Financial Accounting

What is the main purpose of preparing business documents?

• To calculate income tax

• To record business transactions

• To calculate annual profit

• To reduce operating costs

What is the effect if a business records the wrong amount in the general journal?

• The bank account will be balanced

• The financial statements will be accurate

• There will be an error in the ledger

• No direct effect

What is the correct form of the accounting equation?

• Assets = Liabilities – Owner’s Equity

• Assets = Liabilities + Owner’s Equity

• Assets + Liabilities = Owner’s Equity

• Liabilities = Assets + Owner’s Equity

When a business purchases equipment with cash, what happens?

• Assets increase, Liabilities increase

• Assets decrease, Owner’s Equity increases

• One asset increases, another asset decreases

• Liabilities decrease, Assets increase

Under the accrual basis of accounting, revenue is recorded when:

• Cash is received

• Services are performed

• Invoice is issued

• Expenses are paid

Every transaction affects at least:

• One account
• Two accounts

• Four accounts

• Three accounts

Which of the following is NOT a source document?

• Invoice

• Receipt

• Ledger

• Purchase order

Which transaction is recorded in the sales journal?

• All cash receipts

• All sales of merchandise on credit

• Purchases of office supplies

• All cash sales

The main purpose of preparing a trial balance is to:

• Record transactions

• Verify the equality of debits and credits

• Prepare the income statement

• Determine cash balance

Which of the following is NOT part of the financial statements?

• Balance Sheet

• Income Statement

• Trial Balance

• Statement of Owner’s Equity