FUNDAMENTAL ACCOUNTING
PRINCIPLES COMPREHENSIVE EXAM PREP
QUESTIONS AND SOLUTIONS VERIFIED
STUDY RESOURCE
●● What are the two main components of double-entry accounting?
Answer: Debits and credits.
●● What is the accounting equation?
Answer: Assets = Liabilities + Equity.
●● What is the first step in the process from transactions to financial
statements?
Answer: Identify transaction and event from source documents.
●● What are source documents in accounting?
Answer: Source documents identify and describe transactions entering
the accounting system, such as bills, sales receipts, and checks.
●● What does the general ledger contain?
Answer: The general ledger is a record of all accounts and their
balances.
,●● What is a T-account used for?
Answer: A T-account represents a ledger account and is used to show the
effects of transactions.
●● What is the role of the chart of accounts?
Answer: The chart of accounts is a list of all accounts and includes an
identifying number for each account.
●● How do revenues and expenses affect equity?
Answer: Revenues increase equity, while expenses and dividends
decrease equity.
●● What is the debt ratio?
Answer: The debt ratio is a financial ratio that measures the proportion
of a company's assets that are financed by debt.
●● What is the process of journalizing transactions?
Answer: Journalizing transactions involves recording relevant
transactions in a journal.
●● What is the purpose of posting journal entries?
Answer: Posting journal entries involves transferring information from
the journal to the ledger accounts.
,●● What are the four steps in processing transactions?
Answer: 1. Identify transactions and source documents. 2. Analyze the
transaction using the accounting equation. 3. Record the journal entry. 4.
Post the entry.
●● What is an asset account?
Answer: An asset account records increases and decreases in assets such
as cash, accounts receivable, and equipment.
●● What is a liability account?
Answer: A liability account records increases and decreases in liabilities
such as accounts payable and notes payable.
●● What is an equity account?
Answer: An equity account records increases and decreases in owner's
equity, including capital and withdrawals.
●● What is the significance of the trial balance?
Answer: The trial balance is used to verify that total debits equal total
credits after posting transactions.
●● What is the difference between a debit and a credit?
, Answer: A debit increases asset or expense accounts and decreases
liability or equity accounts; a credit does the opposite.
●● What is the balance column account?
Answer: A balance column account is used in practice to summarize
account activity, showing debits, credits, and the balance.
●● What is the impact of providing services for cash on financial
statements?
Answer: It increases cash (an asset) and increases revenue, which
ultimately increases equity.
●● What does it mean to withdraw cash by the owner?
Answer: It decreases the owner's equity and reduces cash (an asset).
●● What is the significance of big data in accounting?
Answer: Big data refers to massive datasets that can provide insights
into financial trends and performance.
●● What are the 3 V's of big data?
Answer: Volume (amount of data), Velocity (speed of data processing),
and Variety (types of data).
●● What is the purpose of analyzing transactions?
PRINCIPLES COMPREHENSIVE EXAM PREP
QUESTIONS AND SOLUTIONS VERIFIED
STUDY RESOURCE
●● What are the two main components of double-entry accounting?
Answer: Debits and credits.
●● What is the accounting equation?
Answer: Assets = Liabilities + Equity.
●● What is the first step in the process from transactions to financial
statements?
Answer: Identify transaction and event from source documents.
●● What are source documents in accounting?
Answer: Source documents identify and describe transactions entering
the accounting system, such as bills, sales receipts, and checks.
●● What does the general ledger contain?
Answer: The general ledger is a record of all accounts and their
balances.
,●● What is a T-account used for?
Answer: A T-account represents a ledger account and is used to show the
effects of transactions.
●● What is the role of the chart of accounts?
Answer: The chart of accounts is a list of all accounts and includes an
identifying number for each account.
●● How do revenues and expenses affect equity?
Answer: Revenues increase equity, while expenses and dividends
decrease equity.
●● What is the debt ratio?
Answer: The debt ratio is a financial ratio that measures the proportion
of a company's assets that are financed by debt.
●● What is the process of journalizing transactions?
Answer: Journalizing transactions involves recording relevant
transactions in a journal.
●● What is the purpose of posting journal entries?
Answer: Posting journal entries involves transferring information from
the journal to the ledger accounts.
,●● What are the four steps in processing transactions?
Answer: 1. Identify transactions and source documents. 2. Analyze the
transaction using the accounting equation. 3. Record the journal entry. 4.
Post the entry.
●● What is an asset account?
Answer: An asset account records increases and decreases in assets such
as cash, accounts receivable, and equipment.
●● What is a liability account?
Answer: A liability account records increases and decreases in liabilities
such as accounts payable and notes payable.
●● What is an equity account?
Answer: An equity account records increases and decreases in owner's
equity, including capital and withdrawals.
●● What is the significance of the trial balance?
Answer: The trial balance is used to verify that total debits equal total
credits after posting transactions.
●● What is the difference between a debit and a credit?
, Answer: A debit increases asset or expense accounts and decreases
liability or equity accounts; a credit does the opposite.
●● What is the balance column account?
Answer: A balance column account is used in practice to summarize
account activity, showing debits, credits, and the balance.
●● What is the impact of providing services for cash on financial
statements?
Answer: It increases cash (an asset) and increases revenue, which
ultimately increases equity.
●● What does it mean to withdraw cash by the owner?
Answer: It decreases the owner's equity and reduces cash (an asset).
●● What is the significance of big data in accounting?
Answer: Big data refers to massive datasets that can provide insights
into financial trends and performance.
●● What are the 3 V's of big data?
Answer: Volume (amount of data), Velocity (speed of data processing),
and Variety (types of data).
●● What is the purpose of analyzing transactions?
