Accounting Questions

Which of the following is the main purpose of financial accounting?

• To help investors and creditors make decisions
• To provide information for internal decision-making
• To track inventory levels
• To determine product costs

Which financial statement shows a company's profitability over a period of time?

• Income Statement
• Balance Sheet
• Statement of Cash Flows
• Statement of Retained Earnings

What does the accounting equation represent?

• Revenues - Expenses = Net Income
• Assets = Liabilities + Equity
• Income = Revenue - Costs
• Cash Inflows - Cash Outflows = Profit

Which principle states that expenses should be recorded in the same period as the revenues they help generate?

• Historical Cost Principle
• Revenue Recognition Principle
• Matching Principle
• Conservatism Principle

Which of the following is considered a liability?

• Equipment
• Accounts Receivable
• Retained Earnings
• Accounts Payable

Which financial statement helps managers understand costs and profitability?

• Balance Sheet
• Income Statement
• Statement of Cash Flows
• Retained Earnings Statement

Which of the following is the correct formula for net income?

• Net Income = Revenue – Expenses
• Net Income = Assets – Liabilities
• Net Income = Revenue + Expenses
• Net Income = Expenses – Revenue

What does 'gross profit' represent on the income statement?

• Revenue minus all expenses
• Revenue minus Cost of Goods Sold (COGS)
• Net income before tax
• Total cash received in a period

What happens if total expenses are higher than total revenue?

• The company reports a net gain
• The company has no profit but breaks even
• The company must increase expenses
• The company reports a net loss

Which of the following is considered an operating expense?

• Interest paid on a loan
• Salaries of office employees
• Gain from selling an asset
• Income tax expense