MGT 6201 ACCOUNTING EXAMINATION
COMPLETE QUESTIONS AND DETAILED SOLUTIONS
LATEST UPDATE THIS YEAR JUST RELEASED
1. Which accounting principle requires a business to recognize revenue when it
is earned rather than simply when cash is received?
A. Matching principle
B. Revenue recognition principle
C. Conservatism principle
D. Cost principle
Answer: B. Revenue recognition principle
Rationale: The revenue recognition principle requires revenue to be recorded
when the earning process has substantially occurred, regardless of when cash is
collected.
2. A company purchases equipment for $50,000 and expects to use it for ten
years. Which accounting concept determines how its cost is allocated?
A. Accrual accounting
B. Going concern
C. Depreciation
D. Materiality
Answer: C. Depreciation
,Rationale: Depreciation systematically allocates the depreciable cost of a long-
term asset across the periods receiving benefits from its use.
3. Which financial statement primarily reports a company's revenues, expenses,
gains, and losses during a specified accounting period?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of changes in equity
Answer: B. Income statement
Rationale: The income statement summarizes revenues and expenses over a
period and determines whether the business generated net income or loss.
4. Which accounting equation correctly represents the fundamental relationship
among assets, liabilities, and owners' equity?
A. Assets = Liabilities − Equity
B. Assets + Equity = Liabilities
C. Assets = Liabilities + Equity
D. Equity = Assets + Liabilities
Answer: C. Assets = Liabilities + Equity
Rationale: Every company's resources are financed either through creditor
obligations or through owners' claims, creating the fundamental accounting
equation.
,5. A company receives cash from customers before providing the contracted
service. How should the amount initially be classified?
A. Revenue
B. Expense
C. Unearned revenue
D. Accounts receivable
Answer: C. Unearned revenue
Rationale: Cash received before performance creates an obligation to provide
future goods or services, so it represents a liability initially.
6. Which transaction increases both total assets and total liabilities without
immediately affecting owners' equity?
A. Paying an existing creditor
B. Purchasing equipment on credit
C. Paying employee salaries
D. Receiving cash from an owner
Answer: B. Purchasing equipment on credit
Rationale: Buying equipment on credit increases equipment assets while
simultaneously creating an accounts payable or other liability.
, 7. Which financial statement provides information about a company's assets,
liabilities, and equity at a specific point in time?
A. Income statement
B. Balance sheet
C. Cash flow statement
D. Retained earnings statement
Answer: B. Balance sheet
Rationale: The balance sheet presents the company's financial position by
reporting assets, liabilities, and equity at a particular date.
8. Why is the accrual basis of accounting generally more informative than cash-
basis accounting for business performance analysis?
A. It eliminates all accounting estimates
B. It records transactions only when cash changes hands
C. It recognizes economic activity when earned or incurred
D. It guarantees positive cash flow
Answer: C. It recognizes economic activity when earned or incurred
Rationale: Accrual accounting records economic events in the periods they occur,
improving comparisons between revenues and related expenses.
9. A company performs services worth $12,000 but allows the customer to pay
later. Which account should normally increase?
COMPLETE QUESTIONS AND DETAILED SOLUTIONS
LATEST UPDATE THIS YEAR JUST RELEASED
1. Which accounting principle requires a business to recognize revenue when it
is earned rather than simply when cash is received?
A. Matching principle
B. Revenue recognition principle
C. Conservatism principle
D. Cost principle
Answer: B. Revenue recognition principle
Rationale: The revenue recognition principle requires revenue to be recorded
when the earning process has substantially occurred, regardless of when cash is
collected.
2. A company purchases equipment for $50,000 and expects to use it for ten
years. Which accounting concept determines how its cost is allocated?
A. Accrual accounting
B. Going concern
C. Depreciation
D. Materiality
Answer: C. Depreciation
,Rationale: Depreciation systematically allocates the depreciable cost of a long-
term asset across the periods receiving benefits from its use.
3. Which financial statement primarily reports a company's revenues, expenses,
gains, and losses during a specified accounting period?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of changes in equity
Answer: B. Income statement
Rationale: The income statement summarizes revenues and expenses over a
period and determines whether the business generated net income or loss.
4. Which accounting equation correctly represents the fundamental relationship
among assets, liabilities, and owners' equity?
A. Assets = Liabilities − Equity
B. Assets + Equity = Liabilities
C. Assets = Liabilities + Equity
D. Equity = Assets + Liabilities
Answer: C. Assets = Liabilities + Equity
Rationale: Every company's resources are financed either through creditor
obligations or through owners' claims, creating the fundamental accounting
equation.
,5. A company receives cash from customers before providing the contracted
service. How should the amount initially be classified?
A. Revenue
B. Expense
C. Unearned revenue
D. Accounts receivable
Answer: C. Unearned revenue
Rationale: Cash received before performance creates an obligation to provide
future goods or services, so it represents a liability initially.
6. Which transaction increases both total assets and total liabilities without
immediately affecting owners' equity?
A. Paying an existing creditor
B. Purchasing equipment on credit
C. Paying employee salaries
D. Receiving cash from an owner
Answer: B. Purchasing equipment on credit
Rationale: Buying equipment on credit increases equipment assets while
simultaneously creating an accounts payable or other liability.
, 7. Which financial statement provides information about a company's assets,
liabilities, and equity at a specific point in time?
A. Income statement
B. Balance sheet
C. Cash flow statement
D. Retained earnings statement
Answer: B. Balance sheet
Rationale: The balance sheet presents the company's financial position by
reporting assets, liabilities, and equity at a particular date.
8. Why is the accrual basis of accounting generally more informative than cash-
basis accounting for business performance analysis?
A. It eliminates all accounting estimates
B. It records transactions only when cash changes hands
C. It recognizes economic activity when earned or incurred
D. It guarantees positive cash flow
Answer: C. It recognizes economic activity when earned or incurred
Rationale: Accrual accounting records economic events in the periods they occur,
improving comparisons between revenues and related expenses.
9. A company performs services worth $12,000 but allows the customer to pay
later. Which account should normally increase?
