Business and Accounting Quiz
1. According to double-entry accounting, which of the following is a correct statement regarding transactions? (Points : 1)
Each transaction must increase an asset and a liability.
Purchasing supplies on account is shown by an increase on the left side of the T- account called Accounts Payable.
Any time a company increases its revenue, the owner’s equity is also increased.
Entering an amount on the left side of a T-account increases the balance in that account.
2. Which of the following determinations can be made by analyzing a company’s ROA? (Points : 1)
How a company invests its profits
Whether a company is likely to make money in the future
3. What is the most important document to have completed before preparing an Income Statement, and why? (Points : 1)
The Statement of Owner’s Equity because it provides the company’s net income
The trial balance because it provides revenues and expenses
The Balance Sheet because it calculates total assets
The General Ledger because it contains a running balance of all accounts
4. What impact would you predict a low degree of financial leverage would have on a company? (Points : 1)
The company would be at low risk of paying its debts.
A steadily increasing stock value.
A return on investments that is lower than the industry average.
High interest rates on equipment purchased on account.
5. Explain the differences/similarities of journalizing and posting? (Points : 1)
Journalizing is done to the general ledger, although posting is done to individual ledgers.
Journalizing is done in the journal, although posting is done to individual ledgers.
Both processes require that you maintain a running balance of each individual account.
According to GAAP, all posting to the general ledger must be done by the end of the fiscal year, and journalizing is done monthly.
6. The CEO of a transportation company wants to use a large amount of cash for the purchase of additional new trucks and trailers rather than paying bonuses to its employees. The new trucks are more productive than the existing trucks or used trucks. The used trucks have a lower price than the new ones but the new ones have less yearly depreciation because of their longer useful period. Considering that the company president’s goal is the long term success of the company, would this normally be a wise decision? (Points : 1)
No. The employees will probably quit if they don’t receive a bonus.
No. Purchasing used equipment will have a better effect on net income.
No. Keeping up employee moral might prove to be more financially advantageous for the company.
Yes. Purchasing new provides an opportunity to increase revenue.
7. Which of the following statements is true regarding the different types of general ledger accounts? (Points : 1)
One type of business expense is an owner withdrawal of equity.
When a company receives money as payment for goods sold, it increases its accounts receivable.
An employee using a company credit card creates an account payable.
Building rent for the month of December that will be paid on December 15th is an example of an accrued liability.
8. How is the trial balance similar to or different from the other financial statements? (Points : 1)
It is not a financial statement. It is a tool used only to maintain correct ledger account balances.
It can be prepared independently of the other statements.
It is used by potential investors to determine the company’s worth.
It is the last statement prepared because it requires information from the other four financial statements to be completed.
9. Which of the following is accurate about financial statements? (Points : 1)
The Statement of Cash Flows reflects the changes in cash throughout the month.
The Balance Sheet can be prepared independently of the other financial statements.
The Statement of Owner’s Equity proves that equity is equal to a company’s assets plus its liabilities.
An Income Statement can be prepared only after the Statement of Owner’s Equity.
10. Who would you say benefits more when a company prepares accurate and truthful financial statements? (Points : 1)
The employee benefits because they often receive better wages if their employer is successful.
Suppliers benefit because they are often able to negotiate higher prices for their product.
The stockholders benefit because they receive bonus dividends if the company has a successful audit.
Members of the Board of Directors benefit because they receive a salary increase if the company is not penalized after an audit.