ACCT 5312 Exam 1 — 100 Practice Questions
with Answers
Section 1: Financial Statements & Accounting
Equation (Q1–20)
1. What are the four primary financial statements?
A) Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Changes in
Stockholders' Equity
B) Balance Sheet, Income Statement, Trial Balance, General Ledger
C) Income Statement, Cash Budget, Balance Sheet, Tax Return
D) Balance Sheet, Income Statement, Statement of Retained Earnings, Journal
Answer: A
Rationale: The four primary financial statements are the Balance Sheet, Income Statement,
Statement of Cash Flows, and Statement of Changes in Stockholders' Equity .
2. What does the balance sheet report?
A) Revenues and expenses for a period
B) Financial position at a point in time
C) Cash inflows and outflows
D) Changes in stockholders' equity
Answer: B
Rationale: The balance sheet reports financial position at a specific point in time, showing
assets, liabilities, and stockholders' equity .
3. What does the income statement report?
A) Financial position at a point in time
B) Revenues, expenses, gains, and losses for a period of time
C) Cash inflows and outflows
D) Changes in stockholders' equity
Answer: B
Rationale: The income statement reports revenues, expenses, gains, and losses for a period
of time .
4. What is the accounting equation?
,A) Assets = Liabilities + Stockholders' Equity
B) Assets + Liabilities = Stockholders' Equity
C) Assets = Liabilities - Stockholders' Equity
D) Liabilities = Assets + Stockholders' Equity
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities + Stockholders' Equity
.
5. What is the primary objective of financial reporting?
A) Provide information about a company's profitability
B) Provide useful financial information to existing and potential investors, lenders, and other
creditors
C) Ensure the company is profitable
D) Minimize taxes
Answer: B
Rationale: The primary objective of financial reporting is to provide useful information to
capital providers (investors, lenders, and other creditors) for decision-making .
6. What are the two fundamental qualitative characteristics of financial information?
A) Reliability and relevance
B) Relevance and faithful representation
C) Comparability and consistency
D) Materiality and conservatism
Answer: B
Rationale: The two fundamental qualitative characteristics are relevance and faithful
representation .
7. What are the enhancing qualitative characteristics of financial information?
A) Relevance and faithful representation
B) Comparability, verifiability, timeliness, and understandability
C) Materiality and conservatism
D) Reliability and consistency
Answer: B
Rationale: The enhancing characteristics are comparability, verifiability, timeliness, and
understandability .
8. What is the time frame associated with an income statement?
, A) A point in time
B) A past period of time
C) A future period of time
D) Any point in time
Answer: B
Rationale: The income statement reports results for a past period of time .
9. What is the time frame associated with a balance sheet?
A) A past period of time
B) A point in time
C) A future period of time
D) Any period of time
Answer: B
Rationale: The balance sheet reports financial position at a specific point in time .
10. What does the statement of cash flows show?
A) How cash changed during the period
B) Revenues and expenses
C) Financial position
D) Retained earnings
Answer: A
Rationale: The statement of cash flows shows how cash changed during the period .
11. What are the three sections of the statement of cash flows?
A) Operating, Investing, Financing
B) Revenue, Expense, Profit
C) Assets, Liabilities, Equity
D) Cash, Receivables, Payables
Answer: A
Rationale: The statement of cash flows is organized into operating, investing, and financing
activities .
12. Where is depreciation expense added back to net income?
A) Investing activities
B) Operating activities
C) Financing activities
D) Non-cash activities
with Answers
Section 1: Financial Statements & Accounting
Equation (Q1–20)
1. What are the four primary financial statements?
A) Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Changes in
Stockholders' Equity
B) Balance Sheet, Income Statement, Trial Balance, General Ledger
C) Income Statement, Cash Budget, Balance Sheet, Tax Return
D) Balance Sheet, Income Statement, Statement of Retained Earnings, Journal
Answer: A
Rationale: The four primary financial statements are the Balance Sheet, Income Statement,
Statement of Cash Flows, and Statement of Changes in Stockholders' Equity .
2. What does the balance sheet report?
A) Revenues and expenses for a period
B) Financial position at a point in time
C) Cash inflows and outflows
D) Changes in stockholders' equity
Answer: B
Rationale: The balance sheet reports financial position at a specific point in time, showing
assets, liabilities, and stockholders' equity .
3. What does the income statement report?
A) Financial position at a point in time
B) Revenues, expenses, gains, and losses for a period of time
C) Cash inflows and outflows
D) Changes in stockholders' equity
Answer: B
Rationale: The income statement reports revenues, expenses, gains, and losses for a period
of time .
4. What is the accounting equation?
,A) Assets = Liabilities + Stockholders' Equity
B) Assets + Liabilities = Stockholders' Equity
C) Assets = Liabilities - Stockholders' Equity
D) Liabilities = Assets + Stockholders' Equity
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities + Stockholders' Equity
.
5. What is the primary objective of financial reporting?
A) Provide information about a company's profitability
B) Provide useful financial information to existing and potential investors, lenders, and other
creditors
C) Ensure the company is profitable
D) Minimize taxes
Answer: B
Rationale: The primary objective of financial reporting is to provide useful information to
capital providers (investors, lenders, and other creditors) for decision-making .
6. What are the two fundamental qualitative characteristics of financial information?
A) Reliability and relevance
B) Relevance and faithful representation
C) Comparability and consistency
D) Materiality and conservatism
Answer: B
Rationale: The two fundamental qualitative characteristics are relevance and faithful
representation .
7. What are the enhancing qualitative characteristics of financial information?
A) Relevance and faithful representation
B) Comparability, verifiability, timeliness, and understandability
C) Materiality and conservatism
D) Reliability and consistency
Answer: B
Rationale: The enhancing characteristics are comparability, verifiability, timeliness, and
understandability .
8. What is the time frame associated with an income statement?
, A) A point in time
B) A past period of time
C) A future period of time
D) Any point in time
Answer: B
Rationale: The income statement reports results for a past period of time .
9. What is the time frame associated with a balance sheet?
A) A past period of time
B) A point in time
C) A future period of time
D) Any period of time
Answer: B
Rationale: The balance sheet reports financial position at a specific point in time .
10. What does the statement of cash flows show?
A) How cash changed during the period
B) Revenues and expenses
C) Financial position
D) Retained earnings
Answer: A
Rationale: The statement of cash flows shows how cash changed during the period .
11. What are the three sections of the statement of cash flows?
A) Operating, Investing, Financing
B) Revenue, Expense, Profit
C) Assets, Liabilities, Equity
D) Cash, Receivables, Payables
Answer: A
Rationale: The statement of cash flows is organized into operating, investing, and financing
activities .
12. Where is depreciation expense added back to net income?
A) Investing activities
B) Operating activities
C) Financing activities
D) Non-cash activities
