IMPORTANT QUESTIONS WITH ANSWERS RELATED TO BOOK-KEEPING AND ACCOUNTANCY

1. What is the primary purpose of bookkeeping?
   a. To record and summarize financial transactions
   b. To promote a company’s products
   c. To analyze market trends
   d. To manage human resources

   Answer: a. To record and summarize financial transactions

   Which of the following is not an essential financial statement?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Sales Pitch

   Answer: d. Sales Pitch

   Which accounting method records revenues and expenses when they are earned or incurred, regardless of when the cash is received or paid?
   a. Cash basis accounting
   b. Accrual basis accounting
   c. Double-entry accounting
   d. FIFO accounting

   Answer: b. Accrual basis accounting

   What is the fundamental accounting equation?
   a. Assets = Liabilities + Owner’s Equity
   b. Assets = Revenues + Expenses
   c. Liabilities = Owner’s Equity
   d. Revenue = Profit

   Answer: a. Assets = Liabilities + Owner’s Equity

   Which financial statement provides a snapshot of a company’s financial position at a specific point in time?
   a. Income Statement
   b. Cash Flow Statement
   c. Balance Sheet
   d. Trial Balance

   Answer: c. Balance Sheet

   Which of the following accounts would typically appear on the debit side of a journal entry?
   a. Accounts Payable
   b. Revenue
   c. Accounts Receivable
   d. Common Stock

   Answer: b. Revenue

   What is the purpose of depreciation in accounting?
   a. To reduce taxes
   b. To increase asset values
   c. To allocate the cost of a tangible asset over its useful life
   d. To create a reserve fund

   Answer: c. To allocate the cost of a tangible asset over its useful life

   Which of the following financial statements shows the profitability of a company over a specific period?
   a. Income Statement
   b. Cash Flow Statement
   c. Balance Sheet
   d. Statement of Retained Earnings

   Answer: a. Income Statement

   What is the primary purpose of the trial balance?
   a. To prepare financial statements
   b. To identify errors and ensure that debits equal credits
   c. To estimate future cash flows
   d. To reconcile bank statements

   Answer: b. To identify errors and ensure that debits equal credits

   When a company pays cash to its creditors, which account is debited?
   a. Cash
   b. Accounts Payable
   c. Accounts Receivable
   d. Prepaid Expenses

   Answer: b. Accounts Payable

   Which accounting principle states that accounting information should be verifiable and free from bias?
   a. Going Concern Principle
   b. Matching Principle
   c. Reliability Principle
   d. Materiality Principle

   Answer: c. Reliability Principle

   What is the purpose of the double-entry accounting system?
   a. To record transactions twice
   b. To ensure that assets always equal liabilities
   c. To prevent fraud
   d. To maintain the accounting equation

   Answer: d. To maintain the accounting equation

   Which of the following is a contra account?
   a. Accounts Receivable
   b. Accumulated Depreciation
   c. Common Stock
   d. Prepaid Expenses

   Answer: b. Accumulated Depreciation

   What type of account is “Owners’ Equity”?
   a. Asset
   b. Liability
   c. Revenue
   d. None of the above

   Answer: d. None of the above

   Which financial statement reports changes in retained earnings over a specific period?
   a. Income Statement
   b. Cash Flow Statement
   c. Balance Sheet
   d. Statement of Retained Earnings

   Answer: d. Statement of Retained Earnings

   What is the purpose of the cash flow statement?
   a. To show the company’s financial position at a specific date
   b. To provide a summary of the company’s cash transactions
   c. To calculate the company’s tax liability
   d. To report revenue and expenses

   Answer: b. To provide a summary of the company’s cash transactions

   In which financial statement would you find information about dividends paid to shareholders?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Statement of Retained Earnings

   Answer: d. Statement of Retained Earnings

   Which accounting concept assumes that a company will continue to operate indefinitely?
   a. Going Concern Concept
   b. Materiality Concept
   c. Conservatism Concept
   d. Matching Concept

   Answer: a. Going Concern Concept

   What is the purpose of the accounting cycle?
   a. To create financial statements
   b. To record financial transactions
   c. To determine tax liabilities
   d. To manage employee payroll

   Answer: a. To create financial statements

   Which financial statement would you use to determine a company’s ability to generate cash flow from its operations?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Statement of Retained Earnings

   Answer: c. Cash Flow Statement

   What does the term “amortization” refer to in accounting?
   a. The process of recording financial transactions
   b. The allocation of the cost of an intangible asset over its useful life
   c. The calculation of interest on a loan
   d. The process of auditing financial statements

   Answer: b. The allocation of the cost of an intangible asset over its useful life

   Which of the following is not an asset account?
   a. Cash
   b. Accounts Payable
   c. Inventory
   d. Accounts Receivable

   Answer: b. Accounts Payable

   Which of the following represents a liability?
   a. Prepaid Rent
   b. Common Stock
   c. Accounts Payable
   d. Equipment

   Answer: c. Accounts Payable

   What is the purpose of the general ledger in accounting?
   a. To record daily financial transactions
   b. To prepare financial statements
   c. To track customer orders
   d. To store confidential financial information

   Answer: b. To prepare financial statements

   Which of the following is an example of a contra account?
   a. Accounts Payable
   b. Accumulated Depreciation
   c. Equipment
   d. Sales Revenue

   Answer: b. Accumulated Depreciation

   What is the purpose of the income statement?
   a. To show the company’s financial position at a specific date
   b. To provide a summary of the company’s cash transactions
   c. To report revenue and expenses over a specific period
   d. To calculate the company’s tax liability

   Answer: c. To report revenue and expenses over a specific period

   Which accounting principle requires that expenses be recorded in the same period as the revenue they help to generate?
   a. Matching Principle
   b. Conservatism Principle
   c. Materiality Principle
   d. Going Concern Principle

   Answer: a. Matching Principle

   What does the term “accrual” mean in accounting?
   a. The process of paying off debts
   b. The process of recording transactions as they occur, regardless of when cash changes hands
   c. The process of depreciating assets
   d. The process of preparing financial statements

   Answer: b. The process of recording transactions as they occur, regardless of when cash changes hands

   Which financial statement shows the ending balances of a company’s equity accounts?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Statement of Retained Earnings

   Answer: b. Balance Sheet

   What is the purpose of a trial balance?
   a. To prepare financial statements
   b. To verify that debits and credits are equal
   c. To calculate net income
   d. To record daily transactions

   Answer: b. To verify that debits and credits are equal

   Which of the following is a long-term liability?
   a. Accounts Payable
   b. Notes Payable
   c. Accounts Receivable
   d. Salaries Expense

   Answer: b. Notes Payable

   Which financial statement reports the cash inflows and outflows from operating, investing, and financing activities?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Statement of Retained Earnings

   Answer: c. Cash Flow Statement

   What is the formula for calculating net income on the income statement?
   a. Revenue – Expenses
   b. Assets – Liabilities
   c. Cash Inflows – Cash Outflows
   d. Beginning Retained Earnings + Net Income – Dividends

   Answer: a. Revenue – Expenses

   Which of the following is not an expense account?
   a. Rent Expense
   b. Salaries Expense
   c. Common Stock
   d. Utilities Expense

   Answer: c. Common Stock

   What is the purpose of a journal entry?
   a. To record the opening balance of an account
   b. To summarize all financial transactions of a company
   c. To calculate depreciation expense
   d. To close out revenue accounts

   Answer: b. To summarize all financial transactions of a company

   Which accounting principle dictates that financial statements should be prepared with the assumption that the company will continue to operate indefinitely?
   a. Matching Principle
   b. Going Concern Principle
   c. Materiality Principle
   d. Conservatism Principle

   Answer: b. Going Concern Principle

   What is the main purpose of the Statement of Cash Flows?
   a. To show a company’s financial position at a specific date
   b. To provide a summary of the company’s cash transactions
   c. To calculate taxes owed by the company
   d. To report revenue and expenses over a specific period

   Answer: b. To provide a summary of the company’s cash transactions

   Which financial statement is also known as the “profit and loss statement”?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Statement of Retained Earnings

   Answer: a. Income Statement

   What is the purpose of the chart of accounts in accounting?
   a. To list the company’s customers and vendors
   b. To summarize all financial transactions
   c. To provide a list of all the company’s assets
   d. To organize and classify accounts for financial reporting

   Answer: d. To organize and classify accounts for financial reporting

   What is the purpose of adjusting entries in accounting?
   a. To record daily financial transactions
   b. To close out revenue accounts
   c. To update accounts for accruals and deferrals
   d. To calculate net income

   Answer: c. To update accounts for accruals and deferrals

   Which accounting principle requires that financial statements be prepared with the assumption that the company will not overstate its assets or income?
   a. Going Concern Principle
   b. Matching Principle
   c. Conservatism Principle
   d. Materiality Principle

   Answer: c. Conservatism Principle

   When recording a purchase of inventory on credit, which accounts are affected?
   a. Cash and Inventory
   b. Accounts Receivable and Revenue
   c. Accounts Payable and Inventory
   d. Common Stock and Retained Earnings

   Answer: c. Accounts Payable and Inventory

   What is the purpose of the general journal in accounting?
   a. To record daily financial transactions
   b. To calculate net income
   c. To prepare financial statements
   d. To organize financial information

   Answer: a. To record daily financial transactions

   Which financial statement reports the changes in equity accounts over a specific period, including dividends?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Statement of Retained Earnings

   Answer: d. Statement of Retained Earnings

   What is the purpose of a post-closing trial balance?
   a. To verify the accuracy of the financial statements
   b. To record adjusting entries
   c. To calculate depreciation expense
   d. To prepare tax returns

   Answer: a. To verify the accuracy of the financial statements

   What is the purpose of the FIFO (First-In, First-Out) method in inventory valuation?
   a. To assume that the most recent inventory purchases are the first to be sold
   b. To assume that the oldest inventory purchases are the first to be sold
   c. To calculate depreciation expense
   d. To determine the market value of inventory

   Answer: b. To assume that the oldest inventory purchases are the first to be sold

   Which financial statement is used to reconcile the beginning and ending balances of retained earnings?
   a. Income Statement
   b. Balance Sheet
   c. Cash Flow Statement
   d. Statement of Retained Earnings

   Answer: d. Statement of Retained Earnings

   What is the purpose of the accruals and deferrals in accounting?
   a. To calculate taxes
   b. To adjust accounts for cash transactions
   c. To record revenues and expenses when they are earned or incurred
   d. To prepare financial statements

   Answer: c. To record revenues and expenses when they are earned or incurred

   What is the primary purpose of financial accounting?
   a. To provide information for internal management decisions
   b. To provide information for external stakeholders, such as investors and creditors
   c. To control day-to-day operations of a business
   d. To calculate income tax liabilities

   Answer: b. To provide information for external stakeholders, such as investors and creditors

   What is the main objective of financial reporting according to Generally Accepted Accounting Principles (GAAP)?
   a. To maximize profits
   b. To maintain internal controls
   c. To provide useful information to investors and creditors
   d. To reduce tax liabilities

   Answer: c. To provide useful information to investors and creditors