Introduction to Accounting ( MCQ )

What is the accounting equation? 

A. Assets + Liabilities = Equity 

B. Assets = Liabilities + Equity 

C. Assets + Equity = Liabilities 

D. Liabilities = Assets + Equity

   Correct Answer: B


Which financial statement reports a company’s financial performance over a specific accounting period? 

A. Balance Sheet 

B. Income Statement 

C. Statement of Cash Flows 

D. Equity Statement

     Correct Answer: B


What does the term 'double-entry bookkeeping' mean? 

A. Each transaction affects two ledger accounts. 

B. Each transaction is entered twice in the ledger. 

C. Two accountants must check each transaction. 

D. All transactions are recorded at double their value.

     Correct Answer: A


Which of the following is considered an asset? 

A. Bank Loan 

B. Accounts Payable 

C. Inventory 

D. Dividends Paid

    Correct Answer: C


What principle states that expenses should be recorded in the period in which they are incurred? 

A. Going Concern Principle 

B. Accrual Principle 

C. Conservatism Principle 

D. Cost Principle

      Correct Answer: B


Which of the following is a liability? 

A. Cash 

B. Accounts Receivable 

C. Accounts Payable 

D. Prepaid Insurance

   Correct Answer: C


What is depreciation? 

A. The increase in value of an asset over time 

B. The decrease in value of an asset over time 

C. The process of dividing profits among shareholders 

D. The process of increasing capital

    Correct Answer: B


The matching principle states that: 

A. Expenses should be matched with the revenues they generate. 

B. All transactions must be matched with a receipt. 

C. Assets must always match liabilities. 

D. Every debit has a corresponding credit.

         Correct Answer: A

Which of the following is not a characteristic of financial accounting?

 A. Provides financial information to external users 

B. Focuses on the company as a whole 

C. Adheres strictly to GAAP or IFRS 

D. Primarily used for internal decision making

    Correct Answer: D


What does GAAP stand for?

 A. Generally Accepted Accounting Principles 

B. General Accounting and Auditing Practices 

C. Governmental Accounting Assessment Procedures 

D. Global Audit and Accounting Policies

    Correct Answer: A


Which statement about the cash basis of accounting is true? 

A. It recognizes revenue when it is earned and expenses when they are incurred. 

B. It is the most commonly used method among large corporations. 

C. It recognizes revenue and expenses only when cash is received or paid. 

D. It complies with GAAP.

    Correct Answer: C


What is equity?

 A. The total liabilities owed by a company 

B. The residual interest in the assets of the entity after deducting liabilities
C. The amount of cash a company has on hand 

D. The total amount of debts a company owes to its creditors

    Correct Answer: B


Which of the following would appear on the income statement? 

A. Cash 

B. Accounts Receivable 

C. Sales Revenue 

D. Buildings

    Correct Answer: C


What does the term 'liquidity' refer to? 

A. The profitability of a company 

B. The solvency of a company 

C. The ability of a company to pay its debts as they come due 

D. The amount of loan a company can secure

    Correct Answer: C


Which of the following is a true statement about the statement of cash flows? 

A. It shows the company’s revenues and expenses. 

B. It reveals the financial position of a company at a point in time. 

C. It provides information about cash receipts and cash payments during a period. 

D. It displays the dividends paid to shareholders.

   Correct Answer: C