Chapter 1 Quiz

1.  Which of the following equations correctly represents the fundamental accounting equation?

1. Assets = Liabilities + Stockholders’ Equity.
2. Assets + Liabilities = Stockholders’ Equity.
3. Assets + Stockholders’ Equity = Liabilities.
4. Liabilities – Assets = Stockholders’ Equity.

2. In which financial statement does a company report its revenues?

1. Balance Sheet
2. Statement of Stockholders’ Equity.
3. Income Statement.
4. Statement of Cash Flows.

3.  Public accounting firms refer to:

1. Professional service firms that traditionally focus on auditing and tax preparation.
2. Companies that sell merchandise to customers.
3. Government-controlled companies.
4. Firms that have stocks listed on an exchange.

4.  Expenses represent:

1. Sales of products or services to customers.
2. Costs of providing products or services to customers.
3. Cash paid to investors.
4. Cash paid for the purchase of the company’s long-term resources.

5. The term GAAP stands for:

1. General Accounting Accountability Principles.
2. General Accounting and Audit Principles.
3. Generally Accepted Auditing Principles.
4. Generally Accepted Accounting Principles.

6. In which financial statement does a company report its expenses?

1. Statement of Stockholders’ Equity.
2. Balance Sheet.
3. Income Statement.
4. Statement of Cash Flows.

7.  The fundamental qualitative characteristics of accounting information identified by the FASB are:

1. Relevance, faithful representation.
2. Relevance, comparability.
3. Relevance, truthfulness.
4. Truthfulness, clearness.

8. The financial statement that shows the financial position of a company at a specific point in time is called the:

1. Income Statement.
2. Statement of Cash Flows.
3. Statement of Stockholders’ Equity.
4. Balance Sheet.

9.  Which of the following represents an obligation of the company?

1. Assets.
2. Liabilities.
3. Expenses.
4. Dividends.

10.  Which single piece of information best explains most companies’ stock price performance?

1. Total sales to customers.
2. Total number of employees.
3. Geographic location.
4. Net income

11. Who ultimately is responsible for properly applying GAAP? The company’s:

1. Management.
2. Auditors.
3. Stockholders.
4. Creditors.
5. Bottom of Form

12.  A component/aspect of relevant accounting information includes:

1. Comparability.
2. Predictive value.
3. Consistency.
4. Faithful representation.

13. Which financial statement reports a company’s assets and liabilities?

1. Balance Sheet.
2. Statement of Stockholders’ Equity.
3. Statement of Cash Flows.
4. Income Statement.

14.  Which financial statement shows a company’s revenues and expenses?

1. Income Statement.
2. Statement of Cash Flows.
3. Statement of Stockholders’ Equity.
4. Balance Sheet.

15. The most lucrative activity of public accountants typically is:

1. Tax preparation.
2. Evaluation of internal controls.
3. Audit of financial statements.
4. Business consulting.

16.  Amounts owed to creditors are reported as:

1. Liabilities.
2. Assets.
3. Stockholders’ equity.
4. Revenues.

17. Traditional careers in public accounting include:

1. Auditors.
2. Business consultants.
3. All of the choices are correct.
4. Tax preparers/planners.

18. Which of the following best describes financial accounting?

1. Mathematical procedure.
2. Information measurement/communication process.
3. Artistic presentation.
4. Behavioral psychology.

19.  Which of the following best describes an important function of financial accounting?

1. To provide managers with useful information related to human resources.
2. To support the efficient distribution of society’s resources.
3. To support government initiatives through taxation of company profits.
4. To increase the number of customers for a company.

20.  Financial accounting provides information primarily to:

1. Government officials.
2. Tax regulators.
3. Suppliers and customers.
4. Investors and creditors.

21. Which of the following represents a resource of the company?

1. Asset.
2. Expense.
3. Liability.
4. Dividend.

22. Which of the following describes the cost of selling to customers?

1. Liabilities.
2. Dividends.
3. Assets.
4. Expenses.

23. Financial accounting information is essential to:

1. Marketing the company’s products to customers.
2. Paying the appropriate amount of taxes.
3. Quality of the work environment for employees.
4. Making good business decisions.

24. The underlying foundation for the development of accounting standards and interpretation of accounting information is referred to as the:

1. Securities and Exchange Commission.
2. Auditor’s report.
3. Generally accepted rules.
4. Conceptual framework.

25. Financial accounting is often referred to as a:

1. Tax allocation system.Internal reporting structure.
2. Mathematical system of equations.
3. Language of business.
4. Bottom of Form

26. Which body has the primary responsibility for the establishment of Generally Accepted Accounting Principles?

1. Financial Accounting Standards Board (FASB).
2. International Accounting Standards Board (IASB).
3. Sand Exchange Commission (SEC).
4. American Institute of Certified Public Accountants (AICPA).

27.  Which definition best describes financial accounting?

1. Procedures designed to enhance the company’s image to potential investors.
2. A system of maintaining communication with a company’s customers and suppliers.
3. Measuring a company’s business activities and communicating those measurements to external parties.
4. A process of measuring income taxes owed to the government.

28. The balance in retained earnings represents:

1. Income earned during the current period.
2. Income earned during the current period minus dividends distributed to stockholders’ during the current period.
3. The amount of income earned over the company’s life minus the dividends paid to shareholders over the company’s life.
4. The amount of income earned by the company over its life.

29. Financial accounting helps with:

1. All of the choices are correct.
2. Exchange of goods and services among individuals.
3. Development of more complex societies.
4. Maintaining records of multiple business transactions.

Chapter 1 Quiz Answer

1. A. Assets = Liabilities + Stockholders’ Equity

2. C. Income Statement.