Multiple Choice Questions
1. Which of the following is not included in the definition of accounting?
a. Identifying economic information
b. Measuring economic information
c. Developing economic information
d. Communicating economic information
2. Which assumption states that an economic entity will continue its operations indefinitely?
a. Monetary unit
b. Time period
c. Going concern
d. Economic entity
3. Net income is created in a time period when:
a. assets exceed liabilities.
b. revenues exceed expenses.
c. revenues are less than expenses.
d. liabilities are greater than assets.
4. Which financial statement reports revenues and expenses?
a. Statement of retained earnings
b. Balance sheet
c. Statement of cash flows
d. Income statement
5. The revenue recognition principle states that:
a. assets are recorded and maintained at their historical costs.
b. revenues are recorded when they are earned.
c. the dollar, unadjusted for inflation, is the best means of accounting in the U.S.
d. revenues are recorded when cash is received.
6. During the year, Callie's Bagel Shop had revenues of $125,000. Rent expense was $12,000. Salaries expense was $25,000. Shortterm investments were $35,000. Other expenses totaled $40,000. What was Callie's net income?
a. $85,000
b. $13,000
c. $48,000
d. $60,000
7. Which of the following accurately describes the matching principle?
a. Matches assets and liabilities
b. Matches income and dividends
c. Matches retained earnings and income
d. Matches revenues and expenses
8. The basic accounting equation states:
a. assets and liabilities equal equity.
b. assets equal liabilities plus equity.
c. liabilities equal equity plus assets.
d. revenues minus expenses equals net income.