ACCTG 101 Final Exam Complete Solutions |
Journal Entries, Adjusting Entries, Financial
Statements, Budgets, Relevant Costs & Loan
Amortization | 2026 - BYU.
1. Which of the following is the correct fundamental accounting equation?
• A) Assets + Liabilities = Owner's Equity
• B) Assets = Liabilities + Owner's Equity
• C) Assets + Owner's Equity = Liabilities
• D) Assets = Liabilities - Owner's Equity
Answer: B
Rationale: The accounting equation is the foundation of double-entry
bookkeeping. Assets (what a company owns) must equal the claims against those
assets, which are from creditors (liabilities) and owners (owner's equity). This
equation must always balance.
2. If a company's total assets increase by $25,000 and total liabilities decrease
by $10,000, what is the change in owner's equity?
• A) Increase of $15,000
• B) Increase of $35,000
• C) Decrease of $15,000
• D) Decrease of $35,000
Answer: B
Rationale: Using the accounting equation: Assets = Liabilities + Owner's Equity. If
assets increase by $25,000 and liabilities decrease by $10,000, then owner's
equity must increase by $35,000 ($25,000 - (-$10,000) = $35,000).
,3. Which of the following is NOT an asset?
• A) Cash
• B) Accounts Receivable
• C) Accounts Payable
• D) Equipment
Answer: C
Rationale: Accounts Payable represents money owed to suppliers—it is a liability,
not an asset. Assets are resources owned by a business.
4. The resources owned by a business are called:
• A) Liabilities
• B) Owner's Equity
• C) Assets
• D) Revenues
Answer: C
Rationale: Assets are the economic resources owned by a business that are
expected to provide future economic benefits.
5. A company is considered a separate legal entity from its owners under which
concept?
• A) Materiality concept
• B) Economic entity assumption
• C) Going concern assumption
• D) Monetary unit assumption
Answer: B
Rationale: The economic entity assumption states that a business's financial
,activities are separate from its owners' personal activities. The company is treated
as a distinct legal and accounting entity.
6. Which of the following accounts has a normal debit balance?
• A) Service Revenue
• B) Accounts Payable
• C) Retained Earnings
• D) Equipment
Answer: D
Rationale: Asset accounts like Equipment have normal debit balances. Revenue,
liabilities, and equity accounts have normal credit balances.
7. Which of the following accounts has a normal credit balance?
• A) Cash
• B) Supplies
• C) Accounts Receivable
• D) Unearned Revenue
Answer: D
Rationale: Unearned Revenue is a liability account and has a normal credit
balance. Cash, Supplies, and Accounts Receivable are assets with normal debit
balances.
8. The historical cost principle requires assets to be recorded at:
• A) Fair market value
• B) Replacement cost
• C) Original cost
, • D) Net realizable value
Answer: C
Rationale: The historical cost principle states that assets should be recorded at
their original cost when acquired, not at their current market value.
9. Revenue is recognized when:
• A) Cash is received
• B) The performance obligation is satisfied
• C) A contract is signed
• D) The customer places an order
Answer: B
Rationale: Under the revenue recognition principle, revenue is recorded when
the performance obligation is satisfied—when goods are delivered or services are
performed, regardless of when cash is received.
10. Expenses are recognized:
• A) When cash is paid
• B) When the bill is received
• C) In the same period as the revenue they helped generate
• D) At the end of the year
Answer: C
Rationale: The matching principle requires expenses to be recognized in the same
accounting period as the revenues they helped generate, aligning with accrual-
basis accounting.
SECTION 2: JOURNAL ENTRIES (Questions 11–25)
Journal Entries, Adjusting Entries, Financial
Statements, Budgets, Relevant Costs & Loan
Amortization | 2026 - BYU.
1. Which of the following is the correct fundamental accounting equation?
• A) Assets + Liabilities = Owner's Equity
• B) Assets = Liabilities + Owner's Equity
• C) Assets + Owner's Equity = Liabilities
• D) Assets = Liabilities - Owner's Equity
Answer: B
Rationale: The accounting equation is the foundation of double-entry
bookkeeping. Assets (what a company owns) must equal the claims against those
assets, which are from creditors (liabilities) and owners (owner's equity). This
equation must always balance.
2. If a company's total assets increase by $25,000 and total liabilities decrease
by $10,000, what is the change in owner's equity?
• A) Increase of $15,000
• B) Increase of $35,000
• C) Decrease of $15,000
• D) Decrease of $35,000
Answer: B
Rationale: Using the accounting equation: Assets = Liabilities + Owner's Equity. If
assets increase by $25,000 and liabilities decrease by $10,000, then owner's
equity must increase by $35,000 ($25,000 - (-$10,000) = $35,000).
,3. Which of the following is NOT an asset?
• A) Cash
• B) Accounts Receivable
• C) Accounts Payable
• D) Equipment
Answer: C
Rationale: Accounts Payable represents money owed to suppliers—it is a liability,
not an asset. Assets are resources owned by a business.
4. The resources owned by a business are called:
• A) Liabilities
• B) Owner's Equity
• C) Assets
• D) Revenues
Answer: C
Rationale: Assets are the economic resources owned by a business that are
expected to provide future economic benefits.
5. A company is considered a separate legal entity from its owners under which
concept?
• A) Materiality concept
• B) Economic entity assumption
• C) Going concern assumption
• D) Monetary unit assumption
Answer: B
Rationale: The economic entity assumption states that a business's financial
,activities are separate from its owners' personal activities. The company is treated
as a distinct legal and accounting entity.
6. Which of the following accounts has a normal debit balance?
• A) Service Revenue
• B) Accounts Payable
• C) Retained Earnings
• D) Equipment
Answer: D
Rationale: Asset accounts like Equipment have normal debit balances. Revenue,
liabilities, and equity accounts have normal credit balances.
7. Which of the following accounts has a normal credit balance?
• A) Cash
• B) Supplies
• C) Accounts Receivable
• D) Unearned Revenue
Answer: D
Rationale: Unearned Revenue is a liability account and has a normal credit
balance. Cash, Supplies, and Accounts Receivable are assets with normal debit
balances.
8. The historical cost principle requires assets to be recorded at:
• A) Fair market value
• B) Replacement cost
• C) Original cost
, • D) Net realizable value
Answer: C
Rationale: The historical cost principle states that assets should be recorded at
their original cost when acquired, not at their current market value.
9. Revenue is recognized when:
• A) Cash is received
• B) The performance obligation is satisfied
• C) A contract is signed
• D) The customer places an order
Answer: B
Rationale: Under the revenue recognition principle, revenue is recorded when
the performance obligation is satisfied—when goods are delivered or services are
performed, regardless of when cash is received.
10. Expenses are recognized:
• A) When cash is paid
• B) When the bill is received
• C) In the same period as the revenue they helped generate
• D) At the end of the year
Answer: C
Rationale: The matching principle requires expenses to be recognized in the same
accounting period as the revenues they helped generate, aligning with accrual-
basis accounting.
SECTION 2: JOURNAL ENTRIES (Questions 11–25)
