1.

Profit is the difference between

a. assets and liabilities
b. the incoming cash and outgoing cash
c. the assets purchased with cash contributed by the owner and the cash spent to
operate the business
d. the assets received for goods and services and the amounts used to provide the
goods and services
2. Which of the items below is not a business organization form?
a. entrepreneurship
b. proprietorship
c. partnership
d. Corporation
3.Financial reports are used by
a. Management
b. Creditors
c. Investors
d. all of the above
4. Which of the following best describes accounting?
a. records economic data but does not communicate the data to users according to
any specific rules
b. is an information system that provides reports to stakeholders
c. is of no use by individuals outside of the business
d. is used only for filling out tax returns and for financial statements for various type
of governmental reporting requirements
5. The two most common specialized fields of accounting in practice are
a. forensic accounting and financial accounting
b. managerial accounting and financial accounting
c. managerial accounting and environmental accounting
d. financial accounting and tax accounting systems
6. Public accountants are normally
a. Certified Public Accountants
b. Forensic accountants
c. Certified Internal Auditors
d. Certified Management Accountants
7.The initials GAAP stand for
a. General Accounting Procedures
b. Generally Accepted Plans
c. Generally Accepted Accounting Principles
d. Generally Accepted Accounting Practices

8.The business entity concept means that

a. the owner is part of the business entity
b. an entity is organized according to state or federal statutes
c. an entity is organized according to the rules set by the FASB
d. the entity is an individual economic unit for which data are recorded, analyzed, and
reported

9. The objectivity principle requires that

a. business transactions must be consistent with the objectives of the entity
b. the Financial Accounting Standards Board must be fair and unbiased in its
deliberations over new accounting standards
c. accounting principles must meet the objectives of the Security and Exchange
Commission
d. amounts recorded in the financial statements must be based on independently
verifiable evidence
10. Equipment with an estimated market value of $45,000 is offered for sale at $65,000. The
equipment is acquired for $10,000 in cash and a note payable of $40,000 due in 30 days. The
amount used in the buyer's accounting records to record this acquisition is
a. $50,000
b. $65,000
c. $10,000
d. $45,000
11. Owned resources of a business are referred to as
a. assets
b. liabilities
c. equities
d. revenues
12. Assets are
a. always greater than liabilities.
b. either cash or accounts receivables
c. the same as expenses because they are acquired with cash
d. financed by the owner and/or creditors
13. Debts owed by a business are referred to as
a. accounts receivables
b. equities
c. owners equity
d. Liabilities

14 .The accounting equation may be expressed as

a. Assets = Equities - Liabilities
b. Assets + Liabilities = Owner's Equity
c. Assets = Revenues less Liabilities
d. Assets - Liabilities = Owner's Equity
15.Which of the following is not a business transaction?
a. make a sales offer
b. sell goods for cash
c. receive cash for services to be rendered later
d. pay for supplies
16. A business paid $9,000 to a creditor in payment of an amount owed. The effect of the
transaction on the accounting equation was to
a. increase one asset, decrease another asset
b. increase an asset, increase a liability
c. decrease an asset, decrease a liability
d. increase an asset, increase owner's equity
17. Earning revenue
a. increases assets, increases owners equity.
b. increases assets, decreases owner's equity
c. increases one asset, decreases another asset
d. decreases assets, increases liabilities
18. The financial statement that presents a summary of the revenues and expenses of a business
for a specific period of time, such as a month or year, is called a(n)
a. prior period statement
b. statement of owner's equity
c. income statement
d. balance sheet
19.How does the purchase of equipment by signing a note affect the accounting equation?
a. assets increase; assets decrease
b. assets increase; liabilities decrease
c. assets increase; liabilities increase
d. assets increase; owner's equity increases
20. How does the purchase of supplies on account affect the accounting equation?
a. assets increase; owner's equity decreases
b. assets increase; liabilities increase
c. assets increase; liabilities decrease
d. liabilities increase; owner's equity decreases

21. Revenue should be recognized when

a. cash is received
b. the service is performed
c. the customer places an order
d. the customer charges an order
22. Which of the following accounts is an owner's equity account?
a. Cash
b. Accounts Payable
c. Prepaid Insurance
d. Julia Davis, Capital
23. The debit side of an account
a. depends on whether the account is an asset, liability or owner's equity
b. can be either side of the account depending on how the accountant set up the
system
c. is the right side of the account
d. is the left side of the account
24. An account is said to have a debit balance if
a. the amount of the debits exceeds the amount of the credits
b. there are more entries on the debit side than on the credit side
c. its normal balance is debit without regard to the amounts or number of entries on
the debit side
d. the first entry of the accounting period was posted on the debit side
25. A debit may signify a(n)
a. decrease in asset accounts
b. decrease in liability accounts
c. increase in the capital account
d. decrease in the drawing account
26. Which of the following types of accounts have a normal credit balance?
a. assets and liabilities
b. liabilities and expenses
c. revenues and liabilities
d. capital and drawing
27. A credit signifies a decrease in
a. drawing
b. liabilities
c. capital
d. Revenue

28. Which of the following applications of the rules of debit and credit is true?
a. decrease Prepaid Insurance with a credit and the normal balance is a credit
b. increase Accounts Payable with a credit and the normal balance is a debit
c. increase Supplies Expense with a debit and the normal balance is a debit
d. decrease Cash with a debit and the normal balance is a credit
29. The classification and normal balance of the accounts payable account is
a. an asset with a credit balance
b. a liability with a credit balance
c. owner's equity with a credit balance
d. revenue with a credit balance
30. The classification and normal balance of the supplies expense account is a(n)
a. asset with a debit balance
b. asset with a credit balance
c. expense with a debit balance
d. liability with a credit balance
31. The process of initially recording a business transaction is called
a. trial balancing
b. posting
c. journalizing
d. Balancing
32. If the two totals of a trial balance are not equal, it could be due to
a. failure to record a transaction
b. recording the same erroneous amount for both the debit and the credit parts of a
transaction
c. an error in determining the account balances, such as a balance being incorrectly
computed
d. recording the same transaction more than once
33. A trial balance is prepared to
a. prove that there were no errors made in recording transactions into the journal
b. prove that no errors were made in posting to the ledger
c. prove that each account balance is correct
d. summarize the account balances to help prepare financial statements
34. A credit balance in which of the following accounts would indicate a likely error?
a. Fees Earned
b. Salary Expense
c. Peter Penn, Capital
d. Accounts Payable

35. In which of the following types of accounts are increases recorded by debits?
a. assets, liabilities
b. drawing, liabilities
c. expenses, liabilities
d. assets, expenses