Business Degree Accounting Principles 1 — Questions and Answers
Question 1: The fundamental accounting equation states that Assets equal Liabilities plus ___.
- Revenue
- Expenses
- Owner's Equity (Correct answer)
- Net Income
Correct answer: Owner's Equity
The accounting equation (Assets = Liabilities + Owner's Equity) reflects that all assets are financed either by debt or by the owner's investment.
Question 2: Which financial statement shows a company's financial position at a specific point in time?
- Income Statement
- Balance Sheet (Correct answer)
- Cash Flow Statement
- Statement of Retained Earnings
Correct answer: Balance Sheet
The balance sheet is a snapshot of a company's assets, liabilities, and equity at a specific date, unlike other statements which cover a period.
Question 3: Double-entry bookkeeping requires that each financial transaction affects at least how many accounts?
- One
- Two (Correct answer)
- Three
- Four
Correct answer: Two
Double-entry bookkeeping records each transaction as both a debit and a credit, always affecting at least two accounts to maintain balance.
Question 4: Which of the following is an example of a current asset?
- Land
- Equipment
- Accounts Receivable (Correct answer)
- Patents
Correct answer: Accounts Receivable
Accounts receivable is a current asset because it is expected to be converted to cash within one year or the operating cycle.
Question 5: The principle that expenses should be recognized in the same period as the revenues they helped generate is called the:
- Revenue Recognition Principle
- Matching Principle (Correct answer)
- Historical Cost Principle
- Full Disclosure Principle
Correct answer: Matching Principle
The matching principle ensures that expenses are recorded in the same accounting period as the revenues they generated, providing an accurate picture of profitability.
Question 6: In double-entry bookkeeping, debits increase which type of account?
- Liabilities
- Owner's Equity
- Revenue
- Assets (Correct answer)
Correct answer: Assets
Debits increase asset and expense accounts, while credits increase liability, equity, and revenue accounts.
Question 7: Which inventory costing method assumes the most recently purchased items are sold first?
- FIFO
- LIFO (Correct answer)
- Weighted Average
- Specific Identification
Correct answer: LIFO
LIFO (Last-In, First-Out) assumes the most recently acquired inventory is the first to be sold, which can result in lower taxable income during periods of rising prices.
Business Degree Accounting Principles 1
The fundamental accounting equation states that Assets equal Liabilities plus ___.