Master Transaction Analysis in Financial Accounting for MBAs

Question 1

When a company buys supplies with cash, which journal entry accurately reflects this transaction?

Accepted Answer

Debit Supplies, Credit Cash

Answer

Debit Cash, Credit Supplies

Answer

Debit Supplies, Credit Accounts Payable

Answer

Debit Accounts Payable, Credit Cash

Question 2

Which of the following transactions would result in an increase in both assets and liabilities?

Accepted Answer

Purchase of inventory on account

Answer

Payment of wages in cash

Answer

Sale of equipment for cash

Answer

Issuance of common stock for cash

Question 3

What is the journal entry to record the purchase of office supplies on account?

Accepted Answer

Office Supplies Debit, Accounts Payable Credit

Answer

Accounts Payable Debit, Office Supplies Credit

Answer

Office Supplies Debit, Cash Credit

Answer

Cash Debit, Office Supplies Credit

Question 4

What is the formula to calculate the ending balance of retained earnings?

Accepted Answer

Beginning Retained Earnings + Net Income - Dividends

Answer

Beginning Retained Earnings - Net Income + Dividends

Answer

Net Income - Beginning Retained Earnings + Dividends

Answer

Net Income + Beginning Retained Earnings - Dividends

Question 5

Which of the following is a contra asset account?

Accepted Answer

Accumulated Depreciation

Answer

Accounts Receivable

Answer

Inventory

Answer

Prepaid Insurance

Question 6

Which of the following would be considered an adjusting entry?

Accepted Answer

Depreciation of equipment

Answer

Recording a sale on account

Answer

Payment of a dividend

Answer

Purchase of inventory for cash

Question 7

What is the accounting equation?

Accepted Answer

Assets = Liabilities + Equity

Answer

Liabilities = Assets + Equity

Answer

Equity = Assets - Liabilities

Answer

Assets - Liabilities = Equity

Question 8

Which of the following transactions would result in an increase in expenses?

Accepted Answer

Payment of salaries to employees

Answer

Sale of inventory for cash

Answer

Issuance of preferred stock

Answer

Purchase of new equipment

Question 9

Which business transaction would result in an increase in both assets and liabilities?

Accepted Answer

Purchasing supplies on account

Answer

Issuing shares of common stock

Answer

Paying salaries in cash

Answer

Recording depreciation expense

Question 10

The fundamental accounting equation is expressed as:

Accepted Answer

Assets + Liabilities = Equity

Answer

Assets = Liabilities + Equity

Answer

Liabilities - Assets = Equity

Answer

Equity = Assets - Liabilities

Question 11

Which of the following is not a recognized transaction type?

Accepted Answer

Mere transfer of items within an organization

Answer

Exchange of goods or services

Answer

Adjustment of account balances

Answer

Correction of accounting errors

Question 12

A primary purpose of a trial balance is to:

Accepted Answer

Verify the accuracy of accounting records

Answer

Summarize ledger account balances

Answer

Generate financial statements

Answer

Record individual business transactions

Question 13

Which of the following accounts is classified as an income statement account?

Accepted Answer

Sales Revenue

Answer

Cash

Answer

Accounts Receivable

Answer

Retained Earnings

Question 14

The concept of duality implies that:

Accepted Answer

Every business transaction affects at least two accounts

Answer

Every asset must have a corresponding liability

Answer

Every revenue must have a corresponding expense

Answer

Every account must have a normal balance

Question 15

A contra-asset account is:

Accepted Answer

Allowance for Bad Debts

Answer

Depreciation Expense

Answer

Supplies

Answer

Interest Income

Question 16

According to the matching principle, which of the following is required?

Accepted Answer

Expenses should be recorded in the same period as related revenues

Answer

Revenues should be recorded when cash is received

Answer

Assets should be recorded at current market value

Answer

Liabilities should be recorded at their future estimated amounts

Question 17

Temporary accounts are:

Accepted Answer

Closed at the end of each accounting period

Answer

Used for long-term asset balances

Answer

Not affected by closing entries

Answer

Adjusted only at the beginning of an accounting period

Question 18

Which transaction would reduce the total assets of a company?

Accepted Answer

Paying salaries to employees

Answer

Buying inventory with cash

Answer

Issuing common stock for cash

Answer

Receiving cash from a customer for services provided

Question 19

When a company obtains equipment in exchange for a promise to pay later, which accounts are adjusted?

Accepted Answer

Equipment and Accounts Payable

Answer

Accounts Payable and Equipment

Answer

Cash and Equipment

Answer

Equipment and Cash

Question 20

Which transaction results in an increase in both assets and equity?

Accepted Answer

Issuance of stock for cash

Answer

Purchase of inventory on credit

Answer

Payment of salaries in cash

Answer

Depreciation of equipment

Question 21

What is the primary purpose of closing entries?

Accepted Answer

To transfer balances from temporary accounts to retained earnings

Answer

To reverse the effects of adjusting entries

Answer

To record transactions in the general journal

Answer

To prepare financial statements

Question 22

Which financial statement provides information about a company's financial performance over a specific period?

Accepted Answer

Income Statement

Answer

Balance Sheet

Answer

Statement of Cash Flows

Answer

Statement of Owner's Equity

Question 23

When merchandise is sold on account, which accounts are debited and credited?

Accepted Answer

Accounts Receivable and Sales Revenue

Answer

Sales Revenue and Accounts Receivable

Answer

Cash and Sales Revenue

Answer

Sales Revenue and Cash

Question 24

Which accounting system is characterized by each transaction affecting two or more accounts?

Accepted Answer

Double-entry accounting system

Answer

Single-entry accounting system

Answer

Triple-entry accounting system

Answer

Quadruple-entry accounting system

Question 25

When expenses are incurred but not yet paid, which accounts are adjusted?

Accepted Answer

Expense and Accounts Payable

Answer

Accounts Payable and Expense

Answer

Cash and Expense

Answer

Expense and Cash

Question 26

A company purchases new equipment for $10,000. How should this transaction be classified?

Accepted Answer

Debit to Equipment, Credit to Cash

Answer

Debit to Rent Expense, Credit to Cash

Question 27

What is a defining characteristic of a transaction in accounting?

Accepted Answer

An economic event impacting a company's financial position

Answer

An internal company action

Answer

An event recorded in accounting journals

Answer

An exchange involving only cash

Question 28

Which of the following is NOT a component of the basic accounting equation?

Accepted Answer

Retained earnings

Answer

Assets

Answer

Liabilities

Answer

Owner's equity

Question 29

In the initial phase of transaction analysis, which element should be examined first?

Accepted Answer

Transaction's nature

Answer

Transaction's impact on the accounting equation

Answer

Transaction's classification in financial statements

Answer

Transaction's recording method

Question 30

What is the initial and most crucial step in accurately recording a transaction in accounting?

Accepted Answer

Analyzing the transaction to determine its impact on the accounting equation

Answer

Preparing the financial statements

Answer

Entering the transaction in the journal

Answer

Posting the transaction directly to the ledger accounts

Question 31

What is the primary purpose of creating a trial balance in accounting?

Accepted Answer

To verify the equality of total debits and total credits, ensuring the accounting equation remains in balance

Answer

To prepare the financial statements

Answer

To summarize transactions for a specific period

Answer

To analyze the financial performance of an organization

Question 32

What is the overarching purpose of financial statements in accounting?

Accepted Answer

To provide comprehensive information about a company's financial performance and position, enabling users to make informed decisions

Answer

To evaluate the effectiveness of a company's management

Answer

To track the daily transactions of a company

Question 33

Express the fundamental accounting equation that forms the basis of double-entry bookkeeping.

Accepted Answer

Assets = Liabilities + Owner's Equity

Answer

Liabilities - Assets = Owner's Equity

Answer

Revenue - Expenses = Net Income

Answer

Assets + Liabilities = Net Income

Question 34

Which of the following is NOT a characteristic of a transaction?

Accepted Answer

Intangibility

Answer

Duality

Answer

Quantifiability

Answer

Measurability

Question 35

What is the initial and most crucial step in the accounting cycle?

Accepted Answer

Transaction analysis

Answer

Trial balance

Answer

Journalizing

Answer

Posting

Question 36

Which of the following is classified as an adjusting entry?

Accepted Answer

Accrual

Answer

Purchase of equipment

Answer

Sale of inventory

Answer

Cash payment

Question 37

What is the primary objective of an income statement?

Accepted Answer

To report financial performance over a specific period

Answer

To summarize changes in equity

Answer

To provide information about cash flows

Question 38

How are the balance sheet and income statement interrelated?

Accepted Answer

The balance sheet provides a snapshot of financial position at a specific point in time, while the income statement summarizes financial performance over a period of time

Answer

The balance sheet is derived from the income statement

Question 39

What is the fundamental ethical principle guiding accountants?

Accepted Answer

To act with integrity and objectivity

Answer

To maintain confidentiality of client information

Answer

To comply with all applicable laws and regulations

Answer

To maximize profits for clients

Question 40

Which of the following is NOT a type of business transaction?

Accepted Answer

Memorandum

Answer

Sale of goods or services

Answer

Purchase of assets

Answer

Receipt of goods or services

Question 41

The initial stage of recording business transactions in the accounting system is known as:

Accepted Answer

Journalizing

Answer

Balancing

Answer

Posting

Answer

Summarizing

Question 42

Which of the following accounts is primarily used to record purchases on credit?

Accepted Answer

Accounts Payable

Answer

Inventory

Answer

Prepaid Expenses

Answer

Cash

Question 43

Which of the following transactions would result in an increase in both assets and liabilities?

Accepted Answer

Borrowing money from a bank loan

Answer

Paying off a loan

Answer

Purchasing supplies on credit

Answer

Selling inventory for cash

Question 44

The purpose of the Trial Balance is to:

Accepted Answer

Check the equality of debits and credits in the ledger

Answer

Prepare financial statements

Answer

Record transactions

Question 45

The main purpose of adjusting entries is to:

Accepted Answer

Update the balances of accounts to reflect their actual values

Answer

Prepare financial statements

Answer

Correct errors in the accounting records

Question 46

Which of the following accounts is considered a temporary account?

Accepted Answer

Revenue

Answer

Prepaid Insurance

Answer

Land

Question 47

The purpose of closing entries is to:

Accepted Answer

Transfer balances from temporary accounts to permanent accounts

Answer

Update the balances of accounts to reflect their actual values

Answer

Correct errors in the accounting records