Financial Accounting Principles and Practices: A
Comprehensive Overview - Prof. Mumo (2026/2027)
Financial Accounting & Reporting | Key Domains: The Accounting Cycle & Financial Statements,
Revenue Recognition & Expense Matching Principles, Asset Valuation (Cash, Receivables, Inventory,
PPE), Liability & Equity Accounting, and Financial Statement Analysis (Ratio Analysis, Cash Flows) |
Expert-Aligned Structure | Multiple-Choice Q&A Format
Introduction
This structured Financial Accounting Overview for 2026/2027 provides 75 multiple-choice
questions with correct answers and rationales. It offers a comprehensive review of Generally
Accepted Accounting Principles (GAAP), the preparation and interpretation of financial statements,
and the accounting treatments for major balance sheet and income statement items.
Q&A Structure:
• Financial Accounting Practice Bank: (75 MULTIPLE-CHOICE QUESTIONS)
Answer Format
All correct answers, journal entries, and accounting treatments must appear in bold and cyan blue,
accompanied by concise rationales explaining the applicable GAAP principle (e.g., "The matching
principle requires expenses to be recorded in the same period as the revenues they help generate"),
the correct journal entry for a transaction, the calculation for an asset's book value (e.g., cost minus
accumulated depreciation), the interpretation of a financial ratio (e.g., "A current ratio below 1.0
may indicate liquidity problems"), and why the alternative multiple-choice options violate
accounting principles, contain calculation errors, or misrepresent financial reporting standards.
1. Which financial statement reports 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
The balance sheet shows assets, liabilities, and equity as of a specific date (e.g., December 31, 2026).
The income statement (A) and cash flow statement (B) cover a period; retained earnings (D) is a
component of equity.
2. According to the revenue recognition principle, when should revenue be recognized?
A. When cash is received
B. When goods are delivered or services are performed, regardless of cash receipt
C. At the end of the fiscal year
D. When the customer places an order
GAAP requires revenue to be recognized when it is earned—i.e., when performance obligations are
satisfied—not when cash is collected. This aligns with accrual accounting. Cash basis (A) is not
GAAP-compliant for most businesses.
,3. What is the correct journal entry to record the purchase of equipment for $10,000 cash?
A. Debit Equipment $10,000; Credit Accounts Payable $10,000
B. Debit Equipment $10,000; Credit Cash $10,000
C. Debit Cash $10,000; Credit Equipment $10,000
D. Debit Depreciation Expense $10,000; Credit Cash $10,000
Equipment is an asset that increases with a debit; cash decreases with a credit. No liability is created
(A); reversing debits/credits (C) is incorrect; depreciation is recorded over time, not at purchase (D).
4. Which accounting principle states that expenses should be matched with the revenues
they help generate?
A. Historical Cost Principle
B. Conservatism Principle
C. Matching Principle
D. Full Disclosure Principle
, The matching principle ensures that expenses are reported in the same period as related revenues,
providing a more accurate measure of profitability. Historical cost (A) values assets at acquisition
price; conservatism (B) anticipates losses but not gains.
5. A company has current assets of $50,000 and current liabilities of $40,000. What is its
current ratio?
A. 0.8
B. 1.0
C. 1.25
D. 2.0
Current ratio = Current Assets / Current Liabilities = $50,000 / $40,000 = 1.25. A ratio >1 indicates
sufficient short-term assets to cover short-term obligations. Option A would indicate potential liquidity
issues.
6. What is the book value of a machine that cost $20,000 with accumulated depreciation of
$8,000?
A. $28,000
B. $20,000
Comprehensive Overview - Prof. Mumo (2026/2027)
Financial Accounting & Reporting | Key Domains: The Accounting Cycle & Financial Statements,
Revenue Recognition & Expense Matching Principles, Asset Valuation (Cash, Receivables, Inventory,
PPE), Liability & Equity Accounting, and Financial Statement Analysis (Ratio Analysis, Cash Flows) |
Expert-Aligned Structure | Multiple-Choice Q&A Format
Introduction
This structured Financial Accounting Overview for 2026/2027 provides 75 multiple-choice
questions with correct answers and rationales. It offers a comprehensive review of Generally
Accepted Accounting Principles (GAAP), the preparation and interpretation of financial statements,
and the accounting treatments for major balance sheet and income statement items.
Q&A Structure:
• Financial Accounting Practice Bank: (75 MULTIPLE-CHOICE QUESTIONS)
Answer Format
All correct answers, journal entries, and accounting treatments must appear in bold and cyan blue,
accompanied by concise rationales explaining the applicable GAAP principle (e.g., "The matching
principle requires expenses to be recorded in the same period as the revenues they help generate"),
the correct journal entry for a transaction, the calculation for an asset's book value (e.g., cost minus
accumulated depreciation), the interpretation of a financial ratio (e.g., "A current ratio below 1.0
may indicate liquidity problems"), and why the alternative multiple-choice options violate
accounting principles, contain calculation errors, or misrepresent financial reporting standards.
1. Which financial statement reports 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
The balance sheet shows assets, liabilities, and equity as of a specific date (e.g., December 31, 2026).
The income statement (A) and cash flow statement (B) cover a period; retained earnings (D) is a
component of equity.
2. According to the revenue recognition principle, when should revenue be recognized?
A. When cash is received
B. When goods are delivered or services are performed, regardless of cash receipt
C. At the end of the fiscal year
D. When the customer places an order
GAAP requires revenue to be recognized when it is earned—i.e., when performance obligations are
satisfied—not when cash is collected. This aligns with accrual accounting. Cash basis (A) is not
GAAP-compliant for most businesses.
,3. What is the correct journal entry to record the purchase of equipment for $10,000 cash?
A. Debit Equipment $10,000; Credit Accounts Payable $10,000
B. Debit Equipment $10,000; Credit Cash $10,000
C. Debit Cash $10,000; Credit Equipment $10,000
D. Debit Depreciation Expense $10,000; Credit Cash $10,000
Equipment is an asset that increases with a debit; cash decreases with a credit. No liability is created
(A); reversing debits/credits (C) is incorrect; depreciation is recorded over time, not at purchase (D).
4. Which accounting principle states that expenses should be matched with the revenues
they help generate?
A. Historical Cost Principle
B. Conservatism Principle
C. Matching Principle
D. Full Disclosure Principle
, The matching principle ensures that expenses are reported in the same period as related revenues,
providing a more accurate measure of profitability. Historical cost (A) values assets at acquisition
price; conservatism (B) anticipates losses but not gains.
5. A company has current assets of $50,000 and current liabilities of $40,000. What is its
current ratio?
A. 0.8
B. 1.0
C. 1.25
D. 2.0
Current ratio = Current Assets / Current Liabilities = $50,000 / $40,000 = 1.25. A ratio >1 indicates
sufficient short-term assets to cover short-term obligations. Option A would indicate potential liquidity
issues.
6. What is the book value of a machine that cost $20,000 with accumulated depreciation of
$8,000?
A. $28,000
B. $20,000
