Accounting 101 Final Exam Ivy Tech 2024
Questions With Complete Solutions
Course
ACCT ACCT 101
Question 1
Which of the following is classified as a current asset on the balance sheet?
A. Land.
B. Accounts payable.
C. Inventory.
D. Notes payable.
Correct Answer:
C. Inventory.
Rationale:
Current assets are expected to be converted into cash or used up within one year. Inventory is a
current asset because it is typically sold or used up within the operating cycle of the business.
Question 2
The accounting equation is:
A. Assets = Liabilities + Stockholders' Equity.
B. Assets = Liabilities - Stockholders' Equity.
C. Assets = Revenue + Expenses.
D. Liabilities = Assets + Stockholders' Equity.
Correct Answer:
A. Assets = Liabilities + Stockholders' Equity.
Rationale:
The basic accounting equation ensures that a company's balance sheet remains balanced. It
represents the relationship between assets, liabilities, and owners' equity.
Question 3
Which of the following accounts is classified as an expense?
A. Accounts receivable.
B. Rent expense.
,C. Common stock.
D. Dividends payable.
Correct Answer:
B. Rent expense.
Rationale:
Rent expense is an income statement account that represents the cost of renting property or space
during a period. Expenses decrease net income and ultimately shareholders’ equity.
Question 4
Which of the following is NOT a part of the operating cycle?
A. Purchase of raw materials.
B. Sale of goods.
C. Borrowing funds from creditors.
D. Collection of cash from customers.
Correct Answer:
C. Borrowing funds from creditors.
Rationale:
The operating cycle refers to the process a company follows to turn its inventory into cash
(purchasing raw materials, selling goods, and collecting cash). Borrowing funds is a financing
activity, not part of the operating cycle.
Question 5
Which of the following is a liability account?
A. Accounts payable.
B. Retained earnings.
C. Common stock.
D. Cash.
Correct Answer:
A. Accounts payable.
Rationale:
Accounts payable represents the amount a company owes to suppliers for goods or services
purchased on credit, making it a liability account.
,Question 6
Which financial statement provides information about a company’s profitability over a
period of time?
A. Balance sheet.
B. Statement of cash flows.
C. Income statement.
D. Retained earnings statement.
Correct Answer:
C. Income statement.
Rationale:
The income statement reports a company’s revenues and expenses over a specific period,
showing whether the company is profitable (net income) or not (net loss).
Question 7
When a company borrows $10,000 from a bank, which of the following is true?
A. Assets increase by $10,000 and liabilities increase by $10,000.
B. Assets increase by $10,000 and stockholders’ equity increases by $10,000.
C. Liabilities decrease by $10,000.
D. Assets decrease by $10,000 and liabilities increase by $10,000.
Correct Answer:
A. Assets increase by $10,000 and liabilities increase by $10,000.
Rationale:
When a company borrows money, its cash (an asset) increases, and it takes on a corresponding
liability (loan payable), maintaining the balance of the accounting equation.
Question 8
If a company’s total assets are $500,000 and its liabilities are $300,000, what is the
company’s stockholders' equity?
A. $200,000.
B. $300,000.
C. $500,000.
D. $800,000.
Correct Answer:
A. $200,000.
, Rationale:
Using the accounting equation: Assets = Liabilities + Stockholders’ Equity.
$500,000 = $300,000 + Stockholders’ Equity.
Stockholders' equity = $500,000 - $300,000 = $200,000.
Question 9
Which of the following describes the matching principle in accounting?
A. Revenues are recognized when cash is received.
B. Expenses are matched with revenues in the period in which they are incurred to earn those
revenues.
C. Revenues are recognized when earned, regardless of when cash is received.
D. Expenses are recognized when cash is paid.
Correct Answer:
B. Expenses are matched with revenues in the period in which they are incurred to earn those
revenues.
Rationale:
The matching principle requires that expenses be recorded in the same period as the revenues
they help generate, ensuring that the financial statements reflect an accurate measure of
profitability.
Question 10
Which of the following is an example of an investing activity in the statement of cash flows?
A. Payment to suppliers.
B. Sale of equipment.
C. Issuance of common stock.
D. Payment of dividends.
Correct Answer:
B. Sale of equipment.
Rationale:
Investing activities involve the acquisition and disposal of long-term assets like property,
equipment, or investments. The sale of equipment is an investing activity as it involves the
disposal of a fixed asset.
Question 11
Questions With Complete Solutions
Course
ACCT ACCT 101
Question 1
Which of the following is classified as a current asset on the balance sheet?
A. Land.
B. Accounts payable.
C. Inventory.
D. Notes payable.
Correct Answer:
C. Inventory.
Rationale:
Current assets are expected to be converted into cash or used up within one year. Inventory is a
current asset because it is typically sold or used up within the operating cycle of the business.
Question 2
The accounting equation is:
A. Assets = Liabilities + Stockholders' Equity.
B. Assets = Liabilities - Stockholders' Equity.
C. Assets = Revenue + Expenses.
D. Liabilities = Assets + Stockholders' Equity.
Correct Answer:
A. Assets = Liabilities + Stockholders' Equity.
Rationale:
The basic accounting equation ensures that a company's balance sheet remains balanced. It
represents the relationship between assets, liabilities, and owners' equity.
Question 3
Which of the following accounts is classified as an expense?
A. Accounts receivable.
B. Rent expense.
,C. Common stock.
D. Dividends payable.
Correct Answer:
B. Rent expense.
Rationale:
Rent expense is an income statement account that represents the cost of renting property or space
during a period. Expenses decrease net income and ultimately shareholders’ equity.
Question 4
Which of the following is NOT a part of the operating cycle?
A. Purchase of raw materials.
B. Sale of goods.
C. Borrowing funds from creditors.
D. Collection of cash from customers.
Correct Answer:
C. Borrowing funds from creditors.
Rationale:
The operating cycle refers to the process a company follows to turn its inventory into cash
(purchasing raw materials, selling goods, and collecting cash). Borrowing funds is a financing
activity, not part of the operating cycle.
Question 5
Which of the following is a liability account?
A. Accounts payable.
B. Retained earnings.
C. Common stock.
D. Cash.
Correct Answer:
A. Accounts payable.
Rationale:
Accounts payable represents the amount a company owes to suppliers for goods or services
purchased on credit, making it a liability account.
,Question 6
Which financial statement provides information about a company’s profitability over a
period of time?
A. Balance sheet.
B. Statement of cash flows.
C. Income statement.
D. Retained earnings statement.
Correct Answer:
C. Income statement.
Rationale:
The income statement reports a company’s revenues and expenses over a specific period,
showing whether the company is profitable (net income) or not (net loss).
Question 7
When a company borrows $10,000 from a bank, which of the following is true?
A. Assets increase by $10,000 and liabilities increase by $10,000.
B. Assets increase by $10,000 and stockholders’ equity increases by $10,000.
C. Liabilities decrease by $10,000.
D. Assets decrease by $10,000 and liabilities increase by $10,000.
Correct Answer:
A. Assets increase by $10,000 and liabilities increase by $10,000.
Rationale:
When a company borrows money, its cash (an asset) increases, and it takes on a corresponding
liability (loan payable), maintaining the balance of the accounting equation.
Question 8
If a company’s total assets are $500,000 and its liabilities are $300,000, what is the
company’s stockholders' equity?
A. $200,000.
B. $300,000.
C. $500,000.
D. $800,000.
Correct Answer:
A. $200,000.
, Rationale:
Using the accounting equation: Assets = Liabilities + Stockholders’ Equity.
$500,000 = $300,000 + Stockholders’ Equity.
Stockholders' equity = $500,000 - $300,000 = $200,000.
Question 9
Which of the following describes the matching principle in accounting?
A. Revenues are recognized when cash is received.
B. Expenses are matched with revenues in the period in which they are incurred to earn those
revenues.
C. Revenues are recognized when earned, regardless of when cash is received.
D. Expenses are recognized when cash is paid.
Correct Answer:
B. Expenses are matched with revenues in the period in which they are incurred to earn those
revenues.
Rationale:
The matching principle requires that expenses be recorded in the same period as the revenues
they help generate, ensuring that the financial statements reflect an accurate measure of
profitability.
Question 10
Which of the following is an example of an investing activity in the statement of cash flows?
A. Payment to suppliers.
B. Sale of equipment.
C. Issuance of common stock.
D. Payment of dividends.
Correct Answer:
B. Sale of equipment.
Rationale:
Investing activities involve the acquisition and disposal of long-term assets like property,
equipment, or investments. The sale of equipment is an investing activity as it involves the
disposal of a fixed asset.
Question 11
