A100 Final Exam Indiana University with Complete
Questions and Answers Latest Update 2025/2026
A100 Final Exam – Indiana University
Latest Update 2025/2026
Complete Questions & Answers with Rationales
Section 1: Accounting & Financial Statements (Questions 1–10)
1. Which financial statement reports a company’s revenues and expenses over a specific
period?
A) Balance Sheet
B) Statement of Cash Flows
C) Income Statement
D) Statement of Retained Earnings
Correct Answer: C
Rationale: The income statement summarizes revenues, costs, and expenses to show net
profit/loss over a period. Balance sheet (A) shows assets/liabilities at a point in time. Cash
flow statement (B) tracks cash inflows/outflows. Statement of retained earnings (D) shows
changes in equity.
2. A company has assets of $500,000 and liabilities of $300,000. What is its owners’ equity?
A) $800,000
B) $200,000
C) $300,000
D) $500,000
Correct Answer: B
Rationale: Accounting equation: Assets = Liabilities + Equity → Equity = $500,000 – $300,000
= $200,000.
,3. Which principle requires recording expenses in the same period as the revenues they help
generate?
A) Conservatism
B) Matching
C) Revenue recognition
D) Materiality
Correct Answer: B
Rationale: Matching principle ensures expenses are matched with associated revenues for
accurate profitability. Revenue recognition (C) deals with when to record sales. Conservatism
(A) means understate assets/overstate liabilities if uncertain.
4. Depreciation is an example of:
A) A cash expense
B) A non-cash expense
C) A liability
D) An asset
Correct Answer: B
Rationale: Depreciation allocates cost of a long-term asset over its useful life but does not
involve cash outflow. It reduces net income but not cash flow.
5. Which ratio measures a company’s short-term liquidity?
A) Debt-to-equity
B) Return on equity
C) Current ratio
D) Gross profit margin
Correct Answer: C
Rationale: Current ratio (current assets / current liabilities) measures ability to pay short-
term obligations. Debt-to-equity (A) measures leverage. Return on equity (B) measures
profitability. Gross profit margin (D) measures sales efficiency.
6. A credit entry in a journal will:
A) Increase an asset
, B) Decrease a liability
C) Increase a liability or equity
D) Decrease revenue
Correct Answer: C
Rationale: In double-entry accounting, credits increase liabilities, equity, and revenue, while
debits increase assets and expenses.
7. If a company’s net income is $50,000 and it pays $10,000 in dividends, the retained
earnings will:
A) Increase by $40,000
B) Decrease by $40,000
C) Increase by $50,000
D) Remain unchanged
Correct Answer: A
Rationale: Retained earnings change = Net income – Dividends = $50,000 – $10,000 =
+$40,000.
8. Which financial statement answers “Where did cash come from and where did it go?”
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
Correct Answer: C
Rationale: Statement of cash flows categorizes cash into operating, investing, and financing
activities.
9. Prepaid rent is classified as:
A) An expense
B) A liability
C) An asset
D) Revenue
Questions and Answers Latest Update 2025/2026
A100 Final Exam – Indiana University
Latest Update 2025/2026
Complete Questions & Answers with Rationales
Section 1: Accounting & Financial Statements (Questions 1–10)
1. Which financial statement reports a company’s revenues and expenses over a specific
period?
A) Balance Sheet
B) Statement of Cash Flows
C) Income Statement
D) Statement of Retained Earnings
Correct Answer: C
Rationale: The income statement summarizes revenues, costs, and expenses to show net
profit/loss over a period. Balance sheet (A) shows assets/liabilities at a point in time. Cash
flow statement (B) tracks cash inflows/outflows. Statement of retained earnings (D) shows
changes in equity.
2. A company has assets of $500,000 and liabilities of $300,000. What is its owners’ equity?
A) $800,000
B) $200,000
C) $300,000
D) $500,000
Correct Answer: B
Rationale: Accounting equation: Assets = Liabilities + Equity → Equity = $500,000 – $300,000
= $200,000.
,3. Which principle requires recording expenses in the same period as the revenues they help
generate?
A) Conservatism
B) Matching
C) Revenue recognition
D) Materiality
Correct Answer: B
Rationale: Matching principle ensures expenses are matched with associated revenues for
accurate profitability. Revenue recognition (C) deals with when to record sales. Conservatism
(A) means understate assets/overstate liabilities if uncertain.
4. Depreciation is an example of:
A) A cash expense
B) A non-cash expense
C) A liability
D) An asset
Correct Answer: B
Rationale: Depreciation allocates cost of a long-term asset over its useful life but does not
involve cash outflow. It reduces net income but not cash flow.
5. Which ratio measures a company’s short-term liquidity?
A) Debt-to-equity
B) Return on equity
C) Current ratio
D) Gross profit margin
Correct Answer: C
Rationale: Current ratio (current assets / current liabilities) measures ability to pay short-
term obligations. Debt-to-equity (A) measures leverage. Return on equity (B) measures
profitability. Gross profit margin (D) measures sales efficiency.
6. A credit entry in a journal will:
A) Increase an asset
, B) Decrease a liability
C) Increase a liability or equity
D) Decrease revenue
Correct Answer: C
Rationale: In double-entry accounting, credits increase liabilities, equity, and revenue, while
debits increase assets and expenses.
7. If a company’s net income is $50,000 and it pays $10,000 in dividends, the retained
earnings will:
A) Increase by $40,000
B) Decrease by $40,000
C) Increase by $50,000
D) Remain unchanged
Correct Answer: A
Rationale: Retained earnings change = Net income – Dividends = $50,000 – $10,000 =
+$40,000.
8. Which financial statement answers “Where did cash come from and where did it go?”
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
Correct Answer: C
Rationale: Statement of cash flows categorizes cash into operating, investing, and financing
activities.
9. Prepaid rent is classified as:
A) An expense
B) A liability
C) An asset
D) Revenue
