AAMI ACCOUNTING ONE — STUDY GUIDE | LATEST
UPDATE 2026/2027 | ACTUAL EXAM | PRACTICE
QUESTIONS AND ANSWERS | EXAM REVIEW | 100%
CORRECT ANSWERS | VERIFIED SOLUTIONS
Course/Program: AAMI Accounting One
Field of Study: Accounting, Financial Accounting, Bookkeeping, Business
Fundamentals
Level: Undergraduate, Introductory Accounting, Certificate Program
Edition: 2026–2027
Introduction
This comprehensive practice examination is designed for students
preparing for the AAMI Accounting One final exam. It contains 100
advanced multiple-choice questions covering the accounting cycle,
double-entry bookkeeping, journal entries, ledgers, trial balances,
adjusting entries, financial statements, inventory methods, cash
controls, receivables, depreciation, payroll, and internal controls. Each
question reflects real-world accounting scenarios and current GAAP
principles, with detailed rationales to reinforce understanding of core
accounting concepts. Use this document to assess readiness, identify
knowledge gaps, and strengthen preparation for the 2026–2027
examination cycle. All questions are original practice items and are not
from actual AAMI exams.
Table of Contents
1. Accounting Principles and the Accounting Equation
2. Journal Entries and Double-Entry Bookkeeping
3. Ledgers, Trial Balance, and Adjusting Entries
4. Financial Statements and Closing Process
,5. Inventory and Cost of Goods Sold
6. Cash, Bank Reconciliation, and Internal Controls
7. Receivables and Allowance for Doubtful Accounts
8. Depreciation and Long-Term Assets
9. Payroll and Liabilities
10. Business Transactions and Error Correction
1.
Which of the following is the basic accounting equation?
A) Assets = Liabilities − Equity
B) Assets = Liabilities + Equity
C) Liabilities = Assets + Equity
D) Equity = Assets + Liabilities
Correct Answer: B
The fundamental accounting equation is Assets = Liabilities + Owner's
Equity. This equation must always remain in balance, and it underlies
double-entry bookkeeping. Options A, C, and D incorrectly rearrange the
equation.
2.
A company purchases equipment for $5,000 cash. What is the effect on
the accounting equation?
A) Assets increase and liabilities increase
B) Assets increase and assets decrease
C) Assets increase and equity increases
D) Liabilities increase and equity decreases
,Correct Answer: B
Purchasing equipment with cash increases one asset (equipment) and
decreases another asset (cash) by the same amount, keeping total
assets unchanged and the equation balanced. There is no effect on
liabilities or equity.
3.
Which of the following is an example of a liability?
A) Accounts receivable
B) Prepaid insurance
C) Accounts payable
D) Inventory
Correct Answer: C
Accounts payable represents amounts owed to suppliers, a liability.
Accounts receivable and prepaid insurance are assets; inventory is an
asset. Liabilities are obligations to pay cash or provide services in the
future.
4.
Under accrual accounting, revenue is recognized when:
A) Cash is received
B) The service is performed or goods are delivered, regardless of when
cash is received
C) An invoice is mailed
D) The customer places an order
Correct Answer: B
Accrual accounting recognizes revenue when it is earned—when
services are performed or goods are delivered—not necessarily when
, cash is received. The revenue recognition principle requires that revenue
be recorded in the period it is earned.
5.
Which of the following is an expense under accrual accounting?
A) The cost of goods sold
B) A cash withdrawal by the owner
C) Payment of dividends
D) Purchase of land for future use
Correct Answer: A
Cost of goods sold is an expense recognized when inventory is sold.
Owner withdrawals and dividends are distributions of equity, not
expenses. Land purchased for future use is an asset, not an expense until
it is used or sold.
6.
A business pays $1,200 for a one-year insurance policy in advance.
What is the initial journal entry?
A) Debit Insurance Expense, credit Cash
B) Debit Prepaid Insurance, credit Cash
C) Debit Cash, credit Prepaid Insurance
D) Debit Insurance Expense, credit Prepaid Insurance
Correct Answer: B
The initial payment creates a prepaid asset because the insurance
benefits future periods. Debit Prepaid Insurance (asset) and credit Cash.
As time passes, an adjusting entry will debit Insurance Expense and
credit Prepaid Insurance.
7.
UPDATE 2026/2027 | ACTUAL EXAM | PRACTICE
QUESTIONS AND ANSWERS | EXAM REVIEW | 100%
CORRECT ANSWERS | VERIFIED SOLUTIONS
Course/Program: AAMI Accounting One
Field of Study: Accounting, Financial Accounting, Bookkeeping, Business
Fundamentals
Level: Undergraduate, Introductory Accounting, Certificate Program
Edition: 2026–2027
Introduction
This comprehensive practice examination is designed for students
preparing for the AAMI Accounting One final exam. It contains 100
advanced multiple-choice questions covering the accounting cycle,
double-entry bookkeeping, journal entries, ledgers, trial balances,
adjusting entries, financial statements, inventory methods, cash
controls, receivables, depreciation, payroll, and internal controls. Each
question reflects real-world accounting scenarios and current GAAP
principles, with detailed rationales to reinforce understanding of core
accounting concepts. Use this document to assess readiness, identify
knowledge gaps, and strengthen preparation for the 2026–2027
examination cycle. All questions are original practice items and are not
from actual AAMI exams.
Table of Contents
1. Accounting Principles and the Accounting Equation
2. Journal Entries and Double-Entry Bookkeeping
3. Ledgers, Trial Balance, and Adjusting Entries
4. Financial Statements and Closing Process
,5. Inventory and Cost of Goods Sold
6. Cash, Bank Reconciliation, and Internal Controls
7. Receivables and Allowance for Doubtful Accounts
8. Depreciation and Long-Term Assets
9. Payroll and Liabilities
10. Business Transactions and Error Correction
1.
Which of the following is the basic accounting equation?
A) Assets = Liabilities − Equity
B) Assets = Liabilities + Equity
C) Liabilities = Assets + Equity
D) Equity = Assets + Liabilities
Correct Answer: B
The fundamental accounting equation is Assets = Liabilities + Owner's
Equity. This equation must always remain in balance, and it underlies
double-entry bookkeeping. Options A, C, and D incorrectly rearrange the
equation.
2.
A company purchases equipment for $5,000 cash. What is the effect on
the accounting equation?
A) Assets increase and liabilities increase
B) Assets increase and assets decrease
C) Assets increase and equity increases
D) Liabilities increase and equity decreases
,Correct Answer: B
Purchasing equipment with cash increases one asset (equipment) and
decreases another asset (cash) by the same amount, keeping total
assets unchanged and the equation balanced. There is no effect on
liabilities or equity.
3.
Which of the following is an example of a liability?
A) Accounts receivable
B) Prepaid insurance
C) Accounts payable
D) Inventory
Correct Answer: C
Accounts payable represents amounts owed to suppliers, a liability.
Accounts receivable and prepaid insurance are assets; inventory is an
asset. Liabilities are obligations to pay cash or provide services in the
future.
4.
Under accrual accounting, revenue is recognized when:
A) Cash is received
B) The service is performed or goods are delivered, regardless of when
cash is received
C) An invoice is mailed
D) The customer places an order
Correct Answer: B
Accrual accounting recognizes revenue when it is earned—when
services are performed or goods are delivered—not necessarily when
, cash is received. The revenue recognition principle requires that revenue
be recorded in the period it is earned.
5.
Which of the following is an expense under accrual accounting?
A) The cost of goods sold
B) A cash withdrawal by the owner
C) Payment of dividends
D) Purchase of land for future use
Correct Answer: A
Cost of goods sold is an expense recognized when inventory is sold.
Owner withdrawals and dividends are distributions of equity, not
expenses. Land purchased for future use is an asset, not an expense until
it is used or sold.
6.
A business pays $1,200 for a one-year insurance policy in advance.
What is the initial journal entry?
A) Debit Insurance Expense, credit Cash
B) Debit Prepaid Insurance, credit Cash
C) Debit Cash, credit Prepaid Insurance
D) Debit Insurance Expense, credit Prepaid Insurance
Correct Answer: B
The initial payment creates a prepaid asset because the insurance
benefits future periods. Debit Prepaid Insurance (asset) and credit Cash.
As time passes, an adjusting entry will debit Insurance Expense and
credit Prepaid Insurance.
7.
