,Test Bank for Fundamental Accounting Principles, 25th Edition by John Wild 2025 latest release
Chapter 1: Accounting in Business
Section A: Multiple Choice Questions (1–60)
1. What is the primary purpose of accounting?
A) To record financial transactions
B) To eliminate business risk
C) To provide information for decision-making
D) To calculate taxes for the government
Correct Answer: C
Rationale: The primary purpose of accounting is to provide financial information that helps people make
better decisions.
2. The accounting equation is:
A) Assets + Liabilities = Equity
B) Assets = Liabilities + Equity
C) Revenues - Expenses = Net Income
D) Assets = Revenues - Expenses
Correct Answer: B
Rationale: The fundamental accounting equation is Assets = Liabilities + Equity.
3. Creditors are best described as:
A) Owners of the business
B) Those who owe money to the business
C) Individuals or entities to whom the business owes money
D) Government tax authorities
Correct Answer: C
Rationale: Creditors are individuals or entities to whom the business owes money.
4. Which of the following is an example of an asset?
A) Loan from the bank
,B) Accounts Payable
C) Office Supplies
D) Common Stock
Correct Answer: C
Rationale: Office Supplies is an asset. The others are liabilities or equity accounts.
5. Paying a cash dividend to shareholders will:
A) Increase assets and increase equity
B) Decrease assets and decrease equity
C) Increase liabilities and decrease equity
D) Have no effect on the accounting equation
Correct Answer: B
Rationale: Paying dividends decreases both assets (cash) and equity (retained earnings).
6. Which of the following is an external user of accounting information?
A) Purchasing manager
B) Human resource manager
C) Lender
D) Chief executive officer
Correct Answer: C
Rationale: Lenders are external users. Managers and the CEO are internal users.
7. The area of accounting aimed at serving the decision-making needs of internal users is:
A) Financial accounting
B) Managerial accounting
C) External auditing D) SEC reporting
Correct Answer: B
Rationale: Managerial accounting serves the decision-making needs of internal users.
8. Which of the following factors is NOT a component of the fraud triangle?
, A) Opportunity
B) Pressure
C) Rationalization
D) All of the above are components
Correct Answer: D
Rationale: The fraud triangle consists of opportunity, pressure, and rationalization.
9. A corporation is:
A) A business legally separate from its owners
B) Controlled by the FASB
C) Not responsible for its own acts and debts
D) The same as a limited liability partnership
Correct Answer: A
Rationale: A corporation is a business legally separate from its owners.
10. The group that sets international preferred accounting practices is called the:
A) AICPA
B) IASB
C) CAP
D) SEC
Correct Answer: B
Rationale: The IASB sets international accounting standards.
11. The accounting concept that requires every business to be accounted for separately from other
business entities is known as the: A) Time-period assumption
B) Business entity assumption
C) Going-concern assumption
D) Revenue recognition principle
Correct Answer: B
Rationale: The business entity assumption requires separation of business and personal records.
Chapter 1: Accounting in Business
Section A: Multiple Choice Questions (1–60)
1. What is the primary purpose of accounting?
A) To record financial transactions
B) To eliminate business risk
C) To provide information for decision-making
D) To calculate taxes for the government
Correct Answer: C
Rationale: The primary purpose of accounting is to provide financial information that helps people make
better decisions.
2. The accounting equation is:
A) Assets + Liabilities = Equity
B) Assets = Liabilities + Equity
C) Revenues - Expenses = Net Income
D) Assets = Revenues - Expenses
Correct Answer: B
Rationale: The fundamental accounting equation is Assets = Liabilities + Equity.
3. Creditors are best described as:
A) Owners of the business
B) Those who owe money to the business
C) Individuals or entities to whom the business owes money
D) Government tax authorities
Correct Answer: C
Rationale: Creditors are individuals or entities to whom the business owes money.
4. Which of the following is an example of an asset?
A) Loan from the bank
,B) Accounts Payable
C) Office Supplies
D) Common Stock
Correct Answer: C
Rationale: Office Supplies is an asset. The others are liabilities or equity accounts.
5. Paying a cash dividend to shareholders will:
A) Increase assets and increase equity
B) Decrease assets and decrease equity
C) Increase liabilities and decrease equity
D) Have no effect on the accounting equation
Correct Answer: B
Rationale: Paying dividends decreases both assets (cash) and equity (retained earnings).
6. Which of the following is an external user of accounting information?
A) Purchasing manager
B) Human resource manager
C) Lender
D) Chief executive officer
Correct Answer: C
Rationale: Lenders are external users. Managers and the CEO are internal users.
7. The area of accounting aimed at serving the decision-making needs of internal users is:
A) Financial accounting
B) Managerial accounting
C) External auditing D) SEC reporting
Correct Answer: B
Rationale: Managerial accounting serves the decision-making needs of internal users.
8. Which of the following factors is NOT a component of the fraud triangle?
, A) Opportunity
B) Pressure
C) Rationalization
D) All of the above are components
Correct Answer: D
Rationale: The fraud triangle consists of opportunity, pressure, and rationalization.
9. A corporation is:
A) A business legally separate from its owners
B) Controlled by the FASB
C) Not responsible for its own acts and debts
D) The same as a limited liability partnership
Correct Answer: A
Rationale: A corporation is a business legally separate from its owners.
10. The group that sets international preferred accounting practices is called the:
A) AICPA
B) IASB
C) CAP
D) SEC
Correct Answer: B
Rationale: The IASB sets international accounting standards.
11. The accounting concept that requires every business to be accounted for separately from other
business entities is known as the: A) Time-period assumption
B) Business entity assumption
C) Going-concern assumption
D) Revenue recognition principle
Correct Answer: B
Rationale: The business entity assumption requires separation of business and personal records.
