If you’re looking to test your knowledge and understanding of financial accounting principles and concepts, you’ve come to the right place. Our MCQs cover a wide range of topics, including recording financial transactions, preparing financial statements, analyzing financial data, and more. Whether you’re a student studying accounting, a professional looking to refresh your knowledge, or just someone interested in learning more about financial accounting, our MCQs are a great way to assess your skills and improve your understanding. So, let’s get started and see how well you know financial accounting!
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Q1. Which of the following is an example of a current asset?
A) Land
B) Buildings
C) Accounts receivable
D) Patents
Q2.Which of the following is an example of a contra account?
A) Accumulated depreciation
B) Accounts receivable
C) Common stock
D) Retained earnings
Q3. Which of the following is a liability?
A) Inventory
B) Prepaid expenses
C) Notes payable
D) Retained earnings
Q4. Which of the following is an example of an asset?
A) Accounts payable
B) Buildings
C) Salaries expense
D) Dividends paid
Q5. Which of the following is not a financial statement?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Journal
Q6. Which financial statement shows a company’s revenues and expenses over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Q7. Which financial statement shows a company’s assets, liabilities, and equity at a specific point in time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Q8. Which of the following is not an asset?
A) Accounts payable
B) Inventory
C) Buildings
D) Cash
Q9. Which of the following is not a liability?
A) Accounts payable
B) Notes payable
C) Salaries expense
D) Taxes payable
Q10. Which accounting principle requires that a company record its expenses when they are incurred, regardless of when the payment is made?
A) Matching principle
B) Revenue recognition principle
C) Going concern principle
D) Time period principle
Q11. Which accounting principle requires that a company record revenue when it is earned, regardless of when the payment is received?
A) Matching principle
B) Revenue recognition principle
C) Going concern principle
D) Time period principle
Q12. Which financial statement shows a company’s cash inflows and outflows over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Q13. Which of the following is not a type of account?
A) Asset
B) Liability
C) Equity
D) Customer service
Q14. What is the accounting equation?
A) Assets = Liabilities – Equity
B) Assets + Liabilities = Equity
C) Assets – Liabilities = Equity
D) Assets = Liabilities + Equity
Q15. Which accounting principle requires that a company use the same accounting methods and procedures from period to period?
A) Consistency principle
B) Materiality principle
C) Conservatism principle
D) Economic entity principle
Q16. Which of the following is not an expense?
A) Rent expense
B) Utilities expense
C) Accounts receivable
D) Wages expense
Q17. Which financial statement shows the details of a company’s revenues and expenses over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Q18. Which accounting principle requires that a company record the full amount of an expense in the period in which it is incurred, even if payment is not made until a later period?
A) Matching principle
B) Revenue recognition principle
C) Time period principle
D) Accruals principle
Q19. Which of the following is an example of a long-term liability?
A) Accounts payable
B) Notes payable due within one year
C) Short-term loans
D) Bonds payable due in 10 years
Q20. Which accounting principle requires that a company disclose all relevant information in the financial statements?
A) Materiality principle
B) Conservatism principle
C) Full disclosure principle
D) Economic entity principle
Q21. Which of the following is an example of a contra-asset account?
A) Accumulated depreciation
B) Accounts receivable
C) Prepaid expenses
D) Inventory
22.Which financial statement shows the net changes in a company’s cash and cash equivalents over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Q23. Which accounting principle requires that a company record expenses and liabilities as soon as they are known, even if the amount is uncertain?
A) Materiality principle
B) Conservatism principle
C) Full disclosure principle
D) Matching principle
Q24. Which of the following is an example of a deferred revenue account?
A) Accounts payable
B) Wages payable
C) Unearned revenue
D) Interest payable
Q25. Which accounting principle requires that a company record revenues when they are earned, even if the payment has not been received?
A) Accruals principle
B) Revenue recognition principle
C) Matching principle
D) Time period principle
Q26. Which financial statement shows the changes in a company’s long-term debt over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Q27. If liabilities decrease, what happens to equity assuming assets stay the same?
A) Equity increases
B) Equity decreases
C) Equity stays the same
D) Cannot be determined
Q28. Which of the following is an example of an intangible asset?
A) Land
B) Building
C) Inventory
D) Patent
Q29. If assets increase, what happens to equity assuming liabilities stay the same?
A) Equity increases
B) Equity decreases
C) Equity stays the same
D) Cannot be determined
Q30.Which of the following is an example of a prepaid expense?
a) Rent expense
b) Advertising expense
c) Interest expense
d) Insurance expense
Q31. Which of the following is an example of an intangible asset?
a) Land
b) Buildings
c) Equipment
d) Patents
Q32. Which of the following is an example of a long-term liability?
a) Accounts payable
b) Salaries payable
c) Bank loan
d) Rent expense
financial accounting important questions and answers
- What is financial accounting? Financial accounting is a branch of accounting that focuses on the preparation and reporting of financial statements for external stakeholders. It involves recording, summarizing, and interpreting financial transactions of a business.
- What are financial statements? Financial statements are formal reports that provide an overview of a company’s financial performance and position. The three main financial statements are the income statement, balance sheet, and cash flow statement.
- What is the purpose of financial accounting? The primary purpose of financial accounting is to provide relevant and reliable financial information to external users, such as investors, creditors, and regulators. It helps stakeholders make informed decisions about the company’s financial health and performance.
- What is the accounting equation? The accounting equation is a fundamental concept in financial accounting. It states that assets are equal to liabilities plus shareholders’ equity. It forms the basis for double-entry bookkeeping, where every transaction affects at least two accounts.
- What is the difference between cash basis and accrual basis accounting? Cash basis accounting records revenue and expenses when cash is received or paid. Accrual basis accounting records revenue when it is earned and expenses when they are incurred, regardless of cash flow. Accrual basis accounting provides a more accurate picture of a company’s financial performance.
- What are the generally accepted accounting principles (GAAP)? GAAP refers to a set of standard accounting principles, standards, and procedures that companies must follow when preparing financial statements. GAAP ensures consistency, comparability, and transparency in financial reporting.
- What is the role of an auditor in financial accounting? An auditor is an independent professional who examines a company’s financial statements to ensure they are prepared in accordance with applicable accounting standards. The auditor provides an opinion on the fairness and reliability of the financial statements.
- What is depreciation? Depreciation is the systematic allocation of the cost of a long-term asset over its useful life. It recognizes that assets, such as buildings and equipment, lose value over time due to wear and tear or obsolescence. Depreciation expense is reported on the income statement.
- What is the difference between financial accounting and managerial accounting? Financial accounting focuses on providing information to external users, while managerial accounting provides information to internal users, such as managers and decision-makers within a company. Managerial accounting helps with planning, controlling, and decision-making within the organization.
- What is the importance of internal controls in financial accounting? Internal controls are procedures and policies implemented by a company to safeguard its assets, ensure the accuracy of financial records, and prevent fraud. They help maintain the reliability and integrity of financial information and protect the interests of stakeholders.