ACCT 5312 Exam 1 Questions and
Answers Practice Questions with
Solutions Newest | Already Graded
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Q1. What is the fundamental accounting equation?
A1. Assets = Liabilities + Owners' Equity
Ration: This equation must always balance; it's the foundation of
double-entry accounting.
Q2. A company purchases equipment for $10,000 cash. What is
the effect on the accounting equation?
A2. Assets increase (equipment) and decrease (cash) – no net
change; liabilities/equity unchanged.
Ration: One asset replaces another; total assets remain the same.
Q3. Revenue is recorded when:
A3. Earned, regardless of cash receipt (accrual basis).
Ration: Accrual accounting recognizes revenue when performance
obligation is satisfied.
Q4. What is a liability?
A4. A present obligation arising from past events.
Ration: Liabilities represent future sacrifices of economic benefits.
Q5. Which financial statement reports revenues and expenses?
A5. Income Statement.
,Ration: The income statement measures profitability over a
period.
Q6. Retained earnings is affected by:
A6. Net income and dividends.
Ration: Net income increases retained earnings; dividends
decrease it.
Q7. What is the normal balance of accounts receivable?
A7. Debit.
Ration: Assets have normal debit balances.
Q8. What is the normal balance of accounts payable?
A8. Credit.
Ration: Liabilities have normal credit balances.
Q9. A debit increases which account types?
A9. Assets, expenses, dividends.
Ration: DEAD = Debits increase Expenses, Assets, Dividends.
Q10. A credit increases which account types?
A10. Liabilities, equity, revenue.
Ration: CLER = Credits increase Liabilities, Equity, Revenue.
Q11. What is a trial balance?
A11. A list of all ledger accounts with their debit or credit
balances.
Ration: Used to verify that total debits equal total credits.
Q12. If total debits = total credits after adjustments, the books
are:
A12. In balance, but not necessarily correct.
, Ration: Equality doesn't guarantee correct account balances (e.g.,
omitted transactions).
Q13. What is the difference between cash basis and accrual
accounting?
A13. Cash basis records when cash changes hands; accrual
records when earned/incurred.
Ration: GAAP requires accrual basis for most companies.
Q14. Depreciation expense is classified as:
A14. Operating expense (non-cash).
Ration: It allocates cost of long-term assets over useful life.
Q15. Prepaid rent is what type of account?
A15. Asset.
Ration: Represents future economic benefit (future use of
property).
Q16. Unearned revenue is what type of account?
A16. Liability.
Ration: Obligation to provide goods/services in the future.
Q17. Which statement shows assets = liabilities + equity at a
point in time?
A17. Balance sheet.
Ration: A snapshot of financial position on a specific date.
Q18. Which statement shows cash inflows and outflows?
A18. Statement of cash flows.
Ration: Classifies cash activities into operating, investing,
financing.
Answers Practice Questions with
Solutions Newest | Already Graded
A+
Q1. What is the fundamental accounting equation?
A1. Assets = Liabilities + Owners' Equity
Ration: This equation must always balance; it's the foundation of
double-entry accounting.
Q2. A company purchases equipment for $10,000 cash. What is
the effect on the accounting equation?
A2. Assets increase (equipment) and decrease (cash) – no net
change; liabilities/equity unchanged.
Ration: One asset replaces another; total assets remain the same.
Q3. Revenue is recorded when:
A3. Earned, regardless of cash receipt (accrual basis).
Ration: Accrual accounting recognizes revenue when performance
obligation is satisfied.
Q4. What is a liability?
A4. A present obligation arising from past events.
Ration: Liabilities represent future sacrifices of economic benefits.
Q5. Which financial statement reports revenues and expenses?
A5. Income Statement.
,Ration: The income statement measures profitability over a
period.
Q6. Retained earnings is affected by:
A6. Net income and dividends.
Ration: Net income increases retained earnings; dividends
decrease it.
Q7. What is the normal balance of accounts receivable?
A7. Debit.
Ration: Assets have normal debit balances.
Q8. What is the normal balance of accounts payable?
A8. Credit.
Ration: Liabilities have normal credit balances.
Q9. A debit increases which account types?
A9. Assets, expenses, dividends.
Ration: DEAD = Debits increase Expenses, Assets, Dividends.
Q10. A credit increases which account types?
A10. Liabilities, equity, revenue.
Ration: CLER = Credits increase Liabilities, Equity, Revenue.
Q11. What is a trial balance?
A11. A list of all ledger accounts with their debit or credit
balances.
Ration: Used to verify that total debits equal total credits.
Q12. If total debits = total credits after adjustments, the books
are:
A12. In balance, but not necessarily correct.
, Ration: Equality doesn't guarantee correct account balances (e.g.,
omitted transactions).
Q13. What is the difference between cash basis and accrual
accounting?
A13. Cash basis records when cash changes hands; accrual
records when earned/incurred.
Ration: GAAP requires accrual basis for most companies.
Q14. Depreciation expense is classified as:
A14. Operating expense (non-cash).
Ration: It allocates cost of long-term assets over useful life.
Q15. Prepaid rent is what type of account?
A15. Asset.
Ration: Represents future economic benefit (future use of
property).
Q16. Unearned revenue is what type of account?
A16. Liability.
Ration: Obligation to provide goods/services in the future.
Q17. Which statement shows assets = liabilities + equity at a
point in time?
A17. Balance sheet.
Ration: A snapshot of financial position on a specific date.
Q18. Which statement shows cash inflows and outflows?
A18. Statement of cash flows.
Ration: Classifies cash activities into operating, investing,
financing.
