FBLA Accounting 3 — Questions and Answers
Question 1: Which accounting principle requires that expenses be recorded in the same period as the revenues they helped generate?
- Historical Cost Principle
- Matching Principle (Correct answer)
- Revenue Recognition Principle
- Full Disclosure Principle
Correct answer: Matching Principle
The matching principle dictates that expenses must be recorded in the period associated with the revenues they helped produce.
Question 2: A company's current ratio is calculated by dividing:
- Total Assets by Total Liabilities
- Current Assets by Current Liabilities (Correct answer)
- Net Income by Total Revenue
- Cash by Current Liabilities
Correct answer: Current Assets by Current Liabilities
The current ratio measures short-term liquidity by comparing current assets to current liabilities.
Question 3: Which entry correctly records a $500 cash sale under double-entry bookkeeping?
- Debit Revenue $500; Credit Cash $500
- Debit Cash $500; Credit Revenue $500 (Correct answer)
- Debit Accounts Receivable $500; Credit Revenue $500
- Debit Expense $500; Credit Cash $500
Correct answer: Debit Cash $500; Credit Revenue $500
A cash sale increases both Cash (debit) and Revenue (credit) by $500, following the double-entry system.
Question 4: The concept of 'going concern' assumes that:
- A business will liquidate its assets within one year
- A business will continue to operate indefinitely into the future (Correct answer)
- Financial statements are prepared on a cash basis only
- Assets are reported at their current market value
Correct answer: A business will continue to operate indefinitely into the future
The going concern assumption holds that a company will remain in operation long enough to fulfill its obligations and plans.
Question 5: Which account would be found on the balance sheet?
- Sales Revenue
- Cost of Goods Sold
- Retained Earnings (Correct answer)
- Advertising Expense
Correct answer: Retained Earnings
Retained earnings is an equity account that appears on the balance sheet, representing accumulated net income not distributed as dividends.
Question 6: A petty cash fund is established primarily to:
- Deposit daily sales receipts securely
- Pay small, miscellaneous business expenses conveniently (Correct answer)
- Track large vendor invoice payments
- Record payroll transactions
Correct answer: Pay small, miscellaneous business expenses conveniently
Petty cash funds are maintained for small, routine expenses that are impractical to pay by check or electronic transfer.
Question 7: Under accrual accounting, revenue is recognized when:
- Cash is received from the customer
- The product is ordered by the customer
- It is earned, regardless of when cash is collected (Correct answer)
- The invoice is printed and mailed
Correct answer: It is earned, regardless of when cash is collected
Accrual accounting recognizes revenue when it is earned (goods delivered or services rendered), not necessarily when payment is received.
FBLA Accounting 3
Which accounting principle requires that expenses be recorded in the same period as the revenues they helped generate?