Financial Accounting Multiple Choice Questions: Chapter 1-3 – Flashcards

Which of the following is not one of the four basis financial statements? A. The balance Sheet B. The audit Report C. The income statement D. The statement of cash flows

Which of the following is true regarding the income statement? A. The income statement is sometimes called the statement of operations B. The income statement reports revenue, expenses, and liabilities C. The income statement only reports revenue for which cash was received at the point of sale D. The income statement reports the financial position of a business at a particular point in time.

Which of the following is false regarding the balance sheet? A. The accounts shown on a balance sheet represent the basic accounting equation for a particular business. B. The retained earning balance shown on the balance sheet must agree with the ending retained earning balance shown on the statement of retained earnings. C. The balance sheet summarizes the net changes in specific account balances over a period of time. D. The balance sheet reports the amount of assets, liabilities, and stockholders equity of a business at a point in time.

Which of the following regarding retained earnings is false? A. Retained earnings is increased by net income B.Retained earnings is a component of stockholders' equity on the balance sheet C. Retained earnings is an asset on the balance sheet D. Retained earnings represents earning not distributed to stockholders in the form of dividends

Which of the following is not one of the items required to be shown in the heading of a financial statement? A. The Financial statement prepares name B. The title of the financial report C. The financial reporting date or period D. The name of the business entity

Which of the following statements regarding the statement of cash flows is false? A. The statement of cash flow separates cash inflow and outflows into three major categories: operating, investing and financing B. The ending cash balance shown on the statement of cash flows must agree with the amount shown on the balance sheet at the end of the same period C. The total increase or decrease in cash shown on the statement of cash flows must agree with the bottom line (net income or net loss) reported on the income statement D. The statement of cash flows covers a period of time

Which of the following regarding GAAP is true? A. GAAP is an abbreviation for generally applied accounting principles B. Changes in GAAP always affect the amount of income reported by a company C. GAAP is the abbreviation for generally accepted accounting principles D. Changes to GAAP must be approved by the Senate Finance Committee

Which of the following is true? A. FASB creates SEC B. GAAP creates FASB C.SEC creates CPA D. FASB creates GAAP

Which of the following would not be a goal or external users reading a company's financial statements? A. Understanding the current financial state of the company B. Assessing the company's contribution to social and environmental polices C. Predicting the company's future financial performance D. Evaluating the company's ability to generate cash from sales

Which of the following is not required by the Sarbanes-Oxley Act? A. Top managers of public companies must sign a report certifying their responsibility for the financial statements B. Public companies must maintain an audited system of internal control to ensure accuracy in accounting reports C. Public companies must maintain an independent auditors D. Top managers of public companies must be members of the American Institute of Certified Public Accountants.

Which of the following is not an asset? A. Cash B. Land C. Equipment D.Contributed Capital

Which of the following statements describe transactions that would be recorded in the accounting system? A. An exchange of an asset for a promise to pay B. An exchange of an promise for another promise to pay C. Both of the above D. None of the above

Total assets on a balance sheet prepared on any date must agree with which of the following? A. The sum of total liabilities and net income as shown on the income statement B. The sum of total liabilities and contributed capital C.The sum of total liabilities and contributed capital D. The sum of total liabilities and contributed capital and retained earnings

The duality of effect can be described as follows A. When a transaction is recorded in the accounting system at least two effects on the basic accounting equation will result B. When an exchange takes place between two parties, both parties must record the transaction C. When a transaction is recorded both the balance sheet and the income statement must be impacted D. When a transaction is recorded, one account will always increase and on account will always decrease

The T-account is used to summarize which of the following? A. Increases and decrease to a single account in the accounting system B. Debits and credits to a single account in the accounting system C. Changes in specific account balance over a time period D. All of the above describe how T-accounts are used by accountants

Which of the following describes how assets are listed on the balance sheet? A. In alphabetical order B. In order of magnitude, lowest value to highest value C. In the order they will be used up or turned in cash D.From least current to most current

Which of the following statements would be considered true regarding debits and credits? A. In any given transaction, the total dollar amount of the debit and the total dollar amount of the credit must be equal B. Debits decrease certain accounts and credits decrease certain accounts C. Liabilities and stockholders equity accounts usually end in credit balances while assets usually end in debit balances D. All of the above

Which of the following statements would be considered true regarding the balance sheet? A. One cannot determine the true current value of a company be reviewing just its balance sheet B. The balance sheet reports assets only if they have been acquired through identifiable transactions C. A balance sheet shows only the ending balances in a summarized system as of a particular date D. All of the above

If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to report too small a value for which of the following on it balance sheet? A. Assets B. Liabilities C. Retained earnings D. Contributed Capital

Which of the following items is not specific account in a company's accounting record? A. Accounts Receivable B. Net Income C. Sales Revenue D. Unearned Income

Which of the following accounts normally has a debit balance? A. Unearned Revenue B. Retained Earnings C. Rent expense D. Sales Revenue

The expense recognition principle ("matching") controls A. Where on the income statement expenses should be presented B. When revenues are recognized on the income statement C. The ordering of current assets and current liabilities D. When costs are recognized as expenses on the income statement

When should companies that sell gift cards to customers report revenue? A. When the gift card is issued and cash is received B. When the gift card is used by the customer C. At the end of the year in which the gift card is issued D. None of the above

If a company incorrectly records a payment as an asset, rather than as an expense, how will this error affect net income in the current period? A. Net income will be too high B. Net income will be too low C. Net income will not be affected by this error D. Its a mystery; nobody really knows

When should a company report the cost an insurance policy as an expense? A. When the company first signs the policy B. When the company pays for the policy C. When the company receives the benefits form the policy over its period of coverage D. When the company receives payments from the insurance company for its insurance

When expenses exceed revenues in a given period, A. Stockholders equity will not be impacted B. Stockholders equity will be increased C. Stockholders equity will be decreased D. One cannot determine the impact on stockholders equity without information about the specific revenue

Which account is least likely to be debited when revenue is recorded? A. Account Payable B. Accounts receivable C. Cash D. Unearned

Which of the following is the entry to be recorded by law firm when it receives a payment from a new client that will be earned when service are provided in the future? A. Debit accounts receivable; credit legal services revenue B. Debit unearned revenue; credit legal service revenue C. Debit cash; credit unearned revenue D. Debut unearned revenue; credit cash