Below is a comprehensive revision test set—with one representative question per chapter (Chapters 1–
26)—designed to help you review key concepts from the 25th Edition of Fundamental Accounting
Principles by Wild, Shaw, Larson, and others. Each question is followed by the correct answer and a brief
rationale explaining why that answer is correct. You can use these questions to self‐test your
understanding and as a basis for further study.
Chapter 1: The Accounting Environment
Question:
Which of the following best describes the primary purpose of financial accounting?
A. To provide information to internal managers for decision‐making
B. To measure and communicate financial performance to external users
C. To determine cost behavior for production decisions
D. To prepare detailed operational budgets
Answer: B
Rationale: Financial accounting is primarily concerned with measuring and communicating an entity’s
financial performance and position to external stakeholders (investors, creditors, regulators), whereas
internal decision-making is the focus of managerial accounting.
Chapter 2: The Recording Process
Question:
In the double-entry accounting system, every transaction must affect at least two accounts. This
principle is known as:
A. The Matching Principle
B. The Conservatism Principle
C. Duality
D. Materiality
Answer: C
Rationale: Duality requires that every transaction has a dual effect on the accounting equation. For
example, when a company borrows cash, it increases both cash (asset) and notes payable (liability).
Chapter 3: The Accrual Concept and Adjusting Entries
Question:
Under the accrual basis of accounting, revenues are recorded when they are:
A. Collected in cash
B. Earned
C. Billed
D. Approved by management
,Answer: B
Rationale: The accrual basis requires that revenues be recorded when earned, regardless of when cash
is received. This reflects the economic activity during the period.
Chapter 4: Adjusting Entries
Question:
Which of the following is an example of an adjusting entry at the end of an accounting period?
A. Recording the sale of equipment
B. Recognizing revenue that was earned but not yet billed
C. Issuing common stock for cash
D. Paying a supplier invoice
Answer: B
Rationale: Adjusting entries update account balances for revenues earned or expenses incurred that
have not yet been recorded; recognizing earned revenue not yet billed is a classic example.
Chapter 5: The Complete Accounting Cycle
Question:
The post-closing trial balance is prepared to:
A. Verify the accuracy of adjusting entries
B. Ensure that debits equal credits after closing entries are posted
C. Record the company’s first transactions for the new period
D. Prepare a bank reconciliation
Answer: B
Rationale: The post-closing trial balance confirms that the ledger is in balance after all closing entries
have been posted, ensuring that only permanent accounts remain.
Chapter 6: Cash and Internal Controls
Question:
Which internal control procedure is most effective in reducing the risk of theft of cash?
A. Having one employee record transactions and another reconcile bank statements
B. Permitting the same person to handle and record cash receipts
C. Allowing cash overages without investigation
D. Using a manual ledger for all cash transactions
Answer: A
Rationale: Segregation of duties—dividing responsibilities among different employees—helps prevent
fraud and errors by ensuring no one person has control over all aspects of cash handling and recording.
, Chapter 7: Receivables and Uncollectible Accounts
Question:
When using the allowance method, an increase in the estimated uncollectible accounts requires a(n):
A. Debit to Allowance for Doubtful Accounts
B. Credit to Bad Debt Expense
C. Debit to Bad Debt Expense
D. Credit to Accounts Receivable
Answer: C
Rationale: Under the allowance method, if uncollectible estimates increase, Bad Debt Expense is
debited (increased) while the Allowance for Doubtful Accounts is credited (increased) to reflect
anticipated losses.
Chapter 8: Inventory and Cost Flow Assumptions
Question:
Under the FIFO method, during a period of rising prices, the cost of goods sold is typically:
A. Lower than under LIFO
B. Higher than under LIFO
C. The same as under LIFO
D. Unaffected by the choice of cost flow assumption
Answer: A
Rationale: FIFO (First-In, First-Out) assumes that older, lower-cost items are sold first; in periods of rising
prices, this generally results in a lower cost of goods sold compared to LIFO, where the most recent
(higher cost) items are expensed first.
Chapter 9: Internal Control Over Inventory
Question:
A physical count of inventory is performed primarily to:
A. Increase the inventory balance on the books
B. Verify the accuracy of inventory records
C. Determine the selling price of products
D. Expedite the inventory turnover
Answer: B
Rationale: Physical counts help confirm the actual quantity on hand and ensure that the inventory
records are accurate, which is crucial for reliable financial reporting.
Chapter 10: Long-Term Assets
26)—designed to help you review key concepts from the 25th Edition of Fundamental Accounting
Principles by Wild, Shaw, Larson, and others. Each question is followed by the correct answer and a brief
rationale explaining why that answer is correct. You can use these questions to self‐test your
understanding and as a basis for further study.
Chapter 1: The Accounting Environment
Question:
Which of the following best describes the primary purpose of financial accounting?
A. To provide information to internal managers for decision‐making
B. To measure and communicate financial performance to external users
C. To determine cost behavior for production decisions
D. To prepare detailed operational budgets
Answer: B
Rationale: Financial accounting is primarily concerned with measuring and communicating an entity’s
financial performance and position to external stakeholders (investors, creditors, regulators), whereas
internal decision-making is the focus of managerial accounting.
Chapter 2: The Recording Process
Question:
In the double-entry accounting system, every transaction must affect at least two accounts. This
principle is known as:
A. The Matching Principle
B. The Conservatism Principle
C. Duality
D. Materiality
Answer: C
Rationale: Duality requires that every transaction has a dual effect on the accounting equation. For
example, when a company borrows cash, it increases both cash (asset) and notes payable (liability).
Chapter 3: The Accrual Concept and Adjusting Entries
Question:
Under the accrual basis of accounting, revenues are recorded when they are:
A. Collected in cash
B. Earned
C. Billed
D. Approved by management
,Answer: B
Rationale: The accrual basis requires that revenues be recorded when earned, regardless of when cash
is received. This reflects the economic activity during the period.
Chapter 4: Adjusting Entries
Question:
Which of the following is an example of an adjusting entry at the end of an accounting period?
A. Recording the sale of equipment
B. Recognizing revenue that was earned but not yet billed
C. Issuing common stock for cash
D. Paying a supplier invoice
Answer: B
Rationale: Adjusting entries update account balances for revenues earned or expenses incurred that
have not yet been recorded; recognizing earned revenue not yet billed is a classic example.
Chapter 5: The Complete Accounting Cycle
Question:
The post-closing trial balance is prepared to:
A. Verify the accuracy of adjusting entries
B. Ensure that debits equal credits after closing entries are posted
C. Record the company’s first transactions for the new period
D. Prepare a bank reconciliation
Answer: B
Rationale: The post-closing trial balance confirms that the ledger is in balance after all closing entries
have been posted, ensuring that only permanent accounts remain.
Chapter 6: Cash and Internal Controls
Question:
Which internal control procedure is most effective in reducing the risk of theft of cash?
A. Having one employee record transactions and another reconcile bank statements
B. Permitting the same person to handle and record cash receipts
C. Allowing cash overages without investigation
D. Using a manual ledger for all cash transactions
Answer: A
Rationale: Segregation of duties—dividing responsibilities among different employees—helps prevent
fraud and errors by ensuring no one person has control over all aspects of cash handling and recording.
, Chapter 7: Receivables and Uncollectible Accounts
Question:
When using the allowance method, an increase in the estimated uncollectible accounts requires a(n):
A. Debit to Allowance for Doubtful Accounts
B. Credit to Bad Debt Expense
C. Debit to Bad Debt Expense
D. Credit to Accounts Receivable
Answer: C
Rationale: Under the allowance method, if uncollectible estimates increase, Bad Debt Expense is
debited (increased) while the Allowance for Doubtful Accounts is credited (increased) to reflect
anticipated losses.
Chapter 8: Inventory and Cost Flow Assumptions
Question:
Under the FIFO method, during a period of rising prices, the cost of goods sold is typically:
A. Lower than under LIFO
B. Higher than under LIFO
C. The same as under LIFO
D. Unaffected by the choice of cost flow assumption
Answer: A
Rationale: FIFO (First-In, First-Out) assumes that older, lower-cost items are sold first; in periods of rising
prices, this generally results in a lower cost of goods sold compared to LIFO, where the most recent
(higher cost) items are expensed first.
Chapter 9: Internal Control Over Inventory
Question:
A physical count of inventory is performed primarily to:
A. Increase the inventory balance on the books
B. Verify the accuracy of inventory records
C. Determine the selling price of products
D. Expedite the inventory turnover
Answer: B
Rationale: Physical counts help confirm the actual quantity on hand and ensure that the inventory
records are accurate, which is crucial for reliable financial reporting.
Chapter 10: Long-Term Assets
