DSST Principles of Financial Accounting 2 — Questions and Answers
Question 1: Which of the following is a current asset?
- Land
- Equipment
- Accounts Receivable (Correct answer)
- Patent
Correct answer: Accounts Receivable
Accounts receivable is a current asset because it is expected to be converted to cash within one year.
Question 2: Under the straight-line depreciation method, how is annual depreciation calculated?
- Cost divided by salvage value
- (Cost − Salvage Value) ÷ Useful Life (Correct answer)
- Cost × Depreciation Rate × Days Used
- Book Value × Depreciation Rate
Correct answer: (Cost − Salvage Value) ÷ Useful Life
Straight-line depreciation spreads the depreciable cost evenly over the asset's useful life using (Cost − Salvage Value) ÷ Useful Life.
Question 3: When a company pays a previously recorded account payable, which accounts are affected?
- Debit Cash; Credit Accounts Payable
- Debit Accounts Payable; Credit Cash (Correct answer)
- Debit Accounts Receivable; Credit Cash
- Debit Expense; Credit Cash
Correct answer: Debit Accounts Payable; Credit Cash
Paying an account payable reduces the liability (debit Accounts Payable) and reduces cash (credit Cash).
Question 4: Which accounting concept requires that expenses be recorded in the same period as the revenues they helped generate?
- Conservatism
- Full Disclosure
- Matching Principle (Correct answer)
- Consistency Principle
Correct answer: Matching Principle
The matching principle ensures expenses are recognized in the period they help generate revenue, enabling accurate profit measurement.
Question 5: A trial balance is prepared primarily to verify what?
- That revenues equal expenses
- That total debits equal total credits (Correct answer)
- That assets equal liabilities
- That all adjusting entries are posted
Correct answer: That total debits equal total credits
A trial balance lists all ledger accounts and their balances to confirm that total debits equal total credits before financial statements are prepared.
Question 6: Which financial statement shows the inflows and outflows of cash during a period?
- Balance Sheet
- Income Statement
- Statement of Cash Flows (Correct answer)
- Statement of Retained Earnings
Correct answer: Statement of Cash Flows
The statement of cash flows categorizes cash transactions into operating, investing, and financing activities.
DSST Principles of Financial Accounting 2
Which of the following is a current asset?