FBLA Accounting 4 — Questions and Answers
Question 1: Which of the following best describes 'owner's equity' in a sole proprietorship?
- Total assets minus total liabilities (Correct answer)
- Total revenue minus total expenses
- Cash and cash equivalents held by the owner
- Long-term debt owed to creditors
Correct answer: Total assets minus total liabilities
Owner's equity represents the residual interest in the assets of the business after deducting all liabilities.
Question 2: Which inventory costing method results in the highest net income during a period of rising prices?
- LIFO
- FIFO (Correct answer)
- Weighted-Average Cost
- Specific Identification
Correct answer: FIFO
FIFO assigns lower (older) costs to cost of goods sold during rising prices, resulting in higher gross profit and net income.
Question 3: An adjusting entry for accrued salaries would include:
- Debit Salaries Payable; Credit Salaries Expense
- Debit Salaries Expense; Credit Salaries Payable (Correct answer)
- Debit Cash; Credit Salaries Expense
- Debit Prepaid Salaries; Credit Cash
Correct answer: Debit Salaries Expense; Credit Salaries Payable
Accrued salaries are recorded by debiting Salaries Expense and crediting Salaries Payable to recognize the obligation.
Question 4: The debt-to-equity ratio is used to measure a company's:
- Profitability relative to sales
- Liquidity in the short term
- Financial leverage and use of debt financing (Correct answer)
- Efficiency in collecting receivables
Correct answer: Financial leverage and use of debt financing
The debt-to-equity ratio compares total liabilities to shareholders' equity, indicating how much debt is used relative to equity.
Question 5: Which of the following is NOT one of the four financial statements?
- Income Statement
- Balance Sheet
- General Ledger (Correct answer)
- Statement of Cash Flows
Correct answer: General Ledger
The general ledger is an accounting record, not one of the four primary financial statements.
Question 6: A bank reconciliation is performed to:
- Verify that total debits equal total credits in the ledger
- Match the company's cash records with the bank statement (Correct answer)
- Calculate interest earned on savings accounts
- Prepare payroll tax filings
Correct answer: Match the company's cash records with the bank statement
A bank reconciliation reconciles differences between the company's cash book balance and the bank statement balance.
Question 7: Accounts receivable represents:
- Money the business owes to suppliers
- Money owed to the business by customers for credit sales (Correct answer)
- Cash set aside for future purchases
- Employee salaries yet to be paid
Correct answer: Money owed to the business by customers for credit sales
Accounts receivable is an asset reflecting amounts owed by customers who purchased goods or services on credit.
FBLA Accounting 4
Which of the following best describes 'owner's equity' in a sole proprietorship?