FBLA Accounting 5 — Questions and Answers
Question 1: Which accounting equation is always true?
- Assets = Liabilities − Owner's Equity
- Assets + Liabilities = Owner's Equity
- Assets = Liabilities + Owner's Equity (Correct answer)
- Revenue − Expenses = Assets
Correct answer: Assets = Liabilities + Owner's Equity
The fundamental accounting equation states that Assets equal Liabilities plus Owner's Equity, maintaining the balance of the balance sheet.
Question 2: Straight-line depreciation is calculated using:
- (Cost + Salvage Value) ÷ Useful Life
- (Cost − Salvage Value) ÷ Useful Life (Correct answer)
- Cost × Depreciation Rate × 2
- Book Value × Straight-Line Rate
Correct answer: (Cost − Salvage Value) ÷ Useful Life
Straight-line depreciation divides the depreciable cost (cost minus salvage value) equally over the asset's useful life.
Question 3: Which of the following transactions would increase total assets and increase total liabilities?
- Owner invests cash in the business
- Business purchases equipment on credit (Correct answer)
- Business pays off a loan with cash
- Business collects cash from a customer on account
Correct answer: Business purchases equipment on credit
Buying equipment on credit increases assets (equipment) and simultaneously increases liabilities (accounts or note payable).
Question 4: The operating activities section of the Statement of Cash Flows includes:
- Purchase of equipment
- Payment of dividends
- Cash received from customers (Correct answer)
- Proceeds from issuing bonds
Correct answer: Cash received from customers
Operating activities include cash flows from the primary business operations, such as cash receipts from customers and cash paid to suppliers.
Question 5: Which type of account has a normal credit balance?
- Cash
- Supplies
- Notes Payable (Correct answer)
- Prepaid Insurance
Correct answer: Notes Payable
Liability accounts like Notes Payable have normal credit balances because they increase with credits and decrease with debits.
Question 6: A contra account is one that:
- Has the same normal balance as its paired account
- Is used to correct journal entry errors
- Offsets a related account and has an opposite normal balance (Correct answer)
- Records only cash transactions
Correct answer: Offsets a related account and has an opposite normal balance
A contra account has an opposite normal balance to its related account; for example, Accumulated Depreciation reduces the asset Equipment.
Question 7: Which of the following best describes internal controls in accounting?
- Rules set by the IRS for tax filings
- Policies and procedures designed to safeguard assets and ensure accurate records (Correct answer)
- Guidelines for preparing financial statements under GAAP
- Methods to calculate depreciation for tax purposes
Correct answer: Policies and procedures designed to safeguard assets and ensure accurate records
Internal controls are company-designed policies to prevent fraud, protect assets, and ensure the reliability of financial reporting.
FBLA Accounting 5
Which accounting equation is always true?