Multiple Choice Questions
1. If revenue exceeds expenses for a given period,
a. Total assets for the period will decrease.
b. Cash for the period will increase.
c. The income statement will report net income.
d. Liabilities for the period will decrease.
2. The matching principle is best described as the process of
a. Matching assets to liabilities and owners’ equity.
b. Recognizing a cost as an expense in the period in which it is used to generate revenue.
c. Matching cash collections to revenue.
d. Matching income to owners’ equity.
3. Which of the following would never appear on a company’s income statement?
a. Prepaid insurance
b. Cost of goods sold
c. Interest expense
d. Sales revenue
4. Which of the following statements is consistent with accrual basis accounting?
a. Revenues are recorded when cash is received.
b. Expenses are recorded when cash is paid.
c. Expenses are recorded in a different period than the related revenue.
d. Revenues are recorded when earned and expenses are matched with the revenues.
5. Sales revenue is most often recognized in the period in which
a. The customer agrees to purchase the merchandise.
b. The seller agrees to sell the merchandise to the customer at a specified price.
c. The seller collects cash from the customer.
d. The seller delivers the merchandise to the customer.
6. Which of the following is an example of a financing cash outflow?
a. Borrowing money from a bank by signing a long-term note payable
b. Financing the purchase of a new factory by issuing new shares of stock
c. Paying a cash dividend to stockholders
d. Purchasing a new delivery truck
7. How are assets reported in the balance sheet?
a. Chronologically
b. Alphabetically
c. In the order of their liquidity
d. In the order of their relative values
8. Which of the following financial statement elements is found on the balance sheet?
a. Insurance expense
b. Retained earnings
c. Sales revenue
d. All of the above
9. A company’s current ratio is 1.85. You can safely conclude that
a. The company is a good investment.
b. The company will have no trouble paying its current obligations.
c. The company has a short-term problem related to paying its bills.
d. The company has a long-term problem related to meeting its obligations.
10. Which of the following is not a type of internal control?
a. Preventive
b. Corrective
c. Collusion
d. Detective