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7) According to the cost principle, if an appraised value is known – it should be used for
recording purposes.
Question Type: Concept
8) Accountants should be highly ethical and must do everything they can to prevent fraud.
Question Type: Concept
9) Neil owns a sporting goods store. In his accounting records, he included his personal
computer and all of his personal sporting gear. Neil is violating what principle of accounting?
A) Going concern
B) Cost
C) Reliability
D) Business entity
Question Type: Application
10) Simon lists his building at current replacement value, rather than the price he paid for the
building. What principle is Simon violating?
A) Going concern
B) Cost
C) Reliability
D) Business entity
Question Type: Application
11) Gwen owns an antique store. In her accounting records, she includes her car—which is
solely used for personal purposes. Which principle is Gwen violating?
A) Personal property
B) Cost
C) Reliability
D) Business entity
Question Type: Application
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12) Amber owns Serenity Spa Resort. In her accounting records, she lists the buildings at their
current market value. Which principle is Amber violating?
A) Reliability
B) Cost
C) Business entity
D) None of the above
Question Type: Application
13) Flowers Forever recorded their delivery van at its current replacement value, rather than the
price paid for the van. What principle did they violate?
A) Cost
B) Objectivity
C) Reliability
D) Going concern
Question Type: Application
14) The owner of Sassycat Designs wrote a company check to pay her personal credit card bill.
What accounting principle did she violate?
A) Cost
B) Reliability
C) Business entity
D) No principle is violated—the bank account belongs to her, so it‘s okay to write checks.
Question Type: Application
15) FASB is made up of how many members?
A) 3
B) 5
C) 7
D) 9
Question Type: Concept
16) GAAP is the acronym for generally accepted ________ principles.
A) auditing
B) accounting
C) averaging
D) associated
Question Type: Concept
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17) Considering the reliability principle – what would a bank statement represent?
A) Objective evidence
B) Market value confirmation
C) Current interest rates
D) Subjective evidence
Question Type: Application
18) In the financial accounting records, most assets should be reported at:
A) current replacement cost.
B) current market value.
C) historical cost.
D) inflation-adjusted cost.
Question Type: Concept
19) GAAP tries to ensure that accounting information is:
A) accurate, relevant, and factual.
B) relevant, understandable, and reliable.
C) understandable, realizable, and error–free.
D) reliable, historical, and accurate.
Question Type: Concept
20) The ________ issues pronouncements that are guidelines for accounting practice.
A) GAAP
B) SEC
C) FASB
D) IRS
Question Type: Concept
21) The guidelines that describe the rules of accounting are called:
A) GAAS.
B) GAAP.
C) FASB.
D) SEC.
Question Type: Concept
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22) When an owner combines their personal assets with the assets of their business, what concept
or principle of accounting is being violated?
A) Going concern
B) Objectivity
C) Business entity
D) Cost
Question Type: Concept
23) Taking an inventory of goods on hand would be representative of what accounting concept
or principle?
A) Going concern
B) Objectivity
C) Business entity
D) Cost
Question Type: Concept
24) Which accounting concept or principle specifically states that we should record transactions
that can be verified?
A) Going-concern concept
B) Cost principle
C) Reliability principle
D) Business entity concept
Question Type: Concept
25) IFRS stands for:
A) Internal Financial Report Standards.
B) International Financial Reports Study.
C) Internal Financial Reports Study.
D) International Financial Reporting Standards.
Question Type: Concept
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26) What is an example of objective evidence?
A) Bank statements
B) Cancelled checks
C) Purchase receipts
D) All of the above
E) None of the above
Question Type: Application
1.5 Know how accounting functions in a business
1) Cash accounting recognizes business transactions when they occur.
Question Type: Concept
2) Cash accounting recognizes business transactions when cash is received or paid.
Question Type: Concept
3) Accrual accounting recognizes business transactions when they occur.
Question Type: Concept
4) Accrual accounting recognizes business transactions when cash is received or paid.
Question Type: Concept
5) The fundamental accounting equation is Assets plus Liabilities equals Stockholders‘ Equity.
Question Type: Concept
6) Liabilities are obligations owed to third parties.
Question Type: Concept
7) Stockholders‘ Equity consists of Retained Earnings and Common Stock.
Question Type: Concept
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8) Assets consist of revenues, expenses, and dividends.
Question Type: Concept
9) A transaction is a business event that does NOT have an impact on the finances of a company.
Question Type: Concept
10) Payment of expenses will decrease an asset and increase stockholders’ equity.
Question Type: Application
11) Purchasing supplies on account will increase both assets and liabilities.
Question Type: Application
12) Payment of cash dividends will decrease an asset and increase stockholders’ equity.
Question Type: Application
13) Which of the following events would be recorded in the financial accounting records of
Green Pastures Lawn Service, Inc.?
A) Green Pastures mows 125 lawns.
B) Green Pastures buys 5 new lawn mowers from Discount Lawn Equipment, Inc.
C) Discount Lawn Equipment, Inc. sells 2 mowers to Green Pasture’s competitor, Best Lawns,
Inc.
D) Events A and B should both be recorded in the financial accounting records of Green
Pastures.
Question Type: Application
14) The method of accounting that recognizes a transaction when cash is received or paid is:
A) financial accounting.
B) cash accounting.
C) cost accounting.
D) accrual accounting.
Question Type: Concept
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15) The method of accounting that recognizes a transaction when it occurs is:
A) financial accounting.
B) cash accounting.
C) cost accounting.
D) accrual accounting.
Question Type: Concept
16) Most businesses use:
A) cash accounting.
B) accrual accounting.
C) cash and accrual accounting.
D) profit accounting.
Question Type: Concept
17) Which of the following is considered an asset?
A) Accounts Payable
B) Sales
C) Accounts Receivable
D) Common Stock
Question Type: Concept
18) Consider Accounts Receivable and Accounts Payable. Which of the following statements is
TRUE?
A) Accounts Receivable is a liability and Accounts Payable is an asset.
B) Accounts Receivable is an asset and Accounts Payable is an asset.
C) Accounts Receivable is an asset and Accounts Payable is a liability.
D) Accounts Receivable is a liability and Accounts Payable is a liability.
Question Type: Concept
19) Liabilities represent:
A) items owned by the company.
B) economic resources of the company.
C) earnings kept in the business.
D) amounts owed to third parties.
Question Type: Concept
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20) A business pays off a note payable. What effect does this have on the accounting equation?
A) Assets increase, Liabilities decrease, and Stockholders’ Equity remains the same.
B) Assets decrease, Liabilities remain the same, and Stockholders’ Equity increases.
C) Assets decrease, Liabilities decrease, and Stockholders‘ Equity remains the same.
D) Assets increase, Liabilities remain the same, and Stockholders’ Equity increases.
Question Type: Application
21) A business purchases a computer for cash. What effect does this have on the accounting
equation?
A) Stockholders’ Equity and Assets increase.
B) There is no change in Total Assets.
C) Assets increase and Liabilities decrease
D) Stockholders‘ Equity and Liabilities increase.
Question Type: Application
22) Revenues, expenses and dividends are all a part of:
A) Assets.
B) Retained Earnings.
C) Liabilities.
D) Common Stock.
Question Type: Concept
23) Cash and Accounts Receivable are both a part of:
A) Assets.
B) Retained Earnings.
C) Liabilities.
D) Common Stock.
Question Type: Concept
24) Ronald opens his business by investing $12,000. How does this affect the accounting
equation?
A) Increase in Assets; increase in Stockholders‘ Equity.
B) Increase in Liabilities; increase in Stockholders’ Equity.
C) Decrease in Assets; increase in Stockholders‘ Equity.
D) Increase in Assets; decrease in Stockholders’ Equity.
Question Type: Application
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25) Trina borrowed money for her business from a local bank. What accounts will be affected?
A) Cash and Accounts Payable
B) Cash and Notes Payable
C) Accounts Payable and Revenue
D) Accounts Receivable and Revenue
Question Type: Application
26) An increase in revenues would have which of the following effects on the accounting
equation?
A) Decrease Stockholders‘ Equity
B) Increase Common Stock
C) Increase Liabilities
D) Increase Stockholders‘ Equity
Question Type: Application
27) Which of the following is a written promise to pay?
A) Account receivable
B) Account payable
C) Note payable
D) Dividend payable
Question Type: Concept
28) A company has Liabilities of $23,700 and Stockholders‘ Equity of $56,800. How much does
the company have in Assets?
A) $56,800
B) $33,100
C) $80,500
D) $23,700
Question Type: Application
29) A company has $129,000 in Assets and $65,000 in Liabilities. How much does the company
have in Stockholders’ Equity?
A) $194,000
B) $129,000
C) $65,000
D) $64,000
Question Type: Application
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30) A company has $79,000 in Assets and $26,000 in Liabilities. How much does the company
have in Stockholders’ Equity?
A) $26,000
B) $53,000
C) $105,000
D) $79,000
Question Type: Application
31) A company has $72,000 in Assets and $23,000 of Stockholders‘ Equity. How much does the
company have in Liabilities?
A) $23,000
B) $49,000
C) $95,000
D) Cannot be determined from the given information
Question Type: Application
32) A company has $83,000 in Liabilities and $118,000 in Stockholders‘ Equity. What is the
value of the company’s Assets?
A) $35,000
B) $118,000
C) $201,000
D) Not enough information provided
Question Type: Application
33) If Total Assets remain the same and Total Stockholders‘ Equity increases, Liabilities will:
A) increase by the same amount.
B) decrease by the same amount.
C) remain the same.
D) increase by a different amount.
Question Type: Application