D102 Financial Accounting - Set 5 - Part 1

Test your knowledge of technical writing concepts with these practice questions. Each question includes detailed explanations to help you understand the correct answers.

Question 1: What accounting principle requires that expenses be matched with revenues in the period they are incurred?

Historical cost principle

Matching principle

Revenue recognition principle

Conservatism principle

Question 2: Which of the following is considered a long-term asset?

Accounts receivable

Cash

Inventory

Equipment

Question 3: When recording a transaction, what does a credit entry typically indicate?

An increase in assets

An increase in expenses

A decrease in liabilities

An increase in liabilities

Question 4: What is the primary purpose of the income statement?

To report the financial position of a company at a specific point in time

To summarize cash inflows and outflows for a period

To detail revenues and expenses over a period

To show retained earnings

Question 5: What type of account is “Accumulated Depreciation”?

Asset

Contra-asset

Liability

Expense

Question 6: How is a dividend declared by a corporation typically recorded?

Debit to cash

Credit to dividends payable

Credit to retained earnings

Debit to retained earnings

Question 7: What is the effect of a company buying back its own shares (treasury stock)?

Increase in total assets

Increase in total liabilities

Decrease in total equity

No effect on total equity

Question 8: Which financial statement reflects a company’s cash position at a specific date?

Income statement

Statement of cash flows

Balance sheet

Retained earnings statement

Question 9: What does a credit entry in the sales revenue account represent?

An increase in sales

A decrease in cash

A decrease in equity

A decrease in liabilities

Question 10: Which method is used to estimate bad debt expense based on a percentage of sales?

Direct write-off method

Allowance method

Aging method

Percentage of receivables method

Question 11: What type of account is “Interest Payable”?

Asset

Liability

Equity

Revenue

Question 12: How is an increase in accounts receivable recorded?

Debit to cash

Debit to accounts receivable

Credit to accounts receivable

Credit to sales revenue

Question 13: What happens to total liabilities when a company repays a loan?

Total liabilities increase

Total liabilities decrease

Total liabilities remain the same

Total liabilities double

Question 14: What is the journal entry to record the sale of inventory on credit?

Debit cash, credit sales revenue

Debit accounts receivable, credit sales revenue

Debit sales revenue, credit accounts receivable

Debit inventory, credit accounts payable

Question 15: What is the effect of a stock dividend on retained earnings?

Increases retained earnings

Decreases retained earnings

Has no effect on retained earnings

Transfers retained earnings to common stock

Question 16: Which financial statement summarizes a company’s operational cash flows over a period?

Balance sheet

Income statement

Statement of cash flows

Statement of shareholders' equity

Question 17: What is a company’s current ratio used to assess?

Profitability

Liquidity

Leverage

Efficiency

Question 18: What type of inventory system records inventory purchases and sales in real time?

Periodic inventory system

Perpetual inventory system

Annual inventory system

Sequential inventory system

Question 19: Which of the following accounts would be affected by a sale return?

Cash and retained earnings

Accounts receivable and sales returns

Inventory and cost of goods sold

All of the above

Question 20: What happens to the net income when a company pays off its debts?

Increases net income

Decreases net income

No effect on net income

Transfers income to equity

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