MGT 8803 – FINANCIAL ACCOUNTING EXAM
I QUESTIONS AND ANSWERS WITH
RATIONELS LATEST 2026
SECTION I – MULTIPLE CHOICE (Questions 1–100)
1. Which of the following is NOT a basic element of a balance sheet?
a) Assets
b) Liabilities
c) Revenues
d) Equity
Answer: c – Revenues appear on the income statement, not the balance
sheet.
2. If total liabilities increase
by 10,000andtotalequitydecreasesby10,000andtotalequitydecreasesby
5,000, total assets will:
a) Increase by 5,000b)Decreaseby5,000b)Decreaseby5,000
c) Increase by $15,000
d) Remain unchanged
,Answer: a – Assets = Liabilities + Equity → Change: +10,000 – 5,000 =
+5,000.
3. Paying a utility bill with cash affects the accounting equation by:
a) Decreasing assets and decreasing equity
b) Increasing liabilities and decreasing equity
c) Decreasing assets and increasing liabilities
d) Increasing assets and increasing expenses
Answer: a – Cash (asset) decreases; expense reduces equity (retained
earnings).
4. Which statement is prepared first?
a) Balance sheet
b) Statement of cash flows
c) Income statement
d) Statement of retained earnings
Answer: c – Net income from income statement is needed for retained
earnings.
5. A company receives $5,000 cash from a customer for work
performed today. The journal entry includes:
a) Debit Cash, Credit Accounts Receivable
b) Debit Cash, Credit Service Revenue
c) Debit Service Revenue, Credit Cash
d) Debit Accounts Receivable, Credit Service Revenue
, Answer: b – Cash increases (debit) and revenue increases (credit).
6. The account “Unearned Revenue” is classified as a(n):
a) Asset
b) Liability
c) Expense
d) Revenue
Answer: b – It represents an obligation to provide goods/services in
the future.
7. Which of the following accounts has a normal credit balance?
a) Prepaid Rent
b) Accumulated Depreciation
c) Cost of Goods Sold
d) Dividends
Answer: b – Accumulated depreciation is a contra-asset with a credit
balance.
8. A company
spends 3,600cashona3-yearinsurancepolicy.Theadjustingentryafter6mo
nthsis:a)DebitInsuranceExpense3,600cashona3-yearinsurancepolicy.Th
eadjustingentryafter6monthsis:a)DebitInsuranceExpense600; Credit
Prepaid
Insurance 600b)DebitInsuranceExpense600b)DebitInsuranceExpense1
,200; Credit Prepaid
I QUESTIONS AND ANSWERS WITH
RATIONELS LATEST 2026
SECTION I – MULTIPLE CHOICE (Questions 1–100)
1. Which of the following is NOT a basic element of a balance sheet?
a) Assets
b) Liabilities
c) Revenues
d) Equity
Answer: c – Revenues appear on the income statement, not the balance
sheet.
2. If total liabilities increase
by 10,000andtotalequitydecreasesby10,000andtotalequitydecreasesby
5,000, total assets will:
a) Increase by 5,000b)Decreaseby5,000b)Decreaseby5,000
c) Increase by $15,000
d) Remain unchanged
,Answer: a – Assets = Liabilities + Equity → Change: +10,000 – 5,000 =
+5,000.
3. Paying a utility bill with cash affects the accounting equation by:
a) Decreasing assets and decreasing equity
b) Increasing liabilities and decreasing equity
c) Decreasing assets and increasing liabilities
d) Increasing assets and increasing expenses
Answer: a – Cash (asset) decreases; expense reduces equity (retained
earnings).
4. Which statement is prepared first?
a) Balance sheet
b) Statement of cash flows
c) Income statement
d) Statement of retained earnings
Answer: c – Net income from income statement is needed for retained
earnings.
5. A company receives $5,000 cash from a customer for work
performed today. The journal entry includes:
a) Debit Cash, Credit Accounts Receivable
b) Debit Cash, Credit Service Revenue
c) Debit Service Revenue, Credit Cash
d) Debit Accounts Receivable, Credit Service Revenue
, Answer: b – Cash increases (debit) and revenue increases (credit).
6. The account “Unearned Revenue” is classified as a(n):
a) Asset
b) Liability
c) Expense
d) Revenue
Answer: b – It represents an obligation to provide goods/services in
the future.
7. Which of the following accounts has a normal credit balance?
a) Prepaid Rent
b) Accumulated Depreciation
c) Cost of Goods Sold
d) Dividends
Answer: b – Accumulated depreciation is a contra-asset with a credit
balance.
8. A company
spends 3,600cashona3-yearinsurancepolicy.Theadjustingentryafter6mo
nthsis:a)DebitInsuranceExpense3,600cashona3-yearinsurancepolicy.Th
eadjustingentryafter6monthsis:a)DebitInsuranceExpense600; Credit
Prepaid
Insurance 600b)DebitInsuranceExpense600b)DebitInsuranceExpense1
,200; Credit Prepaid
