Test Bank Financial Accounting Carl S Warren
Jefferson P Jones William B Tayler Exam
2026&2027
,1. Which of the following is the primary purpose of financial
accounting?
A. To prepare employee schedules
B. To provide financial information to external users
C. To determine employee salaries
D. To establish marketing strategies
Answer: B. To provide financial information to external users
Financial accounting provides useful financial information to
investors, creditors, and other external decision-makers.
2. Which financial statement reports assets, liabilities, and
stockholders' equity?
A. Income statement
B. Statement of retained earnings
C. Balance sheet
D. Statement of cash flows
Answer: C. Balance sheet
The balance sheet reports the financial position of a business at a
specific date.
3. The basic accounting equation is:
A. Assets = Liabilities − Stockholders' Equity
B. Assets = Liabilities + Stockholders' Equity
C. Assets + Liabilities = Stockholders' Equity
D. Assets + Equity = Liabilities
Answer: B. Assets = Liabilities + Stockholders' Equity
The accounting equation establishes the fundamental relationship
among assets, liabilities, and equity.
,4. Which of the following is an asset?
A. Accounts payable
B. Common stock
C. Equipment
D. Service revenue
Answer: C. Equipment
Equipment is a resource owned by a business and therefore qualifies
as an asset.
5. Which account represents an obligation owed to an outside
party?
A. Asset
B. Liability
C. Revenue
D. Expense
Answer: B. Liability
Liabilities are amounts the business owes to creditors or other
parties.
6. Which transaction increases both assets and stockholders'
equity?
A. Payment of an account payable
B. Purchase of equipment for cash
C. Owner investment of cash
D. Payment of an expense
Answer: C. Owner investment of cash
, An investment increases cash, an asset, and increases the owner's or
shareholders' equity.
7. If total assets are $80,000 and total liabilities are $30,000,
stockholders' equity is:
A. $30,000
B. $40,000
C. $50,000
D. $110,000
Answer: C. $50,000
Using Assets = Liabilities + Equity, equity equals $80,000 − $30,000 =
$50,000.
8. Which account normally has a debit balance?
A. Revenue
B. Liability
C. Asset
D. Common stock
Answer: C. Asset
Assets normally have debit balances.
9. Which account normally has a credit balance?
A. Cash
B. Supplies
C. Accounts receivable
D. Accounts payable
Answer: D. Accounts payable
Jefferson P Jones William B Tayler Exam
2026&2027
,1. Which of the following is the primary purpose of financial
accounting?
A. To prepare employee schedules
B. To provide financial information to external users
C. To determine employee salaries
D. To establish marketing strategies
Answer: B. To provide financial information to external users
Financial accounting provides useful financial information to
investors, creditors, and other external decision-makers.
2. Which financial statement reports assets, liabilities, and
stockholders' equity?
A. Income statement
B. Statement of retained earnings
C. Balance sheet
D. Statement of cash flows
Answer: C. Balance sheet
The balance sheet reports the financial position of a business at a
specific date.
3. The basic accounting equation is:
A. Assets = Liabilities − Stockholders' Equity
B. Assets = Liabilities + Stockholders' Equity
C. Assets + Liabilities = Stockholders' Equity
D. Assets + Equity = Liabilities
Answer: B. Assets = Liabilities + Stockholders' Equity
The accounting equation establishes the fundamental relationship
among assets, liabilities, and equity.
,4. Which of the following is an asset?
A. Accounts payable
B. Common stock
C. Equipment
D. Service revenue
Answer: C. Equipment
Equipment is a resource owned by a business and therefore qualifies
as an asset.
5. Which account represents an obligation owed to an outside
party?
A. Asset
B. Liability
C. Revenue
D. Expense
Answer: B. Liability
Liabilities are amounts the business owes to creditors or other
parties.
6. Which transaction increases both assets and stockholders'
equity?
A. Payment of an account payable
B. Purchase of equipment for cash
C. Owner investment of cash
D. Payment of an expense
Answer: C. Owner investment of cash
, An investment increases cash, an asset, and increases the owner's or
shareholders' equity.
7. If total assets are $80,000 and total liabilities are $30,000,
stockholders' equity is:
A. $30,000
B. $40,000
C. $50,000
D. $110,000
Answer: C. $50,000
Using Assets = Liabilities + Equity, equity equals $80,000 − $30,000 =
$50,000.
8. Which account normally has a debit balance?
A. Revenue
B. Liability
C. Asset
D. Common stock
Answer: C. Asset
Assets normally have debit balances.
9. Which account normally has a credit balance?
A. Cash
B. Supplies
C. Accounts receivable
D. Accounts payable
Answer: D. Accounts payable
