets – Liabilities = Equity
C. Liabilities – Equity = Assets
D. Liabilities = Assets – Equity
Solution
C
15. LO 3.2 Which of these accounts is an asset?
A. Common Stock
B. Supplies
C. Accounts Payable
D. Fees Earned
Solution
B. Supplies represent something of value that we own, thus they are an asset.
16. LO 3.2 Which of these accounts is a liability?
A. Accounts Receivable
B. Supplies
C. Salaries Expense
D. Accounts Payable
Solution
D. Any account with the word “payable” in its title is a liability.
17. LO 3.2 If equity equals $100,000, which of the following is true?
A. Assets exceed liabilities by $100,000.
B. Liabilities exceed equity by $100,000.
C. Assets + liabilities equal $100,000.
D. None of the above is true.
Solution
Page 3 of 58
, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
A. Using the accounting equation Assets = Liabilities + Stockholders’ Equity, and if equity is
$100,000, then assets have to be greater than liabilities by $100,000.
18. LO 3.3 Which process of the accounting cycle often requires the most analytical thought?
A. making a journal entry
B. posting transactions to accounts
C. summarizing the trial balance
D. preparing the financial statements
Solution
A. Making a journal entry, because the individual needs to analyze the information to see how it
influences financial records.
19. LO 3.3 The step-by-step process to record business activities and events to keep financial
records up to date is ________.
A. day-to-day cycle
B. accounting cycle
C. general ledger
D. journal
Solution
B
20. LO 3.3 One operating cycle of a business, which could be a month, quarter, or year, is
commonly referred to as which of the following?
A. period
B. round
C. tally
D. mark
Solution
A
21. LO 3.3 ________ takes all transactions from the journal during a period and moves the
information to a general ledger (ledger).
A. Hitching
B. Posting
C. Vetting
D. Laxing
Solution
B
22. LO 3.4 Which of these events will not be recognized?
A. A service is performed, but the payment is not collected on the same day.
B. Supplies are purchased. They are not paid for; the company will be billed.
C. A copy machine is ordered. It will be delivered in two weeks.
D. Electricity has been used but has not been paid for.
Solution
C. The copy machine has only been ordered at this time; when it is received, the event will be
recognized.
23. LO 3.4 A company purchased a building twenty years ago for $150,000. The building
currently has an appraised market value of $235,000. The company reports the building on its
balance sheet at $235,000. What concept or principle has been violated?
A. separate entity concept
Page 4 of 58
Chapter 3: Analyzing and Recording Transactions
Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
Multiple Choice
1. LO 3.1 That a business may only report activities on financial statements that are specifically
related to company operations, not those activities that affect the owner personally, is known as
which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
A
2. LO 3.1 That companies can present useful information in shorter time periods such as years,
quarters, or months is known as which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
D
3. LO 3.1 The system of using a monetary unit, such as the US dollar, to value the transaction is
known as which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
B
4. LO 3.1 Which of the following terms is used when assuming a business will continue to
operate in the foreseeable future?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
Solution
C
5. LO 3.1 The independent, nonprofit organization that sets financial accounting and reporting
standards for both public- and private-sector businesses that use generally accepted accounting
principles (GAAP) in the United States is which of the following?
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
Page 1 of 58
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
A
6. LO 3.1 The standards, procedures, and principles companies must follow when preparing their
financial statements are known as which of the following?
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
B
7. LO 3.1 These are used by the FASB, and it is a set of concepts that guide financial reporting.
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
D
8. LO 3.1 This is the independent federal agency protecting the interests of investors, regulating
stock markets, and ensuring companies adhere to GAAP requirements.
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
Solution
C
9. LO 3.1 Which of the following is the principle that a company must recognize revenue in the
period in which it is earned; it is not considered earned until a product or service has been
provided?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
Solution
A
10. LO 3.1 Which of the following is the principle that a business must report any business
activities that could affect what is reported on the financial statements?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
Solution
D
11. LO 3.1 Also known as the historical cost principle, ________ states that everything the
company owns or controls (assets) must be recorded at their value at the date of acquisition.
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
Page 2 of 58
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
D. full disclosure principle
Solution
C
12. LO 3.1 Which of the following principles matches expenses with associated revenues in the
period in which the revenues were generated?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
Solution
B
13. LO 3.2 Which of the following does not accurately represent the accounting equation?
A. Assets – Liabilities = Stockholders’ Equity
B. Assets – Stockholders’ Equity = Liabilities
C. Assets = Liabilities + Stockholders’ Equity
D. Assets + Liabilities = Stockholders’ Equity
Solution
D. All of the others are forms of the algebraic formula Assets = Liabilities + Stockholder’s
Equity
14. LO 3.2 Which of these statements is false?
A. Assets = Liabilities + Equity
B. Assets – Liabilities = Equity
C. Liabilities – Equity = Assets
D. Liabilities = Assets – Equity
Solution
C
15. LO 3.2 Which of these accounts is an asset?
A. Common Stock
B. Supplies
C. Accounts Payable
D. Fees Earned
Solution
B. Supplies represent something of value that we own, thus they are an asset.
16. LO 3.2 Which of these accounts is a liability?
A. Accounts Receivable
B. Supplies
C. Salaries Expense
D. Accounts Payable
Solution
D. Any account with the word “payable” in its title is a liability.
17. LO 3.2 If equity equals $100,000, which of the following is true?
A. Assets exceed liabilities by $100,000.
B. Liabilities exceed equity by $100,000.
C. Assets + liabilities equal $100,000.
D. None of the above is true.
Solution
Page 3 of 58
, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 3: Analyzing and Recording Transactions
A. Using the accounting equation Assets = Liabilities + Stockholders’ Equity, and if equity is
$100,000, then assets have to be greater than liabilities by $100,000.
18. LO 3.3 Which process of the accounting cycle often requires the most analytical thought?
A. making a journal entry
B. posting transactions to accounts
C. summarizing the trial balance
D. preparing the financial statements
Solution
A. Making a journal entry, because the individual needs to analyze the information to see how it
influences financial records.
19. LO 3.3 The step-by-step process to record business activities and events to keep financial
records up to date is ________.
A. day-to-day cycle
B. accounting cycle
C. general ledger
D. journal
Solution
B
20. LO 3.3 One operating cycle of a business, which could be a month, quarter, or year, is
commonly referred to as which of the following?
A. period
B. round
C. tally
D. mark
Solution
A
21. LO 3.3 ________ takes all transactions from the journal during a period and moves the
information to a general ledger (ledger).
A. Hitching
B. Posting
C. Vetting
D. Laxing
Solution
B
22. LO 3.4 Which of these events will not be recognized?
A. A service is performed, but the payment is not collected on the same day.
B. Supplies are purchased. They are not paid for; the company will be billed.
C. A copy machine is ordered. It will be delivered in two weeks.
D. Electricity has been used but has not been paid for.
Solution
C. The copy machine has only been ordered at this time; when it is received, the event will be
recognized.
23. LO 3.4 A company purchased a building twenty years ago for $150,000. The building
currently has an appraised market value of $235,000. The company reports the building on its
balance sheet at $235,000. What concept or principle has been violated?
A. separate entity concept
Page 4 of 58
