ACCT 2000 LOWE-ARDOIN EXAM 1 Question And Correct Answers with Explanation Italic

ACCT 2000 LOWE-ARDOIN EXAM 1
Question And Correct Answers with
Explanation Italic

1. What are the three types of business activities?

 A) Financing, Investing, and Operating
 B) Planning, Directing, and Controlling
 C) Revenue, Expense, and Profit
 D) Assets, Liabilities, and Equity

Correct answer is A. Financing activities involve raising money to start and run the
business (e.g., borrowing, issuing stock). Investing activities involve purchasing the
resources needed to operate (e.g., equipment). Operating activities are the day-to-day
activities of a business (e.g., selling goods, paying expenses).




2. Easy transfer of ownership is a characteristic of which form of business
organization?

 A) Sole Proprietorship
 B) Partnership
 C) Corporation
 D) Non-Profit Organization

Correct answer is C. A major advantage of a corporation is that ownership is easily
transferred through the buying and selling of stock. Sole proprietorships and partnerships
do not offer this feature.

, 3. Which of the following is not an external user of accounting data?

 A) Investors
 B) Creditors
 C) Regulators
 D) Chief Accounting Officer

Correct answer is D. External users are those outside of the company, such as investors,
creditors, and regulators. The Chief Accounting Officer is an internal user, as they work
inside the company to plan, organize, and run the business.




4. Resources owned by a business are referred to as:

 A) Liabilities
 B) Assets
 C) Stockholders' Equity
 D) Expenses

Correct answer is B. Assets are the resources a business owns (e.g., cash, inventory,
equipment). Liabilities are what a business owes to others. Stockholders' equity is the
owners' claim on the assets.




5. What are the four financial statements in order of preparation?

 A) Balance Sheet, Income Statement, Retained Earnings Statement, Statement of Cash
Flows

, B) Statement of Cash Flows, Balance Sheet, Income Statement, Retained Earnings
Statement
 C) Income Statement, Retained Earnings Statement, Balance Sheet, Statement of
Cash Flows
 D) Retained Earnings Statement, Income Statement, Statement of Cash Flows, Balance
Sheet

Correct answer is C. The financial statements are prepared in a specific order because they
build on each other. Net income from the Income Statement is used to prepare the
Retained Earnings Statement. The ending retained earnings from that statement is then
used on the Balance Sheet. The Statement of Cash Flows is prepared last using
information from all the other statements.




6. Which of the following would be an example of an investing activity?

 A) Borrowing money from a bank
 B) Issuing shares of stock
 C) Purchasing delivery trucks
 D) Paying employee salaries

Correct answer is C. Investing activities involve the purchase of long-term assets a
business needs to operate. Borrowing money and issuing stock are financing activities.
Paying salaries is an operating activity.




📚 Exam 2 Practice Questions

7. From what document are financial statements prepared?

,  A) Unadjusted Trial Balance
 B) Adjusted Trial Balance
 C) General Journal
 D) Post-Closing Trial Balance

Correct answer is B. The Adjusted Trial Balance is prepared after all adjusting entries have
been made and posted. It contains the updated account balances and is the primary basis
for preparing the financial statements.




8. Which account is never affected by adjusting entries?

 A) Prepaid Insurance
 B) Service Revenue
 C) Cash
 D) Interest Payable

Correct answer is C. Adjusting entries are used to record revenues and expenses in the
period they are earned or incurred, which is the essence of accrual accounting. The Cash
account is only affected when actual cash is received or paid, which is not an adjusting
entry.




9. What is the first step in the accounting cycle?

 A) Analyze transactions
 B) Journalize transactions
 C) Post to ledger accounts
 D) Prepare a trial balance