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Accounting For Decision Makers Final
Actual Exam Questions with Correct
Answers & Explanations | Graded A+
Study Guide
Q1. Which financial statement reports a company's financial
position at a specific point in time?
? C. Balance Sheet
Rationale: The balance sheet presents assets, liabilities, and
equity at a specific date (a "snapshot"). The income statement,
statement of cash flows, and statement of retained earnings
cover a period of time (e.g., a quarter or year) .
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Q2. The accounting equation is:
? A. Assets = Liabilities + Owner's Equity
Rationale: This fundamental equation must always balance.
Assets are resources owned; liabilities are debts owed; equity is
the owners' residual interest. This equation is the foundation of
double-entry accounting .
Q3. A company purchases inventory on account (credit). What is
the effect on the accounting equation?
? C. Assets increase, Liabilities increase
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Rationale: Inventory (asset) increases, and accounts payable
(liability) increases. Equity is unchanged because no revenue or
expense has been recognized yet .
Q4. A business pays $5,000 cash for rent. Which accounts are
affected?
? D. Rent expense increases; Cash decreases
Rationale: Rent expense is recognized on the income statement,
reducing net income and therefore retained earnings (equity).
Cash (asset) decreases. This follows the matching principle .
Q5. Which of the following is a liability?
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? B. Accounts Payable
Rationale: Accounts payable represents amounts owed to
suppliers for purchases made on credit. Cash and inventory are
assets; retained earnings is equity .
Q6. The accrual basis of accounting recognizes revenue when:
? A. Earned, regardless of when cash is received
Rationale: Accrual accounting follows the revenue recognition
principle: revenue is recorded when it is earned (goods delivered
or services performed), not when cash changes hands .
Accounting For Decision Makers Final
Actual Exam Questions with Correct
Answers & Explanations | Graded A+
Study Guide
Q1. Which financial statement reports a company's financial
position at a specific point in time?
? C. Balance Sheet
Rationale: The balance sheet presents assets, liabilities, and
equity at a specific date (a "snapshot"). The income statement,
statement of cash flows, and statement of retained earnings
cover a period of time (e.g., a quarter or year) .
,Page 2 of 146
Q2. The accounting equation is:
? A. Assets = Liabilities + Owner's Equity
Rationale: This fundamental equation must always balance.
Assets are resources owned; liabilities are debts owed; equity is
the owners' residual interest. This equation is the foundation of
double-entry accounting .
Q3. A company purchases inventory on account (credit). What is
the effect on the accounting equation?
? C. Assets increase, Liabilities increase
,Page 3 of 146
Rationale: Inventory (asset) increases, and accounts payable
(liability) increases. Equity is unchanged because no revenue or
expense has been recognized yet .
Q4. A business pays $5,000 cash for rent. Which accounts are
affected?
? D. Rent expense increases; Cash decreases
Rationale: Rent expense is recognized on the income statement,
reducing net income and therefore retained earnings (equity).
Cash (asset) decreases. This follows the matching principle .
Q5. Which of the following is a liability?
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? B. Accounts Payable
Rationale: Accounts payable represents amounts owed to
suppliers for purchases made on credit. Cash and inventory are
assets; retained earnings is equity .
Q6. The accrual basis of accounting recognizes revenue when:
? A. Earned, regardless of when cash is received
Rationale: Accrual accounting follows the revenue recognition
principle: revenue is recorded when it is earned (goods delivered
or services performed), not when cash changes hands .
