Introduction to Financial Accounting
BUS-A 201 - INTRODUCTION TO FINANCIAL ACCOUNTING | EXAM
QUESTIONS AND CORRECT ANSWERS | VERIFIED FINANCIAL
ACCOUNTING LATEST 2026/2027
BUS-A 201 Introduction to Financial Accounting (3 cr.)
INTRODUCTION TO FINANCIAL ACCOUNTING
1. Which of the following best describes the primary purpose of financial
accounting?
A. To design the company's cost control systems
B. To calculate income taxes owed to the government
C. To provide useful information to external decision makers such as investors
and creditors
D. To prepare internal budgets for department managers
C. To provide useful information to external decision makers such as
investors and creditors
Financial accounting focuses on general-purpose reports for external users
like investors and lenders.
Page 1 of 52
, Introduction to Financial Accounting
2. The organization that currently sets generally accepted accounting
principles (GAAP) for public and private companies in the United States is
the:
A. Financial Accounting Standards Board (FASB)
B. American Institute of Certified Public Accountants (AICPA)
C. Public Company Accounting Oversight Board (PCAOB)
D. Internal Revenue Service (IRS)
A. Financial Accounting Standards Board (FASB)
FASB is the private-sector body authorized to establish U.S. GAAP.
3. The Securities and Exchange Commission (SEC) has legal authority to:
A. Set tax rates for corporations
B. Establish accounting and reporting requirements for publicly traded
companies
C. Issue International Financial Reporting Standards
D. Audit every public company annually
B. Establish accounting and reporting requirements for publicly traded
companies
Congress gave the SEC authority over reporting by public companies; it
largely delegates standard setting to FASB.
4. Which assumption holds that a business's financial records must be kept
separate from those of its owners?
A. Business entity assumption
B. Time period assumption
C. Going concern assumption
D. Monetary unit assumption
A. Business entity assumption
The business entity assumption treats the business as a unit separate from its
owners.
Page 2 of 52
, Introduction to Financial Accounting
5. The assumption that a company will continue operating long enough to
meet its objectives and commitments is the:
A. Going concern assumption
B. Business entity assumption
C. Conservatism assumption
D. Periodicity assumption
A. Going concern assumption
Going concern supports recording assets at cost rather than liquidation value.
6. Under the historical cost principle, assets are generally recorded at:
A. Their expected future selling price
B. Their current market value at year-end
C. The price the seller originally paid
D. The amount paid to acquire them
D. The amount paid to acquire them
Cost is objective and verifiable at the date of acquisition.
7. The two fundamental qualitative characteristics of useful financial
information in the FASB conceptual framework are:
A. Verifiability and materiality
B. Relevance and faithful representation
C. Comparability and consistency
D. Timeliness and understandability
B. Relevance and faithful representation
Relevance and faithful representation are fundamental; the others are
enhancing characteristics.
8. Information is considered material if:
A. It has been audited by an independent CPA
B. It relates to long-term assets only
C. It exceeds $1,000 in amount
D. Omitting or misstating it could influence the decisions of financial
statement users
D. Omitting or misstating it could influence the decisions of financial
statement users
Materiality depends on whether the item could affect a user's decision.
Page 3 of 52
, Introduction to Financial Accounting
9. The basic accounting equation is:
A. Assets = Liabilities + Stockholders' Equity
B. Assets = Revenues − Liabilities
C. Revenues − Expenses = Assets
D. Assets + Liabilities = Stockholders' Equity
A. Assets = Liabilities + Stockholders' Equity
Resources owned equal the claims of creditors and owners.
10. Stockholders' equity consists of:
A. Assets and liabilities
B. Cash and accounts receivable
C. Common stock and retained earnings
D. Revenues and expenses only
C. Common stock and retained earnings
Contributed capital plus earned capital (retained earnings) make up equity.
11. If total assets are $480,000 and total liabilities are $195,000, stockholders'
equity equals:
A. $285,000
B. $675,000
C. $195,000
D. $480,000
A. $285,000
Equity = Assets − Liabilities = $480,000 − $195,000.
12. During the year, a company's assets increased by $60,000 and its liabilities
decreased by $15,000. Stockholders' equity must have:
A. Increased by $45,000
B. Decreased by $75,000
C. Decreased by $45,000
D. Increased by $75,000
D. Increased by $75,000
Change in equity = +60,000 − (−15,000) = +$75,000.
Page 4 of 52
BUS-A 201 - INTRODUCTION TO FINANCIAL ACCOUNTING | EXAM
QUESTIONS AND CORRECT ANSWERS | VERIFIED FINANCIAL
ACCOUNTING LATEST 2026/2027
BUS-A 201 Introduction to Financial Accounting (3 cr.)
INTRODUCTION TO FINANCIAL ACCOUNTING
1. Which of the following best describes the primary purpose of financial
accounting?
A. To design the company's cost control systems
B. To calculate income taxes owed to the government
C. To provide useful information to external decision makers such as investors
and creditors
D. To prepare internal budgets for department managers
C. To provide useful information to external decision makers such as
investors and creditors
Financial accounting focuses on general-purpose reports for external users
like investors and lenders.
Page 1 of 52
, Introduction to Financial Accounting
2. The organization that currently sets generally accepted accounting
principles (GAAP) for public and private companies in the United States is
the:
A. Financial Accounting Standards Board (FASB)
B. American Institute of Certified Public Accountants (AICPA)
C. Public Company Accounting Oversight Board (PCAOB)
D. Internal Revenue Service (IRS)
A. Financial Accounting Standards Board (FASB)
FASB is the private-sector body authorized to establish U.S. GAAP.
3. The Securities and Exchange Commission (SEC) has legal authority to:
A. Set tax rates for corporations
B. Establish accounting and reporting requirements for publicly traded
companies
C. Issue International Financial Reporting Standards
D. Audit every public company annually
B. Establish accounting and reporting requirements for publicly traded
companies
Congress gave the SEC authority over reporting by public companies; it
largely delegates standard setting to FASB.
4. Which assumption holds that a business's financial records must be kept
separate from those of its owners?
A. Business entity assumption
B. Time period assumption
C. Going concern assumption
D. Monetary unit assumption
A. Business entity assumption
The business entity assumption treats the business as a unit separate from its
owners.
Page 2 of 52
, Introduction to Financial Accounting
5. The assumption that a company will continue operating long enough to
meet its objectives and commitments is the:
A. Going concern assumption
B. Business entity assumption
C. Conservatism assumption
D. Periodicity assumption
A. Going concern assumption
Going concern supports recording assets at cost rather than liquidation value.
6. Under the historical cost principle, assets are generally recorded at:
A. Their expected future selling price
B. Their current market value at year-end
C. The price the seller originally paid
D. The amount paid to acquire them
D. The amount paid to acquire them
Cost is objective and verifiable at the date of acquisition.
7. The two fundamental qualitative characteristics of useful financial
information in the FASB conceptual framework are:
A. Verifiability and materiality
B. Relevance and faithful representation
C. Comparability and consistency
D. Timeliness and understandability
B. Relevance and faithful representation
Relevance and faithful representation are fundamental; the others are
enhancing characteristics.
8. Information is considered material if:
A. It has been audited by an independent CPA
B. It relates to long-term assets only
C. It exceeds $1,000 in amount
D. Omitting or misstating it could influence the decisions of financial
statement users
D. Omitting or misstating it could influence the decisions of financial
statement users
Materiality depends on whether the item could affect a user's decision.
Page 3 of 52
, Introduction to Financial Accounting
9. The basic accounting equation is:
A. Assets = Liabilities + Stockholders' Equity
B. Assets = Revenues − Liabilities
C. Revenues − Expenses = Assets
D. Assets + Liabilities = Stockholders' Equity
A. Assets = Liabilities + Stockholders' Equity
Resources owned equal the claims of creditors and owners.
10. Stockholders' equity consists of:
A. Assets and liabilities
B. Cash and accounts receivable
C. Common stock and retained earnings
D. Revenues and expenses only
C. Common stock and retained earnings
Contributed capital plus earned capital (retained earnings) make up equity.
11. If total assets are $480,000 and total liabilities are $195,000, stockholders'
equity equals:
A. $285,000
B. $675,000
C. $195,000
D. $480,000
A. $285,000
Equity = Assets − Liabilities = $480,000 − $195,000.
12. During the year, a company's assets increased by $60,000 and its liabilities
decreased by $15,000. Stockholders' equity must have:
A. Increased by $45,000
B. Decreased by $75,000
C. Decreased by $45,000
D. Increased by $75,000
D. Increased by $75,000
Change in equity = +60,000 − (−15,000) = +$75,000.
Page 4 of 52
