FBLA Accounting Practice Questions
Questions
Which definition best describes accounting?
- Recording, summarizing, and reporting financial information
- Preparing a business's tax return once a year and nothing more
- Predicting how customers will react to a new product line
- Scheduling employees and assigning their daily job duties
Accounting is often called "the language of business" because it:
- Communicates financial results to decision-makers
- Must legally be written in formal business English
- Replaces the need for owners to make any decisions
- Is used only by large, publicly traded corporations
Which of the following is an EXTERNAL user of a company's financial information?
- A bank deciding whether to approve a loan
- The company's sales manager setting next quarter's quotas
- The owner reviewing last month's expenses
- A department head preparing next year's budget
A store manager uses last quarter's sales data to decide how much inventory to order. This is an example of:
- An internal user relying on financial information
- An external user relying on financial information
- A tax authority examining a business's records
- A creditor evaluating a business loan application
A sole proprietor buys a car for family use with personal money. How should the business record this?
- It is not recorded; personal and business records stay separate
- Debit Equipment and credit Capital, since the owner paid for the car
- Debit Car Expense and credit Cash for the car's cost
- Debit Vehicles and credit Accounts Payable for the cost
Which concept requires a business's financial records to be kept separate from the owner's personal records?
- Business entity
- Going concern
- Matching principle
- Historical cost principle
Financial statements are prepared assuming the business will keep operating for the foreseeable future. Which concept is this?
- Going concern
- Business entity
- Historical cost
- Full disclosure
Land purchased for $50,000 is now worth $72,000. Under the historical cost principle, at what amount does the land stay on the books?
- $50,000
- $72,000
- $61,000
- $22,000
Under the monetary unit concept, which item would NOT be recorded in the accounting records?
- Employees' improved morale after a team-building day
- Cash paid to the caterer for the team-building day
- A bill received for renting the team-building venue
- Wages paid to employees for attending the event
An accountant records next year's sales in the current year so managers can earn a bonus. This is:
- Unethical, because it misstates income and misleads users
- Acceptable, because the sales are expected to happen next year anyway
- Acceptable if the owner gives written approval first
- Required by the revenue recognition principle
Which is one of the three elements of the fraud triangle?
- Opportunity
- Materiality
- Liquidity
- Consistency
An accountant tells a friend about a client's unreleased earnings. Which ethical principle has been violated?
- Confidentiality
- Due care
- Materiality
- Conservatism
An auditor owns a large amount of stock in the company being audited. What ethical problem does this create?
- A conflict of interest that impairs independence
- A violation of the going concern concept
- A transposition error in the company's accounting records
- An improper use of the matching principle
Which form of business ownership protects the owners' personal assets from the business's debts?
- Corporation
- Sole proprietorship
- General partnership
- Merchandising business
Financial accounting differs from managerial accounting mainly because financial accounting:
- Produces reports mainly for users outside the business
- Produces reports only for the business's own managers
- Is never required to follow generally accepted accounting principles
- Focuses only on future budgets and forecasts
Why must a business keep its accounting records and source documents for several years?
- To support its tax returns if the IRS examines them
- Because records may never be stored in digital form
- So the business can skip preparing a trial balance
- Because GAAP forbids destroying any record, ever
In accounting, a business and its owner are treated as separate entities.
What does GAAP stand for?
- Generally Accepted Accounting Principles
- Government Approved Accounting Procedures
- General Audit and Accounting Practices
- Generally Applied Auditing Policies
Which organization sets GAAP in the United States?
- FASB
- IASB
- IRS
- PCAOB
International Financial Reporting Standards (IFRS) are issued by which body?
- IASB
- FASB
- SEC
- PCAOB
Which federal agency requires publicly traded companies to file audited financial statements?
- Securities and Exchange Commission (SEC)
- Internal Revenue Service (IRS)
- Federal Reserve Board
- Federal Deposit Insurance Corporation (FDIC)
A public company files its annual report with the SEC on Form:
- 10-K
- 10-Q
- 8-K
- 1040
Public companies in the United States file quarterly reports with the SEC on Form 10-Q.
Which law, passed after the Enron and WorldCom scandals, requires the CEO and CFO of a public company to certify its financial statements?
- Sarbanes-Oxley Act (2002)
- Dodd-Frank Act (2010)
- Securities Act (1933)
- Fair Labor Standards Act (1938)
Which organization was created by the Sarbanes-Oxley Act to oversee auditors of public companies?
- PCAOB
- FASB
- IASB
- AICPA
Notes to the financial statements explain accounting methods and important events. Which principle requires this?
- Full disclosure
- Historical cost
- Business entity
- Monetary unit
A company switches depreciation methods every year to make profits look smoother. Which principle does this violate?
- Consistency
- Going concern
- Monetary unit
- Business entity
A business records a $12 stapler as an expense instead of depreciating it over five years. Which concept allows this?
- Materiality
- Going concern
- Full disclosure
- Business entity
Under the revenue recognition principle, revenue is recorded when it is:
- Earned, even if cash has not been collected
- Collected in cash, even if not yet earned
- Deposited at the bank at the end of the month
- Approved by the owner of the business
Expenses are recorded in the same period as the revenue they helped earn. This is the:
- Matching (expense recognition) principle
- Historical cost principle
- Going concern concept
- Monetary unit concept
What is the basic accounting equation?
- Assets = Liabilities + Owner's Equity
- Assets + Liabilities = Owner's Equity
- Assets = Revenue − Expenses
- Liabilities = Assets + Owner's Equity
A business has assets of $80,000 and liabilities of $30,000. What is owner's equity?
- $50,000
- $110,000
- $30,000
- $80,000
Owner's equity is $45,000 and liabilities are $15,000. What are total assets?
- $60,000
- $30,000
- $45,000
- $15,000
Assets are $95,000 and owner's equity is $60,000. What are total liabilities? (number only)
The owner invests $10,000 cash in the business. How does this affect the accounting equation?
- Assets increase; owner's equity increases
- Assets increase; liabilities increase
- Assets decrease; owner's equity decreases
- One asset increases and another decreases
A business buys supplies on account. How does this affect the accounting equation?
- Assets increase; liabilities increase
- Assets increase; owner's equity increases
- Assets decrease; liabilities decrease
- One asset increases and another decreases
A business buys equipment for cash. What happens to total assets?
- No change
- Total assets increase
- Total assets decrease
- Assets and liabilities both increase
A business pays cash on account to a vendor. How does this affect the accounting equation?
- Assets decrease; liabilities decrease
- Assets decrease; owner's equity decreases
- Assets increase; liabilities decrease
- Liabilities decrease; owner's equity increases
A business pays $900 cash for this month's rent. How does this affect the accounting equation?
- Assets decrease; owner's equity decreases
- Assets decrease; liabilities decrease
- Assets increase; owner's equity decreases
- Liabilities increase; owner's equity decreases
A business performs services on account. How does this affect the accounting equation?
- Assets increase; owner's equity increases
- Assets increase; liabilities increase
- Total assets do not change
- Liabilities decrease; owner's equity increases
A customer pays the amount it owes on account. What happens to total assets?
- No change; Cash increases and Accounts Receivable decreases
- Total assets increase by the amount received
- Total assets decrease by the amount received
- Total assets increase and owner's equity increases
Which account is debited when the owner withdraws cash for personal use?
- Drawing
- Capital
- Salary Expense
- Cash
Which side of a T account is the debit side?
- Left
- Right
- Top
- It depends on the type of account
Which account has a normal debit balance?
- Supplies
- Accounts Payable
- Sales
- Capital
Which account has a normal credit balance?
- Accounts Payable
- Prepaid Insurance
- Rent Expense
- Drawing
What is the normal balance of Accumulated Depreciation?
- Credit, because it is a contra asset account
- Debit, because it is an asset account
- Debit, because it is an expense account
- Credit, because it is a revenue account
Increases in revenue accounts are recorded as:
- Credits
- Debits
- Debits or credits, depending on the amount
- Neither; revenue appears only on the income statement
Every journal entry must have total debits equal to total credits.
Which entry records paying $900 cash for rent?
- Debit Rent Expense; credit Cash
- Debit Cash; credit Rent Expense
- Debit Rent Expense; credit Accounts Payable
- Debit Prepaid Rent; credit Capital
Which entry records buying $400 of supplies on account?
- Debit Supplies; credit Accounts Payable
- Debit Accounts Payable; credit Supplies
- Debit Supplies; credit Cash
- Debit Supplies Expense; credit Accounts Receivable