SECTION 1: CORE ACCOUNTING FOUNDATIONS
QUESTION 1
What is the fundamental accounting equation?
A) Assets = Liabilities - Equity
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Equity = Assets + Liabilities
ANSWER: B
RATIONALE: The fundamental accounting equation is Assets = Liabilities + Equity. This
equation underpins the balance sheet and must always remain in balance .
QUESTION 2
Which side of an account increases assets and expenses?
A) Credit
B) Debit
C) Both sides
D) Neither side
ANSWER: B
RATIONALE: Debits (Dr) increase asset and expense accounts. Credits (Cr) increase
liabilities, equity, and revenue accounts .
QUESTION 3
Which of the following is NOT one of the three primary financial statements?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Owner's Equity
ANSWER: D
RATIONALE: The three primary financial statements are the Income Statement, Balance
Sheet, and Statement of Cash Flows . The Statement of Owner's Equity is a supporting
statement that connects the income statement to the balance sheet .
, SECTION 2: FINANCIAL STATEMENTS
QUESTION 4
Which item is reported on an income statement?
A) Retained Earnings
B) Revenues
C) Cash Balance
D) Capital Stock
ANSWER: B
RATIONALE: Revenues are reported on the income statement. The income statement
shows a company's revenues and expenses over a period of time to determine net
income .
QUESTION 5
What is the formula for Gross Profit?
A) Revenue - Operating Expenses
B) Revenue - Cost of Goods Sold (COGS)
C) Revenue - Net Income
D) Revenue + Gains - Expenses - Losses
ANSWER: B
RATIONALE: Gross Profit = Revenue - Cost of Goods Sold (COGS) . This represents the
amount made from selling a product before considering operating expenses .
QUESTION 6
What does the Balance Sheet show?
A) Revenues and expenses over time
B) Cash inflows and outflows
C) Assets, liabilities, and owner's equity on a specific date
D) Changes in equity over time
QUESTION 1
What is the fundamental accounting equation?
A) Assets = Liabilities - Equity
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Equity = Assets + Liabilities
ANSWER: B
RATIONALE: The fundamental accounting equation is Assets = Liabilities + Equity. This
equation underpins the balance sheet and must always remain in balance .
QUESTION 2
Which side of an account increases assets and expenses?
A) Credit
B) Debit
C) Both sides
D) Neither side
ANSWER: B
RATIONALE: Debits (Dr) increase asset and expense accounts. Credits (Cr) increase
liabilities, equity, and revenue accounts .
QUESTION 3
Which of the following is NOT one of the three primary financial statements?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Owner's Equity
ANSWER: D
RATIONALE: The three primary financial statements are the Income Statement, Balance
Sheet, and Statement of Cash Flows . The Statement of Owner's Equity is a supporting
statement that connects the income statement to the balance sheet .
, SECTION 2: FINANCIAL STATEMENTS
QUESTION 4
Which item is reported on an income statement?
A) Retained Earnings
B) Revenues
C) Cash Balance
D) Capital Stock
ANSWER: B
RATIONALE: Revenues are reported on the income statement. The income statement
shows a company's revenues and expenses over a period of time to determine net
income .
QUESTION 5
What is the formula for Gross Profit?
A) Revenue - Operating Expenses
B) Revenue - Cost of Goods Sold (COGS)
C) Revenue - Net Income
D) Revenue + Gains - Expenses - Losses
ANSWER: B
RATIONALE: Gross Profit = Revenue - Cost of Goods Sold (COGS) . This represents the
amount made from selling a product before considering operating expenses .
QUESTION 6
What does the Balance Sheet show?
A) Revenues and expenses over time
B) Cash inflows and outflows
C) Assets, liabilities, and owner's equity on a specific date
D) Changes in equity over time
