Accounting & Auditing
Introduction to Accounting
Which assumption most directly supports valuing assets on a basis other than immediate liquidation values?
A. Materiality
B. Comparability
C. Timeliness
D. Going concern
Correct Answer: D
If an entity is expected to continue, many assets are measured and used on a continuing-operation basis rather than forced-sale values.
Accounting & Auditing
Introduction to Accounting
The accounting period concept supports preparation of:
A. Only lifetime reports
B. Only tax invoices
C. Periodic financial statements
D. Only bank statements
Correct Answer: C
By dividing time into periods, accounting can report performance and position regularly.
Accounting & Auditing
Introduction to Accounting
The entity concept is especially important for a sole proprietorship because:
A. The business has no transactions
B. Legally and economically the owner may be closely connected, but accounting separates business records
C. Owners cannot withdraw cash
D. The owner is an external auditor
Correct Answer: B
Accounting treats the proprietorship as a separate reporting unit even though legal separation may differ from a corporation.
Accounting & Auditing
Introduction to Accounting
Which is a limitation of the money measurement concept?
A. Important non-monetary factors may not be recorded
B. Cash transactions cannot be recorded
C. Financial statements cannot be prepared
D. Assets cannot be measured
Correct Answer: A
Qualities such as employee skill, reputation or morale may be important but difficult to recognize if not reliably measurable in money.
Accounting & Auditing
Introduction to Accounting
The monetary unit assumption facilitates accounting by:
A. Eliminating inflation completely
B. Recording all non-financial qualities
C. Preventing estimates
D. Providing a common unit for measuring diverse transactions
Correct Answer: D
Money provides a common denominator that allows different economic items to be aggregated.
Accounting & Auditing
Introduction to Accounting
Periodic financial reporting is possible because business life is divided into:
A. Unlimited unreported intervals
B. Only one lifetime report
C. Accounting periods
D. Random non-financial events
Correct Answer: C
The time-period concept divides an entity's continuing life into reporting periods such as months or years.
Accounting & Auditing
Introduction to Accounting
The going concern assumption generally presumes that an entity will:
A. Immediately liquidate every year
B. Continue operating for the foreseeable future
C. Never pay liabilities
D. Stop keeping records
Correct Answer: B
Going concern assumes the entity will continue operations unless there is evidence to the contrary.
Accounting & Auditing
Introduction to Accounting
An owner's personal household expense should generally:
A. Not be treated as a business expense
B. Always be recorded as wages
C. Always be recorded as sales
D. Increase business revenue
Correct Answer: A
Personal expenditures do not represent business operating expenses; if paid by the business they are normally treated as drawings or another owner-related item.
Accounting & Auditing
Introduction to Accounting
The business entity idea requires accountants to:
A. Combine all owner and business transactions
B. Ignore business transactions
C. Record only personal expenses
D. Treat the business separately from its owner for accounting purposes
Correct Answer: D
Business and owner transactions are distinguished so the entity's performance and position can be measured clearly.
Accounting & Auditing
Introduction to Accounting
Traditional accounting records mainly those events that:
A. Are emotionally important
B. Are discussed at meetings
C. Can be measured in monetary terms
D. Have no economic effect
Correct Answer: C
The money measurement idea limits conventional accounting records to items that can be expressed reliably in monetary terms.
Accounting & Auditing
Introduction to Accounting
Which quality is enhanced when independent knowledgeable observers can reach similar conclusions?
A. Profitability
B. Verifiability
C. Liquidity
D. Marketability
Correct Answer: B
Verifiability supports confidence that information faithfully represents the underlying economic phenomena.
Accounting & Auditing
Introduction to Accounting
Which quality allows two companies' results to be meaningfully compared?
A. Comparability
B. Secrecy
C. Complexity
D. Personal judgment
Correct Answer: A
Comparability helps users identify similarities and differences across entities.
Accounting & Auditing
Introduction to Accounting
Neutral accounting information means it is:
A. Always optimistic
B. Always conservative regardless of facts
C. Prepared only for management
D. Free from bias intended to achieve a predetermined result
Correct Answer: D
Neutrality means information is not selected or presented to manipulate users toward a desired outcome.
Accounting & Auditing
Introduction to Accounting
The usefulness of accounting information may decline if it is:
A. Timely
B. Relevant
C. Outdated
D. Understandable
Correct Answer: C
Old information may have less capacity to influence current decisions.
Accounting & Auditing
Introduction to Accounting
Which type of information is typically NOT recorded in conventional financial accounting unless measurable financially?
A. Cash received
B. Employee morale
C. Equipment purchased
D. Rent paid
Correct Answer: B
Conventional financial accounting focuses mainly on transactions and events measurable in monetary terms.
Accounting & Auditing
Introduction to Accounting
Accounting information can reduce uncertainty, but it cannot:
A. Eliminate all uncertainty and risk
B. Provide financial measures
C. Support comparison
D. Assist planning
Correct Answer: A
Business decisions always involve uncertainty; accounting can inform but not guarantee outcomes.
Accounting & Auditing
Introduction to Accounting
Choosing between two investment projects is an example of accounting information supporting:
A. Bookkeeping only
B. Data deletion
C. Physical inventory storage
D. Decision-making
Correct Answer: D
Relevant financial information helps decision-makers evaluate alternatives.
Accounting & Auditing
Introduction to Accounting
A manager comparing actual sales with budgeted sales is using accounting information for:
A. Recruitment
B. Advertising design
C. Control
D. Legal incorporation
Correct Answer: C
Comparing actual results with targets is a classic control activity.
Accounting & Auditing
Introduction to Accounting
Historical accounting information is valuable because it can:
A. Guarantee future events
B. Help evaluate past performance and support future planning
C. Eliminate judgment
D. Replace all forecasts
Correct Answer: B
Past results help users evaluate performance and form expectations, but they do not guarantee the future.
Accounting & Auditing
Introduction to Accounting
Accounting information is useful only if it is:
A. Relevant and faithfully represented
B. Always favorable
C. Kept secret from intended users
D. Based entirely on guesses
Correct Answer: A
Decision-useful information should be relevant and faithfully represent the economic phenomena reported.