MGT 6201 ACCOUNTING EXAMINATION COMPLETE
QUESTIONS AND DETAILED SOLUTIONS LATEST UPDATE
THIS YEAR JUST RELEASED
1. Which financial statement primarily reports a company’s revenues and
expenses for a specific period?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
Answer: B. Income statement
Rationale: The income statement summarizes revenues, expenses, gains, and
losses to determine net income or net loss.
2. Which accounting equation must always remain in balance?
A. Assets = Liabilities − Equity
B. Assets + Equity = Liabilities
C. Assets = Liabilities + Equity
D. Revenues = Expenses + Assets
Answer: C. Assets = Liabilities + Equity
Rationale: Every recorded transaction affects the accounting equation while
preserving equality between assets, liabilities, and owners’ equity.
3. A company purchases equipment for cash. What is the immediate effect on
the accounting equation?
A. Assets increase
B. Assets decrease
C. One asset increases while another decreases
D. Liabilities increase
,Answer: C. One asset increases while another decreases
Rationale: Equipment increases while cash decreases by the same amount,
leaving total assets unchanged.
4. Which account normally carries a debit balance?
A. Accounts payable
B. Common stock
C. Service revenue
D. Accounts receivable
Answer: D. Accounts receivable
Rationale: Accounts receivable represents an asset, and asset accounts normally
have debit balances under double-entry accounting.
5. A company receives cash before providing services. Which account should
initially be credited?
A. Service revenue
B. Unearned revenue
C. Accounts receivable
D. Retained earnings
Answer: B. Unearned revenue
Rationale: Cash received before performance creates a liability because the
company still owes goods or services.
6. Which principle generally requires expenses to be recognized in the same
period as related revenues?
A. Matching principle
B. Cost principle
C. Going-concern principle
D. Full-disclosure principle
,Answer: A. Matching principle
Rationale: The matching principle associates expenses with revenues generated
during the same reporting period.
7. Under accrual accounting, revenue is generally recognized when:
A. Cash is collected
B. An invoice is printed
C. It is earned
D. Management approves payment
Answer: C. It is earned
Rationale: Accrual accounting recognizes revenue when earned rather than
waiting for the related cash collection.
8. Which transaction increases both an asset and a liability?
A. Paying accounts payable
B. Purchasing equipment on credit
C. Collecting an account receivable
D. Paying employee wages
Answer: B. Purchasing equipment on credit
Rationale: Equipment increases assets while the corresponding payable increases
liabilities by the purchase amount.
9. What is the primary purpose of a trial balance?
A. Calculate cash flow
B. Determine market value
C. Test equality of debits and credits
D. Prepare a budget
Answer: C. Test equality of debits and credits
Rationale: A trial balance verifies that total recorded debits equal total recorded
credits before financial statements are prepared.
, 10. Which account is classified as a current liability?
A. Equipment
B. Accounts receivable
C. Accounts payable
D. Retained earnings
Answer: C. Accounts payable
Rationale: Accounts payable represents obligations expected to be settled within
the normal operating cycle or current period.
11. A company has $80,000 in assets and $30,000 in liabilities. What is equity?
A. $30,000
B. $50,000
C. $80,000
D. $110,000
Answer: B. $50,000
Rationale: Equity equals assets minus liabilities, so $80,000 minus $30,000
produces $50,000.
12. Which financial statement reports assets, liabilities, and equity at a
particular date?
A. Income statement
B. Balance sheet
C. Cash-flow statement
D. Statement of changes in equity
Answer: B. Balance sheet
Rationale: The balance sheet presents financial position by listing assets,
liabilities, and equity at a specified date.
13. Which of the following is an operating expense?
A. Land
B. Accounts payable
QUESTIONS AND DETAILED SOLUTIONS LATEST UPDATE
THIS YEAR JUST RELEASED
1. Which financial statement primarily reports a company’s revenues and
expenses for a specific period?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
Answer: B. Income statement
Rationale: The income statement summarizes revenues, expenses, gains, and
losses to determine net income or net loss.
2. Which accounting equation must always remain in balance?
A. Assets = Liabilities − Equity
B. Assets + Equity = Liabilities
C. Assets = Liabilities + Equity
D. Revenues = Expenses + Assets
Answer: C. Assets = Liabilities + Equity
Rationale: Every recorded transaction affects the accounting equation while
preserving equality between assets, liabilities, and owners’ equity.
3. A company purchases equipment for cash. What is the immediate effect on
the accounting equation?
A. Assets increase
B. Assets decrease
C. One asset increases while another decreases
D. Liabilities increase
,Answer: C. One asset increases while another decreases
Rationale: Equipment increases while cash decreases by the same amount,
leaving total assets unchanged.
4. Which account normally carries a debit balance?
A. Accounts payable
B. Common stock
C. Service revenue
D. Accounts receivable
Answer: D. Accounts receivable
Rationale: Accounts receivable represents an asset, and asset accounts normally
have debit balances under double-entry accounting.
5. A company receives cash before providing services. Which account should
initially be credited?
A. Service revenue
B. Unearned revenue
C. Accounts receivable
D. Retained earnings
Answer: B. Unearned revenue
Rationale: Cash received before performance creates a liability because the
company still owes goods or services.
6. Which principle generally requires expenses to be recognized in the same
period as related revenues?
A. Matching principle
B. Cost principle
C. Going-concern principle
D. Full-disclosure principle
,Answer: A. Matching principle
Rationale: The matching principle associates expenses with revenues generated
during the same reporting period.
7. Under accrual accounting, revenue is generally recognized when:
A. Cash is collected
B. An invoice is printed
C. It is earned
D. Management approves payment
Answer: C. It is earned
Rationale: Accrual accounting recognizes revenue when earned rather than
waiting for the related cash collection.
8. Which transaction increases both an asset and a liability?
A. Paying accounts payable
B. Purchasing equipment on credit
C. Collecting an account receivable
D. Paying employee wages
Answer: B. Purchasing equipment on credit
Rationale: Equipment increases assets while the corresponding payable increases
liabilities by the purchase amount.
9. What is the primary purpose of a trial balance?
A. Calculate cash flow
B. Determine market value
C. Test equality of debits and credits
D. Prepare a budget
Answer: C. Test equality of debits and credits
Rationale: A trial balance verifies that total recorded debits equal total recorded
credits before financial statements are prepared.
, 10. Which account is classified as a current liability?
A. Equipment
B. Accounts receivable
C. Accounts payable
D. Retained earnings
Answer: C. Accounts payable
Rationale: Accounts payable represents obligations expected to be settled within
the normal operating cycle or current period.
11. A company has $80,000 in assets and $30,000 in liabilities. What is equity?
A. $30,000
B. $50,000
C. $80,000
D. $110,000
Answer: B. $50,000
Rationale: Equity equals assets minus liabilities, so $80,000 minus $30,000
produces $50,000.
12. Which financial statement reports assets, liabilities, and equity at a
particular date?
A. Income statement
B. Balance sheet
C. Cash-flow statement
D. Statement of changes in equity
Answer: B. Balance sheet
Rationale: The balance sheet presents financial position by listing assets,
liabilities, and equity at a specified date.
13. Which of the following is an operating expense?
A. Land
B. Accounts payable
