Ivy Software Financial Accounting Final
Exam 2026/2027 – Questions, Answers &
Detailed Solutions
TABLE OF CONTENTS
1. Accounting Foundations & Financial Statements
2. Accounting Cycle & Adjusting Entries
3. Cash, Receivables & Internal Controls
4. Inventory & Cost of Goods Sold
5. Property, Plant & Equipment
6. Liabilities & Payroll
7. Stockholders' Equity
8. Revenue Recognition & Income Measurement
9. Statement of Cash Flows
10.Financial Statement Analysis & Comprehensive Review
SECTION 1 — ACCOUNTING FOUNDATIONS & FINANCIAL STATEMENTS
1. What is the fundamental accounting equation?
A. Assets = Liabilities − Equity
B. Assets = Liabilities + Equity
C. Assets + Liabilities = Equity
D. Equity = Assets + Liabilities
Answer: B
Detailed solution: The fundamental accounting equation is Assets = Liabilities +
Stockholders' Equity. Assets represent resources controlled by the company,
while liabilities and equity represent claims against those resources.
,2. Which financial statement reports assets, liabilities, and equity at a specific
date?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Answer: C
Detailed solution: The balance sheet, also called the statement of financial
position, reports what a company owns and owes at a particular point in time.
3. Which financial statement primarily reports revenues and expenses?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of changes in equity
Answer: B
Detailed solution: The income statement summarizes revenues, expenses, gains,
and losses for a period and ultimately determines net income or net loss.
4. Which account normally has a debit balance?
A. Accounts payable
B. Common stock
C. Revenue
D. Cash
Answer: D
Detailed solution: Assets normally have debit balances. Cash is an asset, so
increases are recorded with debits and decreases with credits.
,5. Which account normally has a credit balance?
A. Equipment
B. Supplies
C. Accounts payable
D. Dividends
Answer: C
Detailed solution: Liabilities normally have credit balances. Accounts payable
represents amounts owed to suppliers.
6. A company purchases equipment for $20,000 cash. What is the effect on the
accounting equation?
A. Assets increase $20,000
B. Assets decrease $20,000
C. One asset increases $20,000 while another asset decreases $20,000
D. Liabilities increase $20,000
Answer: C
Detailed solution: Equipment increases by $20,000 while cash decreases by
$20,000. Total assets remain unchanged, and liabilities and equity are unaffected.
7. A company provides services for cash. Which effect occurs?
A. Assets increase and equity increases
B. Assets decrease and liabilities increase
C. Assets increase and liabilities decrease
D. Equity decreases
Answer: A
Detailed solution: Cash increases and service revenue increases equity through
net income. Therefore, both assets and equity increase.
, 8. Which principle requires expenses to be recognized in the period in which
they help generate revenue?
A. Historical cost principle
B. Matching principle
C. Monetary unit assumption
D. Going-concern assumption
Answer: B
Detailed solution: The matching concept requires expenses to be recognized in
the same reporting period as the revenues they help generate.
9. Which assumption states that a business is expected to continue operating
into the foreseeable future?
A. Economic entity
B. Going concern
C. Monetary unit
D. Periodicity
Answer: B
Detailed solution: The going-concern assumption means financial statements are
generally prepared on the basis that the entity will continue operating rather than
immediately liquidate.
10. The economic entity assumption means:
A. Owners and businesses are always identical
B. Business transactions are accounted for separately from owners' personal
transactions
C. Only corporations can prepare financial statements
D. Companies must use cash accounting
Answer: B
Exam 2026/2027 – Questions, Answers &
Detailed Solutions
TABLE OF CONTENTS
1. Accounting Foundations & Financial Statements
2. Accounting Cycle & Adjusting Entries
3. Cash, Receivables & Internal Controls
4. Inventory & Cost of Goods Sold
5. Property, Plant & Equipment
6. Liabilities & Payroll
7. Stockholders' Equity
8. Revenue Recognition & Income Measurement
9. Statement of Cash Flows
10.Financial Statement Analysis & Comprehensive Review
SECTION 1 — ACCOUNTING FOUNDATIONS & FINANCIAL STATEMENTS
1. What is the fundamental accounting equation?
A. Assets = Liabilities − Equity
B. Assets = Liabilities + Equity
C. Assets + Liabilities = Equity
D. Equity = Assets + Liabilities
Answer: B
Detailed solution: The fundamental accounting equation is Assets = Liabilities +
Stockholders' Equity. Assets represent resources controlled by the company,
while liabilities and equity represent claims against those resources.
,2. Which financial statement reports assets, liabilities, and equity at a specific
date?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Answer: C
Detailed solution: The balance sheet, also called the statement of financial
position, reports what a company owns and owes at a particular point in time.
3. Which financial statement primarily reports revenues and expenses?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of changes in equity
Answer: B
Detailed solution: The income statement summarizes revenues, expenses, gains,
and losses for a period and ultimately determines net income or net loss.
4. Which account normally has a debit balance?
A. Accounts payable
B. Common stock
C. Revenue
D. Cash
Answer: D
Detailed solution: Assets normally have debit balances. Cash is an asset, so
increases are recorded with debits and decreases with credits.
,5. Which account normally has a credit balance?
A. Equipment
B. Supplies
C. Accounts payable
D. Dividends
Answer: C
Detailed solution: Liabilities normally have credit balances. Accounts payable
represents amounts owed to suppliers.
6. A company purchases equipment for $20,000 cash. What is the effect on the
accounting equation?
A. Assets increase $20,000
B. Assets decrease $20,000
C. One asset increases $20,000 while another asset decreases $20,000
D. Liabilities increase $20,000
Answer: C
Detailed solution: Equipment increases by $20,000 while cash decreases by
$20,000. Total assets remain unchanged, and liabilities and equity are unaffected.
7. A company provides services for cash. Which effect occurs?
A. Assets increase and equity increases
B. Assets decrease and liabilities increase
C. Assets increase and liabilities decrease
D. Equity decreases
Answer: A
Detailed solution: Cash increases and service revenue increases equity through
net income. Therefore, both assets and equity increase.
, 8. Which principle requires expenses to be recognized in the period in which
they help generate revenue?
A. Historical cost principle
B. Matching principle
C. Monetary unit assumption
D. Going-concern assumption
Answer: B
Detailed solution: The matching concept requires expenses to be recognized in
the same reporting period as the revenues they help generate.
9. Which assumption states that a business is expected to continue operating
into the foreseeable future?
A. Economic entity
B. Going concern
C. Monetary unit
D. Periodicity
Answer: B
Detailed solution: The going-concern assumption means financial statements are
generally prepared on the basis that the entity will continue operating rather than
immediately liquidate.
10. The economic entity assumption means:
A. Owners and businesses are always identical
B. Business transactions are accounted for separately from owners' personal
transactions
C. Only corporations can prepare financial statements
D. Companies must use cash accounting
Answer: B
