Accounting & Auditing
Introduction to Accounting
Which event best illustrates an internal accounting event?
A. Borrowing from a bank
B. Paying a supplier
C. Recording depreciation expense
D. Selling to a customer
Correct Answer: C
Depreciation is recognized internally to allocate the cost of a long-lived asset over its useful periods.
Accounting & Auditing
Introduction to Accounting
Which event best illustrates an external transaction?
A. Recording depreciation
B. Sale of goods to a customer
C. Allocating overhead internally
D. Estimating year-end allowance
Correct Answer: B
A sale involves an exchange between the entity and an outside party.
Accounting & Auditing
Introduction to Accounting
A transaction supported by documentary evidence is generally easier to:
A. Verify
B. Hide
C. Ignore
D. Misclassify deliberately
Correct Answer: A
Source documentation enhances traceability and verification.
Accounting & Auditing
Introduction to Accounting
Which statement is correct about cash and credit transactions?
A. Only cash transactions are recorded
B. Only credit transactions are recorded
C. Neither is recorded
D. Both can be recorded if they have measurable financial effects
Correct Answer: D
Accounting records qualifying transactions regardless of whether payment is immediate or deferred.
Accounting & Auditing
Introduction to Accounting
Depreciation is an example of an accounting entry that may arise from:
A. A customer complaint
B. An advertising slogan
C. An internal accounting adjustment rather than a new external cash transaction
D. A personal event
Correct Answer: C
Some accounting events, such as depreciation, are recognized through internal period-end adjustments.
Accounting & Auditing
Introduction to Accounting
A credit purchase is still recorded because:
A. Only cash transactions are recorded
B. Accounting recognizes measurable obligations even when cash is paid later
C. Credit has no financial effect
D. Suppliers are internal users
Correct Answer: B
The purchase creates an asset/expense and a liability even before cash payment.
Accounting & Auditing
Introduction to Accounting
A business transaction must generally involve:
A. A measurable financial effect on the entity
B. Only cash
C. Only external parties
D. Only profit
Correct Answer: A
Transactions can be cash or credit and may be internal or external, but they must have a measurable financial effect.
Accounting & Auditing
Introduction to Accounting
Which event normally would NOT be recorded immediately in conventional accounting?
A. Payment of rent
B. Purchase of inventory
C. Receipt of cash from customer
D. A manager's opinion that employee morale has improved
Correct Answer: D
Improved morale may be economically important but does not ordinarily create a reliably measurable accounting transaction.
Accounting & Auditing
Introduction to Accounting
Which event would normally be recorded in the accounts?
A. Manager's personal plan to take a vacation
B. A rumor about a competitor
C. Purchase of office equipment for cash
D. An employee's favorite color
Correct Answer: C
Purchasing equipment has a measurable financial effect on the business.
Accounting & Auditing
Introduction to Accounting
An economic event that affects the financial position of a business and can be measured reliably is generally called a:
A. Marketing slogan
B. Transaction or accounting event
C. Personal preference
D. Weather observation only
Correct Answer: B
Accounting focuses on measurable economic transactions and events that affect the entity.
Accounting & Auditing
Introduction to Accounting
Which business form most clearly illustrates separation of ownership and management?
A. A widely held corporation
B. A self-employed individual
C. A household
D. A casual cash purchase
Correct Answer: A
Large corporations often have many shareholders while professional managers conduct day-to-day operations.
Accounting & Auditing
Introduction to Accounting
Regardless of legal form, accounting generally treats the business as:
A. Part of the owner's household records
B. A marketing campaign
C. A tax authority
D. A separate accounting entity
Correct Answer: D
The entity concept requires financial records to distinguish business transactions from those of owners.
Accounting & Auditing
Introduction to Accounting
A corporation/company is generally distinguished by:
A. Having no records
B. Prohibiting ownership
C. A legal identity separate from its owners
D. Never having liabilities
Correct Answer: C
A company is generally a separate legal person from its shareholders, subject to jurisdictional law.
Accounting & Auditing
Introduction to Accounting
A partnership is generally formed when:
A. One employee opens a bank account
B. Two or more persons agree to carry on a business and share results under applicable law
C. A customer buys goods
D. A government collects tax
Correct Answer: B
A partnership involves persons joining to conduct business together, subject to the relevant legal framework.
Accounting & Auditing
Introduction to Accounting
A sole proprietorship is owned by:
A. One individual
B. At least seven governments
C. Only a bank
D. Only employees
Correct Answer: A
A sole proprietorship is a business owned by one person, although it may employ many people.
Accounting & Auditing
Introduction to Accounting
The accounting profession remains important despite automation because accountants provide:
A. Only manual arithmetic
B. Only paper filing
C. No analytical value
D. Judgment, interpretation, assurance and decision support
Correct Answer: D
Automation handles many routine tasks, but professional judgment, ethics, analysis, communication and assurance remain central.
Accounting & Auditing
Introduction to Accounting
Artificial intelligence in accounting can assist with:
A. Guaranteeing perfect decisions
B. Removing all ethical duties
C. Automation, anomaly detection and analysis
D. Eliminating source documents completely
Correct Answer: C
AI can automate tasks and identify patterns or exceptions, but human oversight, judgment and controls remain necessary.
Accounting & Auditing
Introduction to Accounting
Cloud accounting refers broadly to accounting systems that:
A. Require only paper ledgers
B. Store and process accounting data through internet-based services
C. Cannot be accessed remotely
D. Prohibit automation
Correct Answer: B
Cloud systems provide accounting software and data access through hosted internet infrastructure.
Accounting & Auditing
Introduction to Accounting
Computerization has mainly changed accounting by:
A. Increasing speed, automation and data-processing capability
B. Eliminating the need for controls
C. Eliminating all accountants
D. Making financial information unnecessary
Correct Answer: A
Technology automates routine processing and expands analytical capability, while judgment, controls and reporting remain important.
Accounting & Auditing
Introduction to Accounting
The expansion of capital markets increased the importance of:
A. Eliminating financial statements
B. Informal verbal records
C. Non-monetary diaries
D. Reliable external financial reporting
Correct Answer: D
Investors and lenders require credible and comparable financial information when supplying capital.