Accounting Practice Questions PDF

To be useful, accounting information must have the fundamental qualitative characteristics of: Comparability and relevance. Materiality and understandability. Relevance and faithful representation. Faithful representation and timeliness. Which below describes releva...

To be useful, accounting information must have the fundamental qualitative characteristics of: Comparability and relevance. Materiality and understandability. Relevance and faithful representation. Faithful representation and timeliness. Which below describes relevance? Information must be complete, neutral, and free from error. Information must be capable of making a difference in a decision. Information must be made available early enough to users to help them make decisions. Accounting information must be prepared in such a way that it can be compared with information from other companies in the same period. Which of the following reports assets, liabilities, and stockholders' equity at a specific date? Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings The claims of the owners of a company are: Liabilities Assets Stockholder's Equity Dividends The assets of BANDIT Companies decreased by $200,000 during the year, and its liabilities increased by $70,000 during the same year. The change in stockholder's equity of the company during the year must have been: An increase of $270,000  A decrease of $270,000 A decrease of $130,000 An increase of $130,000 The accounting equation can be expressed as: Assets + Liabilities = Equity. Assets = Liabilities - Equity. Equity - Assets = Liabilities. Assets - Liabilities = Equity. The entity assumption states that: An organization will continue to operate for the foreseeable future. Assets should be recorded at their actual cost on the date of purchase. An organization stands apart from other organizations and individuals as a separate economic unit. To be useful, financial information should be reported on a timely basis. Bingo's assets on December 31, 2024, are: $29,461,250 $22,116,250 $20,816,250 $23,335,000 Bingo's net income or (loss) for the year ending December 31, 2024, is: $14,478,750 $2,697,500 $3,510,000 $4,208,750 15. Which of the following statements about expenses is correct? Expenses increase stockholders' equity. Expenses decrease net income. Expenses are assets of a business. Expenses are not recorded in the accounting records. 16. Which of the following is an example of a liability? Accounts Receivable Inventory Accounts Payable Retained Earnings 17. Which of the following is an example of revenue? Cash received from the sale of stock Cash received from customers for services provided Cash borrowed from the bank Cash payments for supplies 18. Which financial statement reports a company's financial position at a specific point in time? Income Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows 19. What type of account is "Retained Earnings"? Asset Liability Stockholders' Equity Revenue 20. Which principle states that revenue should be recognized when it is earned, regardless of when cash is received? Expense Recognition Principle Matching Principle Revenue Recognition Principle Historical Cost Principle 21. The Matching Principle requires: Expenses to be recognized in the same period as the revenues they help generate. Revenue to be recognized only when cash is received. Companies to match their assets with liabilities. Financial statements to be prepared at least annually. 22. Under cash-basis accounting: Revenues and expenses are recorded when cash is received or paid. Revenues are recorded when earned, regardless of cash collection. Expenses are recorded when incurred, regardless of cash payment. It is required by Generally Accepted Accounting Principles (GAAP). 23. Under accrual-basis accounting: Cash must be received before revenue is recognized. Net income is calculated by matching cash outflows against cash inflows. Events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. Cash transactions are not adjusted. 24. JOHNSON Enterprises began operating its consumer goods business on January 1, 2025. During 2025, JOHNSON sold merchandise totaling $5,670,000, of which $3,622,500 was collected in cash immediately and $2,047,500 was sold on account. Of the $2,047,500 sold on account, 65% was collected in cash after the sales date but before the end of the period. The company incurred expenses of  $2,677,500 and made related cash payments of $2,735,000 in 2025. Compute net income (loss) under: (a) Cash basis accounting (b) Accrual basis accounting 25. SPEEDY Pipe Company receives a phone call from a customer needing a new water heater on July 16 and schedules a consultation for a free estimate on July 22. Faucet installs the new water heater on July 24. The customer pays for service on August 4. According to the revenue recognition principle, on which date should Faucet record service revenue? July 16 July 22 July 24 August 4 26. On August 1, 2024, FEDEX Delivery Company purchased a two-year insurance policy covering their vehicles for $8,450,000 with coverage beginning immediately. What is the balance of Prepaid Insurance on December 31, 2025 (rounded)? $2,464,583 $7,041,667 $5,985,417 $1,408,333 27. BLIZZARD Industries collected $780,500 in cash from customers for subscriptions that would allow them to access BLIZZARD's popular video games online from October 1, 2024, through April 30, 2025. What adjusting entry would be made on December 31, 2024? Credit Subscription Revenue $334,500 Credit Subscription Revenue $446,000 Credit Unearned Subscription Revenue $334,500 Debit Unearned Subscription Revenue $446,000 28. Adjusting entries:  Debit or credit the Cash account. Are part of accrual-basis accounting. Do not support the application of the matching principle. Are prepared at the beginning of the accounting period. 29. LEGOS Crafts determined it had $283,750 of supplies at the beginning of the year. During the year, the company purchased an additional $295,300 of supplies. There was $197,750 of supplies on hand at the end of the year. How much Supplies Expense did the company report that year? $209,300 $295,300 $579,050 $381,300 30. An investment of cash by stockholders into the business will: Increase stockholders' equity. Decrease total assets. Have no effect on total assets. Increase total liabilities. 31. Walgreens Pharmacies pays salaries of $14,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Tuesday is: Debit Salary Expense $14,000; Credit Salary Payable $14,000 Debit Salary Expense $5,600; Credit Salary Payable $5,600 Debit Salary Payable $5,600; Credit Salary Expense $5,600 Debit Salary Expense $8,400; Credit Salary Payable $8,400 32. What is the effect of closing entries on the accounting records? The Retained Earnings account will have the same balance as at the beginning of the period. All asset accounts will have a zero balance.  The temporary accounts will have a zero balance. The Dividends account will have a debit balance. 33. How are the assets and liabilities ordered on the Balance Sheet? Random order Based on liquidity (least liquid to most liquid) Alphabetical order Based on liquidity (most liquid to least liquid) 34. Regarding income statement formats, which of the following statements is incorrect? A single-step income statement lists all the revenues and gains together under a heading such as "Revenues and Gains." A multistep income statement reports a number of subtotals to highlight important relationships between revenues and expenses. A single-step income statement would include the subtotal "Gross Profit." Single-step and multi-step income statements are both accepted formats that allow users to evaluate the profitability of the business. 35. For a new business, the beginning balance of retained earnings equals: Cash invested by the stockholders. Beginning balance of the common stock account. Zero. Budgeted net income for the first year. 36. The requirement to report accounting information at regular intervals is known as the: Historical cost principle Revenue principle Time-period concept Expense recognition principle  37. What is LUNA Inc.'s current ratio based on the facts below (rounded)? Current assets: $70,000 Long-term assets: $400,000 Current liabilities: $35,000 Long-term liabilities: $120,000 Total stockholder's equity: $315,000 0.33 3.03 0.45 2.00 38. When analyzing a company's debt ratio: The ratio indicates the proportion of a company's assets that are financed with stockholders' equity. A high debt ratio is better than a low debt ratio. The ratio measures a company's ability to pay its total liabilities. A debt ratio of more than 1.0 means that current assets exceed current liabilities. 39. PEARSON Financial Services reported retained earnings of $860,000 on its December 31, 2023, balance sheet. Net income for 2024 totaled $330,000, and dividends declared for 2024 were $280,000. How much retained earnings should PEARSON report on its December 31, 2024, balance sheet? $810,000 $1,470,000 $860,000 $910,000 40. The science that studies ways to build programs and machines that can creatively solve problems in a human-like manner is: Artificial Intelligence Spreadsheets Econometric models of probability  Data Analytics 41. Which one of the following is not an objective of a system of internal controls? Maximizing net income. Safeguarding assets. Enhancing the accuracy and reliability of accounting records. Reduce the risk of errors. 42. What is the best example of a separation of duties control? The company's financial accountant should not share information with the company's tax accountant. Employees are appropriately trained and supervised. The employee that orders inventory cannot have access to the physical inventory nor to the inventory accounting records. The external auditors of the company should have no contact with managers while the audit is taking place. 43. Which of the following is an example of a monitoring (detective) control? Separation of duties. Exception reporting. Proper authorization. Safeguarding controls. 44. Which of the following factors is not part of the fraud triangle? Motive Reasoning Opportunity Rationalization 45. Cash and cash equivalents include: Accounts receivable. Treasury bills with maturity dates greater than one year.  Equity (stock) investments. Certificates of deposit. 46. A report that explains the differences between a firm's cash balance as shown on its bank statement and the balance shown in its general ledger cash account is a: A bank statement A bank reconciliation Statement of cash flows Balance sheet 47. In June of 2025, HERSH Ltd deposited a check from a customer that was determined to have non-sufficient funds (NSF). The NSF check was reported on HERSH's June bank reconciliation. The entry recorded in July related to this item includes: Debit Accounts Receivable / Credit Cash Debit Cash / Credit Accounts Receivable Debit Sales / Credit Cash Debit Cash / Credit Sales 48. BLIX Grocers Co. deposited a check from a customer for $3,226. However, that check was mistakenly credited by the bank in the amount of $2,326. When preparing that month's bank reconciliation, the company should: Add $900 to the bank statement balance of cash. Add $900 to the book balance of cash. Deduct $900 from the book balance of cash. Deduct $900 from the bank statement balance of cash. 49. On a bank reconciliation, which of the following would decrease the balance per book? EFT payments to vendors. EFT receipt of dividend revenue. Deposits in transit.  Outstanding checks. 50. HARRIS Enterprises is in the process of reconciling its bank account for the month of November. The following information is available: Cash balance per books (general ledger): $4,708 Cash balance per bank statement: $5,822 Outstanding checks: $1,590 A deposit placed in the bank's night depository on November 30 does not appear on the November 30 bank statement: $680 Bank service charge: $20 Customer's note receivable collected by the bank: $200 Interest earned on bank balance: $24 What would be the adjusted cash balance at the end of November? $5,822 $6,277 $4,912 $4,636