DSST Principles of Financial Accounting 1 — Questions and Answers
Question 1: Which financial statement reports a company's revenues and expenses over a specific period?
- Balance Sheet
- Income Statement (Correct answer)
- Cash Flow Statement
- Statement of Retained Earnings
Correct answer: Income Statement
The income statement summarizes a company's revenues and expenses to show net income or loss for a given period.
Question 2: In double-entry bookkeeping, every transaction affects at least how many accounts?
- One
- Two (Correct answer)
- Three
- Four
Correct answer: Two
Double-entry bookkeeping requires every transaction to be recorded as a debit in one account and a credit in another.
Question 3: Which accounting principle states that revenue should be recognized when earned, regardless of when cash is received?
- Matching Principle
- Cost Principle
- Revenue Recognition Principle (Correct answer)
- Conservatism Principle
Correct answer: Revenue Recognition Principle
The revenue recognition principle under accrual accounting requires revenue to be recorded when it is earned, not when cash is collected.
Question 4: What is the accounting equation?
- Assets = Liabilities + Owner's Equity (Correct answer)
- Assets + Liabilities = Owner's Equity
- Revenue − Expenses = Net Income
- Assets − Owner's Equity = Net Income
Correct answer: Assets = Liabilities + Owner's Equity
The fundamental accounting equation, Assets = Liabilities + Owner's Equity, must always remain in balance.
Question 5: Which inventory valuation method assumes the most recently purchased goods are sold first?
- FIFO
- LIFO (Correct answer)
- Weighted Average
- Specific Identification
Correct answer: LIFO
LIFO (Last-In, First-Out) assumes the last units purchased are the first units sold.
Question 6: Accumulated depreciation on the balance sheet is classified as which type of account?
- Liability
- Contra-asset (Correct answer)
- Owner's equity
- Revenue
Correct answer: Contra-asset
Accumulated depreciation is a contra-asset account that reduces the book value of the related fixed asset on the balance sheet.
DSST Principles of Financial Accounting 1
Which financial statement reports a company's revenues and expenses over a specific period?