A100 Final Exam IU VERSION 2
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of financial accounting?
A. To calculate taxes
B. To provide financial information to external users
C. To track company operations
D. To monitor employee performance
Financial accounting focuses on providing information to external parties
like investors and creditors.
2. Which of the following is reported on the income statement?
A. Dividends
B. Accounts receivable
,C. Revenues
D. Retained earnings
Revenues are reported on the income statement as they show performance
over a period.
3. Which account has a normal debit balance?
A. Accounts Payable
B. Cash
C. Service Revenue
D. Common Stock
Assets like Cash have a normal debit balance.
4. The accounting equation is:
A. Assets = Liabilities – Equity
B. Assets = Liabilities + Equity
C. Assets = Revenue – Expenses
D. Assets = Liabilities + Retained Earnings
The foundational accounting equation is Assets = Liabilities + Equity.
5. If a company purchases equipment with cash, what is the impact on
the accounting equation?
,A. No change in total assets
B. Increase in liabilities
C. Decrease in equity
D. Increase in assets
Cash (asset) decreases, equipment (asset) increases—total assets remain
the same.
6. Unearned Revenue is classified as:
A. Asset
B. Liability
C. Equity
D. Revenue
Unearned Revenue is a liability until the service or product is delivered.
7. Which financial statement shows a company’s financial position at a
point in time?
A. Income Statement
B. Statement of Cash Flows
C. Statement of Retained Earnings
D. Balance Sheet
, The Balance Sheet provides a snapshot of assets, liabilities, and equity at a
specific date.
8. Accrual accounting recognizes revenues:
A. When cash is received
B. At the end of the fiscal year
C. When earned, regardless of cash
D. Only for credit sales
Under accrual accounting, revenues are recognized when earned, not
when cash is received.
9. Which account is closed at the end of the accounting period?
A. Supplies
B. Accounts Payable
C. Service Revenue
D. Retained Earnings
Temporary accounts like Service Revenue are closed to Retained Earnings.
10. An adjusting journal entry to record depreciation includes:
A. Debit Depreciation Expense; Credit Accumulated Depreciation
B. Debit Equipment; Credit Cash
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of financial accounting?
A. To calculate taxes
B. To provide financial information to external users
C. To track company operations
D. To monitor employee performance
Financial accounting focuses on providing information to external parties
like investors and creditors.
2. Which of the following is reported on the income statement?
A. Dividends
B. Accounts receivable
,C. Revenues
D. Retained earnings
Revenues are reported on the income statement as they show performance
over a period.
3. Which account has a normal debit balance?
A. Accounts Payable
B. Cash
C. Service Revenue
D. Common Stock
Assets like Cash have a normal debit balance.
4. The accounting equation is:
A. Assets = Liabilities – Equity
B. Assets = Liabilities + Equity
C. Assets = Revenue – Expenses
D. Assets = Liabilities + Retained Earnings
The foundational accounting equation is Assets = Liabilities + Equity.
5. If a company purchases equipment with cash, what is the impact on
the accounting equation?
,A. No change in total assets
B. Increase in liabilities
C. Decrease in equity
D. Increase in assets
Cash (asset) decreases, equipment (asset) increases—total assets remain
the same.
6. Unearned Revenue is classified as:
A. Asset
B. Liability
C. Equity
D. Revenue
Unearned Revenue is a liability until the service or product is delivered.
7. Which financial statement shows a company’s financial position at a
point in time?
A. Income Statement
B. Statement of Cash Flows
C. Statement of Retained Earnings
D. Balance Sheet
, The Balance Sheet provides a snapshot of assets, liabilities, and equity at a
specific date.
8. Accrual accounting recognizes revenues:
A. When cash is received
B. At the end of the fiscal year
C. When earned, regardless of cash
D. Only for credit sales
Under accrual accounting, revenues are recognized when earned, not
when cash is received.
9. Which account is closed at the end of the accounting period?
A. Supplies
B. Accounts Payable
C. Service Revenue
D. Retained Earnings
Temporary accounts like Service Revenue are closed to Retained Earnings.
10. An adjusting journal entry to record depreciation includes:
A. Debit Depreciation Expense; Credit Accumulated Depreciation
B. Debit Equipment; Credit Cash
