FBLA Accounting 2 — Questions and Answers
Question 1: Which financial statement shows a company's revenues and expenses over a specific period?
- Balance Sheet
- Income Statement (Correct answer)
- Statement of Cash Flows
- Statement of Retained Earnings
Correct answer: Income Statement
The income statement reports revenues and expenses during a defined accounting period to show net income or loss.
Question 2: Depreciation is best described as:
- The increase in value of an asset over time
- The allocation of an asset's cost over its useful life (Correct answer)
- A cash payment for asset maintenance
- The market value decline of inventory
Correct answer: The allocation of an asset's cost over its useful life
Depreciation systematically allocates the cost of a long-term tangible asset over its estimated useful life.
Question 3: When a business collects cash before providing a service, the liability recorded is called:
- Accounts Receivable
- Prepaid Expense
- Unearned Revenue (Correct answer)
- Accrued Revenue
Correct answer: Unearned Revenue
Unearned revenue is a liability because the company owes the customer a service or product not yet delivered.
Question 4: The LIFO inventory method assumes that:
- Oldest inventory is sold first
- Newest inventory is sold first (Correct answer)
- Average cost is used for all sales
- Specific units are tracked individually
Correct answer: Newest inventory is sold first
Last-In, First-Out (LIFO) assumes the most recently purchased goods are sold before older inventory.
Question 5: A trial balance is prepared to verify that:
- Assets equal liabilities plus equity
- Total debits equal total credits in the ledger (Correct answer)
- Revenue exceeds expenses for the period
- Cash receipts match cash disbursements
Correct answer: Total debits equal total credits in the ledger
A trial balance lists all ledger account balances to confirm that total debits equal total credits.
Question 6: Which of the following is an example of a long-term liability?
- Accounts Payable
- Notes Payable due in 30 days
- Mortgage Payable due in 20 years (Correct answer)
- Wages Payable
Correct answer: Mortgage Payable due in 20 years
Long-term liabilities are obligations due more than one year from the balance sheet date, such as a 20-year mortgage.
Question 7: Gross profit is calculated as:
- Net Sales minus Operating Expenses
- Net Sales minus Cost of Goods Sold (Correct answer)
- Total Revenue minus Total Expenses
- Operating Income minus Interest Expense
Correct answer: Net Sales minus Cost of Goods Sold
Gross profit equals net sales revenue minus the cost of goods sold, before deducting operating expenses.
FBLA Accounting 2
Which financial statement shows a company's revenues and expenses over a specific period?