Multiple Choice Questions and Answers

PART 1: MULTIPLE CHOICE:
(Answers are in bold and underlined)
1) When a business provides services for cash, which elements of the accounting equation are
affected?
A) Revenue and Expense
B) Cash and Revenue
C) Cash and Expense
D) Cash and Dividends
2) Which of the following financial statements provides information about a company as of a
specific point in time?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of changes in stockholders' equity
3) Expenses are reported on which of the following financial statement(s)?
A) Income statement
B) Balance sheet
C) Statement of changes in stockholders' equity
D) Income statement and statement of changes in stockholders' equity
4) Dividends paid by a company are reported on which of the following financial
statement(s)?
A) Income statement
B) Statement of changes in stockholders' equity
C) Statement of cash flows
D) Statement of changes in stockholders' equity and statement of cash flows
5) Liabilities are reported on which of the following financial statement(s)?
A) Income statement
B) Balance sheet

C) Statement of cash flows
D) Statement of changes in stockholders' equity
6) Which resource providers lend financial resources to a business with the expectation of
repayment with interest?
A) Consumers
B) Creditors
C) Investors
D) Owners
7) Recognizing an expense may be accompanied by which of the following?
A) An increase in liabilities
B) A decrease in liabilities
C) A decrease in revenue
D) An increase in assets
8) Which type of accounting information is intended to satisfy the needs of external users of
accounting information?
A) Cost accounting
B) Managerial accounting
C) Tax accounting
D) Financial accounting
9) Which of the following statements is true regarding accrual accounting?
A) Revenue is recorded only when cash is collected.
B) Expenses are recorded when they are incurred.
C) Revenue is recorded in the period when it is earned.
D) Revenue is recorded in the period when it is earned and expenses are recorded when
they
are incurred.
10) Financial accounting standards are known collectively as GAAP. What does that

acronym stand for?
A) Generally Accepted Accounting Principles
B) Generally Applied Accounting Procedures
C) Governmentally Approved Accounting Practices
D) Generally Authorized Auditing Principles
11) Which of the following events would not require a year-end adjusting entry?
A) Purchasing supplies for cash during the year.
B) Paying for one year's rent during the year.
C) Providing services on account during the year.
D) Each of these events would require a year-end adjusting entry.
12) Which of the following are "matched" under the matching concept?
A) Expenses and revenues
B) Expenses and liabilities
C) Assets and equity
D) Assets and liabilities
13) Which of the following is an example of revenue?
A) Cash received as a result of a bank loan
B) Cash received from investors from the sale of common stock
C) Cash received from customers at the time services were provided
D) Cash received from the sale of land for its original selling price
14) Which of the following correctly states the proper order of the steps in the accounting
cycle?
A) Record transactions, adjust accounts, close temporary accounts, prepare statements.
B) Adjust accounts, record transactions, close temporary accounts, prepare statements.
C) Record transactions, adjust accounts, prepare statements, close temporary accounts.
D) Adjust accounts, prepare statements, record transactions, close temporary accounts.
15) Which of the following accounts normally has a debit balance?

A) Prepaid Insurance
B) Unearned Service Revenue
C) Accounts Payable
D) Common Stock
16) What is the term used to describe the left side of a T-account?
A) Equity Side
B) Debit Side
C) Credit Side
D) Claims Side
17) What is the term that is used to describe the difference between the total debit and credit
amounts in a T-account?
A) Net Income
B) Trial Balance
C) Equality
D) Account Balance
18) Li Company paid cash to purchase land. What happened as a result of this business
event?
A) Total assets decreased.
B) Total assets were unaffected.
C) Total equity decreased.
D) Both assets and total equity decreased.
19) Which of the following statements about the entry to record depreciation is true?
A) The entry involves a credit to a liability.
B) The entry involves a credit to Depreciation Expense.
C) The entry involves a credit to the asset being depreciated.
D) The entry involves a credit to a contra-asset account.
20) Which of the following types of accounts is closed at the end of an accounting cycle?