Accounting Basics

Who is the father of accounting

• John dewey

• Wordsworth

• Luca pacioli

• Blooms

Answer explanation

Luca Pacioli is known as the father of accounting for his contributions in the 15th century, particularly for formalizing the double-entry bookkeeping system, which is fundamental to modern accounting practices.

What is the primary purpose of accounting?

• To track expenses

• To prepare tax returns

• To provide financial information

• To manage payroll

Answer explanation

The primary purpose of accounting is to provide financial information that helps stakeholders make informed decisions. While tracking expenses, preparing tax returns, and managing payroll are important, they serve the broader goal of financial reporting.

Which of the following is considered a fundamental accounting principle?

• Revenue Recognition

• Market Value

• Supply and Demand

• Cost-Benefit Analysis

Answer explanation

Revenue Recognition is a fundamental accounting principle that dictates when revenue should be recognized in the financial statements, making it the correct choice. The other options are not core accounting principles.

What does GAAP stand for in accounting?

• Generally Accepted Accounting Principles

• General Accounting and Auditing Procedures

• Global Association of Accountants and Professionals

• Government Accounting and Auditing Practices

Answer explanation

GAAP stands for Generally Accepted Accounting Principles, which are the standard framework of guidelines for financial accounting used in the U.S. This makes it the correct choice among the options provided.

What is the accounting equation?

• Assets = Liabilities + Equity

• Revenue = Expenses + Profit

• Assets + Liabilities = Equity

• Equity = Assets - Liabilities

Answer explanation

The accounting equation states that Assets equal the sum of Liabilities and Equity. This fundamental principle ensures that a company's balance sheet remains balanced, making 'Assets = Liabilities + Equity' the correct choice.

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

• Balance Sheet

• Income Statement

• Cash Flow Statement

• Statement of Changes in Equity

Answer explanation

The Income Statement shows a company's revenues and expenses over a specific period, providing a clear view of profitability. In contrast, the Balance Sheet reflects assets and liabilities, while the Cash Flow Statement tracks cash movements.

What is the purpose of an audit in accounting?

• To prepare financial statements

• To verify the accuracy of financial records

• To manage company finances

• To calculate taxes owed

Answer explanation

The primary purpose of an audit in accounting is to verify the accuracy of financial records. This ensures that the financial statements are reliable and comply with accounting standards.

What is the primary role of a financial statement?

• To summarize a company's financial position

• To calculate employee salaries

• To track inventory levels

• To manage cash flow

Answer explanation

The primary role of a financial statement is to summarize a company's financial position, providing insights into its assets, liabilities, and equity, which is essential for stakeholders to assess its performance.

Which accounting method recognizes revenue when it is earned?

• Cash Basis Accounting

• Accrual Basis Accounting

• Tax Basis Accounting

• Modified Cash Basis Accounting

Answer explanation

Accrual Basis Accounting recognizes revenue when it is earned, regardless of when cash is received. This method aligns revenue with the period in which it is generated, making it the correct choice for this question.

What is the purpose of a balance sheet?

• To show the company's profitability

• To provide a snapshot of assets, liabilities, and equity

• To detail cash inflows and outflows

• To summarize tax obligations

Answer explanation

The purpose of a balance sheet is to provide a snapshot of a company's financial position at a specific point in time, detailing its assets, liabilities, and equity, rather than focusing on profitability or cash flows.