1. What is the primary purpose of financial accounting?
A. To provide internal users with financial information
B. To provide external users with financial information
C. To ensure businesses pay the correct amount of taxes
D. To evaluate the company's management performance
Answer: B
Rationale: Financial accounting is designed primarily to provide financial information to
external users such as investors, creditors, and regulators.
2. Which of the following is a primary user of financial accounting information?
A. Management
B. Employees
C. Creditors
D. Internal auditors
Answer: C
Rationale: Creditors, investors, and regulators are the main users of financial accounting
information, while management uses managerial accounting information.
3. Which financial statement reports a company’s assets, liabilities, and equity?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Retained Earnings
Answer: C
Rationale: The balance sheet reports the financial position of a company at a specific point in
time, including its assets, liabilities, and stockholders' equity.
4. The principle that requires expenses to be recorded in the period in which they
are incurred to generate revenue is called:
A. Revenue Recognition Principle
B. Matching Principle
,C. Cost Principle
D. Full Disclosure Principle
Answer: B
Rationale: The matching principle requires that expenses be matched to the revenues they help
generate in the same accounting period.
5. Which of the following is the authoritative body that develops GAAP in the
United States?
A. SEC
B. IASB
C. FASB
D. AICPA
Answer: C
Rationale: The Financial Accounting Standards Board (FASB) is responsible for establishing
and improving Generally Accepted Accounting Principles (GAAP) in the U.S.
6. Which financial statement shows a company's profitability over a specific
period?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Stockholders' Equity
Answer: A
Rationale: The income statement reports a company's financial performance over a period of
time, including revenue, expenses, and profit or loss.
7. What is the primary purpose of an auditor's report?
A. To prepare the company's financial statements
B. To ensure that the financial statements are free of material misstatement
C. To manage the company’s accounting department
D. To calculate the company’s tax liability
, Answer: B
Rationale: The primary purpose of an auditor's report is to express an opinion on whether the
financial statements are presented fairly, in all material respects, in accordance with GAAP.
8. The Sarbanes-Oxley Act was enacted to address which of the following issues?
A. Tax evasion by corporations
B. Corporate governance and financial reporting integrity
C. Increasing the profitability of U.S. companies
D. Reducing corporate income tax rates
Answer: B
Rationale: The Sarbanes-Oxley Act (SOX) was passed to enhance the accuracy and reliability of
corporate financial reporting and increase transparency in financial disclosures.
9. What are the main sections of a balance sheet?
A. Revenues, expenses, and net income
B. Operating, investing, and financing activities
C. Assets, liabilities, and equity
D. Retained earnings, dividends, and stockholder’s equity
Answer: C
Rationale: The balance sheet consists of assets, liabilities, and equity, which represent the
financial position of a company at a given date.
10. The concept that financial information should be reported so that it is
understandable and useful to decision-makers refers to:
A. Materiality
B. Comparability
C. Relevance
D. Consistency
Answer: C
Rationale: Relevance means that financial information is capable of making a difference in the
decisions made by users.
A. To provide internal users with financial information
B. To provide external users with financial information
C. To ensure businesses pay the correct amount of taxes
D. To evaluate the company's management performance
Answer: B
Rationale: Financial accounting is designed primarily to provide financial information to
external users such as investors, creditors, and regulators.
2. Which of the following is a primary user of financial accounting information?
A. Management
B. Employees
C. Creditors
D. Internal auditors
Answer: C
Rationale: Creditors, investors, and regulators are the main users of financial accounting
information, while management uses managerial accounting information.
3. Which financial statement reports a company’s assets, liabilities, and equity?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Retained Earnings
Answer: C
Rationale: The balance sheet reports the financial position of a company at a specific point in
time, including its assets, liabilities, and stockholders' equity.
4. The principle that requires expenses to be recorded in the period in which they
are incurred to generate revenue is called:
A. Revenue Recognition Principle
B. Matching Principle
,C. Cost Principle
D. Full Disclosure Principle
Answer: B
Rationale: The matching principle requires that expenses be matched to the revenues they help
generate in the same accounting period.
5. Which of the following is the authoritative body that develops GAAP in the
United States?
A. SEC
B. IASB
C. FASB
D. AICPA
Answer: C
Rationale: The Financial Accounting Standards Board (FASB) is responsible for establishing
and improving Generally Accepted Accounting Principles (GAAP) in the U.S.
6. Which financial statement shows a company's profitability over a specific
period?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Stockholders' Equity
Answer: A
Rationale: The income statement reports a company's financial performance over a period of
time, including revenue, expenses, and profit or loss.
7. What is the primary purpose of an auditor's report?
A. To prepare the company's financial statements
B. To ensure that the financial statements are free of material misstatement
C. To manage the company’s accounting department
D. To calculate the company’s tax liability
, Answer: B
Rationale: The primary purpose of an auditor's report is to express an opinion on whether the
financial statements are presented fairly, in all material respects, in accordance with GAAP.
8. The Sarbanes-Oxley Act was enacted to address which of the following issues?
A. Tax evasion by corporations
B. Corporate governance and financial reporting integrity
C. Increasing the profitability of U.S. companies
D. Reducing corporate income tax rates
Answer: B
Rationale: The Sarbanes-Oxley Act (SOX) was passed to enhance the accuracy and reliability of
corporate financial reporting and increase transparency in financial disclosures.
9. What are the main sections of a balance sheet?
A. Revenues, expenses, and net income
B. Operating, investing, and financing activities
C. Assets, liabilities, and equity
D. Retained earnings, dividends, and stockholder’s equity
Answer: C
Rationale: The balance sheet consists of assets, liabilities, and equity, which represent the
financial position of a company at a given date.
10. The concept that financial information should be reported so that it is
understandable and useful to decision-makers refers to:
A. Materiality
B. Comparability
C. Relevance
D. Consistency
Answer: C
Rationale: Relevance means that financial information is capable of making a difference in the
decisions made by users.
