Questions
1. What is the primary purpose of financial accounting? A) To assist in internal
management decisions
B) To provide financial information to external users
C) To facilitate tax preparation
D) To comply with government regulations
Answer: B
Rationale: Financial accounting primarily focuses on providing relevant financial
information to external stakeholders, such as investors and creditors.
2. Which of the following is not a primary financial statement? A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Tax Return
Answer: D
Rationale: Tax returns are not considered primary financial statements; they are related
to tax obligations.
3. Which accounting principle requires that revenue be recognized when earned? A)
Matching Principle
B) Revenue Recognition Principle
C) Cost Principle
D) Full Disclosure Principle
Answer: B
Rationale: The Revenue Recognition Principle dictates that revenue is recognized when
it is earned, regardless of when cash is received.
4. What does GAAP stand for? A) Generally Accepted Accounting Procedures
B) Generally Accepted Accounting Principles
C) Generally Acknowledged Accounting Practices
D) Generally Applicable Accounting Policies
Answer: B
Rationale: GAAP stands for Generally Accepted Accounting Principles, which provide
the framework for financial reporting in the U.S.
5. Which organization is primarily responsible for establishing accounting standards
in the United States? A) Financial Accounting Standards Board (FASB)
B) International Accounting Standards Board (IASB)
C) American Institute of CPAs (AICPA)
D) Securities and Exchange Commission (SEC)
Answer: A
Rationale: The FASB is the primary body responsible for establishing accounting
standards in the U.S.
6. What is the fundamental accounting equation? A) Assets = Liabilities + Revenue
B) Assets = Liabilities + Equity
C) Assets = Equity + Expenses
D) Assets = Revenue - Expenses
Answer: B
, Rationale: The fundamental accounting equation states that assets are equal to liabilities
plus equity.
7. Which of the following is an example of a current liability? A) Long-term debt
B) Accounts payable
C) Common stock
D) Land
Answer: B
Rationale: Accounts payable is a current liability as it is expected to be settled within
one year.
8. Which of the following characteristics is most important for financial information?
A) Timeliness
B) Historical Cost
C) Legal Compliance
D) Personal Relevance
Answer: A
Rationale: Timeliness is critical for financial information as it must be available when
needed for decision-making.
9. Under the accrual basis of accounting, expenses are recognized: A) When paid
B) When incurred
C) When billed
D) When the cash is collected
Answer: B
Rationale: Under the accrual basis, expenses are recognized when incurred, not
necessarily when paid.
10. Which of the following best describes the Full Disclosure Principle? A) All financial
statements must be audited
B) Financial statements should include all information that affects their understanding
C) Only material information needs to be disclosed
D) Financial statements can omit irrelevant details
Answer: B
Rationale: The Full Disclosure Principle requires that financial statements include all
relevant information that could influence users' decisions.
11. Which of the following financial statements shows a company's financial position at
a specific point in time? A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Answer: C
Rationale: The Balance Sheet presents a company's financial position at a specific date,
detailing assets, liabilities, and equity.
12. Which of the following is an example of a non-current asset? A) Cash
B) Inventory
C) Property, Plant, and Equipment
D) Accounts Receivable
Answer: C
1. What is the primary purpose of financial accounting? A) To assist in internal
management decisions
B) To provide financial information to external users
C) To facilitate tax preparation
D) To comply with government regulations
Answer: B
Rationale: Financial accounting primarily focuses on providing relevant financial
information to external stakeholders, such as investors and creditors.
2. Which of the following is not a primary financial statement? A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Tax Return
Answer: D
Rationale: Tax returns are not considered primary financial statements; they are related
to tax obligations.
3. Which accounting principle requires that revenue be recognized when earned? A)
Matching Principle
B) Revenue Recognition Principle
C) Cost Principle
D) Full Disclosure Principle
Answer: B
Rationale: The Revenue Recognition Principle dictates that revenue is recognized when
it is earned, regardless of when cash is received.
4. What does GAAP stand for? A) Generally Accepted Accounting Procedures
B) Generally Accepted Accounting Principles
C) Generally Acknowledged Accounting Practices
D) Generally Applicable Accounting Policies
Answer: B
Rationale: GAAP stands for Generally Accepted Accounting Principles, which provide
the framework for financial reporting in the U.S.
5. Which organization is primarily responsible for establishing accounting standards
in the United States? A) Financial Accounting Standards Board (FASB)
B) International Accounting Standards Board (IASB)
C) American Institute of CPAs (AICPA)
D) Securities and Exchange Commission (SEC)
Answer: A
Rationale: The FASB is the primary body responsible for establishing accounting
standards in the U.S.
6. What is the fundamental accounting equation? A) Assets = Liabilities + Revenue
B) Assets = Liabilities + Equity
C) Assets = Equity + Expenses
D) Assets = Revenue - Expenses
Answer: B
, Rationale: The fundamental accounting equation states that assets are equal to liabilities
plus equity.
7. Which of the following is an example of a current liability? A) Long-term debt
B) Accounts payable
C) Common stock
D) Land
Answer: B
Rationale: Accounts payable is a current liability as it is expected to be settled within
one year.
8. Which of the following characteristics is most important for financial information?
A) Timeliness
B) Historical Cost
C) Legal Compliance
D) Personal Relevance
Answer: A
Rationale: Timeliness is critical for financial information as it must be available when
needed for decision-making.
9. Under the accrual basis of accounting, expenses are recognized: A) When paid
B) When incurred
C) When billed
D) When the cash is collected
Answer: B
Rationale: Under the accrual basis, expenses are recognized when incurred, not
necessarily when paid.
10. Which of the following best describes the Full Disclosure Principle? A) All financial
statements must be audited
B) Financial statements should include all information that affects their understanding
C) Only material information needs to be disclosed
D) Financial statements can omit irrelevant details
Answer: B
Rationale: The Full Disclosure Principle requires that financial statements include all
relevant information that could influence users' decisions.
11. Which of the following financial statements shows a company's financial position at
a specific point in time? A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Answer: C
Rationale: The Balance Sheet presents a company's financial position at a specific date,
detailing assets, liabilities, and equity.
12. Which of the following is an example of a non-current asset? A) Cash
B) Inventory
C) Property, Plant, and Equipment
D) Accounts Receivable
Answer: C
