IBA Accounting Fundamentals 1

Question 1

Which accounting equation correctly represents the relationship between assets, liabilities, and equity?

Accepted Answer

Assets = Liabilities + Equity

Answer

The fundamental accounting equation states that Assets equal Liabilities plus Owner's Equity, reflecting that all assets are financed by either debt or equity.

Question 2

Which financial statement shows a company's revenues and expenses over a specific period?

Accepted Answer

Income Statement

Answer

The Income Statement (also called the Profit and Loss Statement) reports revenues, expenses, and net income or loss over a defined accounting period.

Question 3

Under accrual accounting, revenue is recognized when:

Accepted Answer

It is earned, regardless of when cash is received

Answer

Accrual accounting requires revenue to be recognized when it is earned (i.e., goods delivered or services rendered), not when cash is collected.

Question 4

Depreciation is best described as:

Accepted Answer

The allocation of an asset's cost over its useful life

Answer

Depreciation systematically allocates the cost of a tangible long-term asset across its estimated useful life, matching the expense to the periods it benefits.

Question 5

Which inventory costing method assumes the most recently purchased items are sold first?

Accepted Answer

LIFO (Last In, First Out)

Answer

LIFO assumes the last (most recently purchased) items are the first to be sold, which can lower taxable income during periods of rising prices.

IBA - Institute of Business Administration Practice Test

IBA - Institute of Business Administration Practice Test

IBA Accounting Fundamentals 1