D196 Exam 1: Principles of Financial and Managerial
Accounting Verified and Latest Questions and Answers
1. Which of the following is the primary purpose of financial accounting?
A. To provide information to internal managers for decision-making
B. To provide information to external users such as investors and creditors
C. To track the daily manufacturing costs of a specific product
D. To assist in the preparation of internal budgets and forecasts
Answer: B
Explanation: Financial accounting focuses on providing information to external
stakeholders like investors, lenders, and regulators through standardized financial
statements.
2. The accounting equation is expressed as:
A. Assets = Liabilities - Equity
B. Assets = Liabilities + Equity
C. Assets + Liabilities = Equity
D. Revenues - Expenses = Net Income
Answer: B
Explanation: The fundamental accounting equation states that the resources owned by a
business (Assets) are financed by either creditors (Liabilities) or owners (Equity).
,3. Which financial statement reports the financial position of a company at a
specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Statement of Retained Earnings
D. Balance Sheet
Answer: D
Explanation: The Balance Sheet provides a snapshot of assets, liabilities, and equity at a
specific date, unlike other statements that cover a period of time.
4. If a company has Assets of $100,000 and Equity of $40,000, what are its total
Liabilities?
A. $140,000
B. $60,000
C. $40,000
D. $100,000
Answer: B
Explanation: Using the equation Assets = Liabilities + Equity: $100,000 = Liabilities +
$40,000. Therefore, Liabilities = $60,000.
5. Which type of account is ‘Accounts Receivable’?
A. Liability
B. Asset
C. Equity
D. Revenue
Answer: B
Explanation: Accounts Receivable represents money owed to the company by customers,
which is a resource (Asset).
, 6. What is the normal balance of a ‘Service Revenue’ account?
A. Debit
B. Credit
C. Zero
D. Negative
Answer: B
Explanation: Revenue accounts increase equity; since equity has a normal credit balance,
revenue also has a normal credit balance.
7. Which of the following describes the matching principle?
A. Matching assets with liabilities on the balance sheet
B. Recording expenses in the same period as the revenues they helped generate
C. Ensuring debits equal credits in every transaction
D. Recording revenue only when cash is received
Answer: B
Explanation: The matching principle (expense recognition) dictates that expenses should
be recognized in the period they contribute to generating revenue.
8. A company pays $12,000 for a one-year insurance policy on January 1st. How
much insurance expense should be recognized for the month of January?
A. $12,000
B. $0
C. $6,000
D. $1,000
Answer: D
Explanation: Under accrual accounting, the cost is spread over the benefit period: $12,000
/ 12 months = $1,000 per month.
Accounting Verified and Latest Questions and Answers
1. Which of the following is the primary purpose of financial accounting?
A. To provide information to internal managers for decision-making
B. To provide information to external users such as investors and creditors
C. To track the daily manufacturing costs of a specific product
D. To assist in the preparation of internal budgets and forecasts
Answer: B
Explanation: Financial accounting focuses on providing information to external
stakeholders like investors, lenders, and regulators through standardized financial
statements.
2. The accounting equation is expressed as:
A. Assets = Liabilities - Equity
B. Assets = Liabilities + Equity
C. Assets + Liabilities = Equity
D. Revenues - Expenses = Net Income
Answer: B
Explanation: The fundamental accounting equation states that the resources owned by a
business (Assets) are financed by either creditors (Liabilities) or owners (Equity).
,3. Which financial statement reports the financial position of a company at a
specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Statement of Retained Earnings
D. Balance Sheet
Answer: D
Explanation: The Balance Sheet provides a snapshot of assets, liabilities, and equity at a
specific date, unlike other statements that cover a period of time.
4. If a company has Assets of $100,000 and Equity of $40,000, what are its total
Liabilities?
A. $140,000
B. $60,000
C. $40,000
D. $100,000
Answer: B
Explanation: Using the equation Assets = Liabilities + Equity: $100,000 = Liabilities +
$40,000. Therefore, Liabilities = $60,000.
5. Which type of account is ‘Accounts Receivable’?
A. Liability
B. Asset
C. Equity
D. Revenue
Answer: B
Explanation: Accounts Receivable represents money owed to the company by customers,
which is a resource (Asset).
, 6. What is the normal balance of a ‘Service Revenue’ account?
A. Debit
B. Credit
C. Zero
D. Negative
Answer: B
Explanation: Revenue accounts increase equity; since equity has a normal credit balance,
revenue also has a normal credit balance.
7. Which of the following describes the matching principle?
A. Matching assets with liabilities on the balance sheet
B. Recording expenses in the same period as the revenues they helped generate
C. Ensuring debits equal credits in every transaction
D. Recording revenue only when cash is received
Answer: B
Explanation: The matching principle (expense recognition) dictates that expenses should
be recognized in the period they contribute to generating revenue.
8. A company pays $12,000 for a one-year insurance policy on January 1st. How
much insurance expense should be recognized for the month of January?
A. $12,000
B. $0
C. $6,000
D. $1,000
Answer: D
Explanation: Under accrual accounting, the cost is spread over the benefit period: $12,000
/ 12 months = $1,000 per month.
