Accounting Basics Quiz

What does the accounting equation state?

• Assets = Income + Expenses.

• Assets = Liabilities + Equity.

• Assets = Revenue - Costs.

• Assets = Profit + Loss.

Which of the following is NOT a primary financial statement?

• Balance sheet

• Income statement

• Marketing plan

• Statement of cash flows

What is the purpose of financial statements?

• To confuse stakeholders.

• To provide entertainment.

• To communicate financial performance and position.

• To eliminate the need for accounting.

What is the fundamental principle of double-entry accounting?

• Every transaction affects only one account.

• Every transaction has equal and opposite effects in at least two different accounts.

• Every transaction affects only the cash account.

• Every transaction is recorded only as a debit.

What does the accounting equation Assets = Liabilities + Equity ensure in double-entry accounting?

• That debits are always greater than credits.

• That credits are always greater than debits.

• That debits equal credits.

• That assets are always greater than liabilities.

What happens to accounts receivable when a company sells a product on account?

• It is credited

• It is debited

• It remains unchanged

• It is written off

What is the effect of accrued revenues on net income?

• Increase net income.

• Decrease net income.

• No effect on net income.

• Only affects the balance sheet.

How do adjusting entries affect the balance sheet?

• By impacting the balances of assets, liabilities, and equity accounts.

• By only affecting the cash flow.

• By increasing only the liabilities.

• By decreasing only the assets.

What is the main focus of financial accounting assumptions?

• Understanding the differences between cash and accrual accounting

• Recognizing revenue when cash is received

• Understanding the assumptions underlying financial accounting, reporting, and measurement

• Matching revenues with expenses

In accrual accounting, when is revenue recognized?

• When cash is received

• When it is earned, regardless of when cash is received

• When expenses are paid

• At the end of the fiscal year