Introduction to Accounting Quiz (True or False) Questions with Answers) and Detailed Explanations
1. Accounting is often called the language of business.
Answer: True ✅
Explanation: Accounting communicates financial information to managers, investors, creditors, and other stakeholders. Just as language helps people communicate, accounting helps businesses communicate financial performance and position.
2. Assets are resources owned by a business.
Answer: True ✅
Explanation: Assets represent economic resources controlled by a company that are expected to provide future benefits, such as cash, inventory, equipment, and buildings.
3. Liabilities represent amounts owed by customers to a business.
Answer: False ❌
Explanation: Amounts owed by customers are called Accounts Receivable. Liabilities are obligations that the business owes to others, such as loans and Accounts Payable.
4. The accounting equation is Assets = Liabilities + Equity.
Answer: True ✅
Explanation: This fundamental equation forms the foundation of accounting and must always remain balanced.
5. Revenue decreases owner’s equity.
Answer: False ❌
Explanation: Revenue increases profits, which ultimately increases owner’s equity.
6. Expenses increase owner’s equity.
Answer: False ❌
Explanation: Expenses reduce net income and therefore decrease owner’s equity.
7. Cash is classified as an asset.
Answer: True ✅
Explanation: Cash is one of the most important current assets because it can be used immediately to meet obligations.
8. Inventory is a liability.
Answer: False ❌
Explanation: Inventory is a current asset because it consists of goods available for sale.
9. Accounts Payable is a liability account.
Answer: True ✅
Explanation: Accounts Payable represents amounts owed to suppliers for purchases made on credit.
10. Equipment is usually classified as a long-term asset.
Answer: True ✅
Explanation: Equipment provides benefits for more than one accounting period and is therefore considered a non-current asset.
11. The Balance Sheet reports revenues and expenses.
Answer: False ❌
Explanation: Revenues and expenses appear on the Income Statement. The Balance Sheet reports assets, liabilities, and equity.
12. The Income Statement measures profitability.
Answer: True ✅
Explanation: It reports revenues and expenses and calculates net income or net loss.
13. A business transaction must have a financial impact.
Answer: True ✅
Explanation: Only events that can be measured in monetary terms are recorded in accounting records.
14. Borrowing money from a bank increases liabilities.
Answer: True ✅
Explanation: A loan creates an obligation to repay, which increases liabilities.
15. Paying a liability increases liabilities.
Answer: False ❌
Explanation: Paying a liability decreases both cash and the liability account.
16. Accounts Receivable is an asset account.
Answer: True ✅
Explanation: It represents money owed to the business by customers.
17. Owner investments increase owner’s equity.
Answer: True ✅
Explanation: Investments by owners increase their ownership interest in the company.
18. Withdrawals by the owner increase equity.
Answer: False ❌
Explanation: Withdrawals reduce the owner’s claim on the business and decrease equity.
19. Revenue is earned by providing goods or services.
Answer: True ✅
Explanation: Revenue arises from the company’s primary operating activities.
20. Expenses represent costs incurred in generating revenue.
Answer: True ✅
Explanation: Expenses are consumed resources used to earn revenue.
21. Land is generally classified as a current asset.
Answer: False ❌
Explanation: Land is usually a long-term asset because it is held for long-term business use.
22. The Cash Flow Statement shows cash inflows and outflows.
Answer: True ✅
Explanation: This statement explains how cash changed during the accounting period.
23. Net income occurs when expenses exceed revenues.
Answer: False ❌
Explanation: Net income occurs when revenues exceed expenses. Otherwise, a net loss occurs.
24. A business can have assets without liabilities.
Answer: True ✅
Explanation: Some businesses are entirely financed by owner contributions without debt.
25. Every transaction affects at least two accounts.
Answer: True ✅
Explanation: This reflects the double-entry accounting system.
26. The trial balance is prepared to verify that total debits equal total credits.
Answer: True ✅
Explanation: A trial balance helps detect mathematical errors before financial statements are prepared.
27. Accounting information is useful only to managers.
Answer: False ❌
Explanation: Investors, creditors, governments, employees, and other stakeholders also use accounting information.
28. Cash collected from customers increases assets.
Answer: True ✅
Explanation: Cash is an asset, so receiving cash increases total assets.
29. A company can record transactions without supporting documents.
Answer: False ❌
Explanation: Source documents such as invoices and receipts provide evidence for transactions.
30. Buildings are classified as assets.
Answer: True ✅
Explanation: Buildings provide future economic benefits and are reported as non-current assets.
31. Notes Payable is a liability account.
Answer: True ✅
Explanation: Notes Payable represents formal debt obligations.
32. Revenues normally have debit balances.
Answer: False ❌
Explanation: Revenues normally have credit balances because they increase equity.
33. Assets normally have debit balances.
Answer: True ✅
Explanation: Asset accounts increase with debits and decrease with credits.
34. Expenses normally have credit balances.
Answer: False ❌
Explanation: Expenses normally carry debit balances.
35. The Balance Sheet is prepared for a specific date.
Answer: True ✅
Explanation: It presents the financial position at a particular point in time.
36. The Income Statement covers a period of time.
Answer: True ✅
Explanation: It reports revenues and expenses for a month, quarter, or year.
37. Inventory sold to customers becomes an expense.
Answer: True ✅
Explanation: Inventory sold is recognized as Cost of Goods Sold, which is an expense.
38. IFRS stands for International Financial Reporting Standards.
Answer: True ✅
Explanation: IFRS is a globally accepted accounting framework used in many countries.
39. GAAP and IFRS are accounting standards.
Answer: True ✅
Explanation: Both provide rules and guidelines for preparing financial statements.
40. Accounting helps businesses make informed decisions.
Answer: True ✅
Explanation: Accurate financial information supports planning, control, and decision-making.
41. Accounts Payable is an asset account.
Answer: False ❌
Explanation: Accounts Payable is a liability because it represents amounts owed to suppliers.
42. Cash payments always increase assets.
Answer: False ❌
Explanation: Cash payments usually decrease cash, which reduces assets.
43. A profitable company always has plenty of cash.
Answer: False ❌
Explanation: Profitability and cash flow are different concepts. A profitable company can still experience cash shortages.
44. The accounting equation must always remain balanced.
Answer: True ✅
Explanation: Every recorded transaction maintains equality between assets and liabilities plus equity.
45. Service Revenue is reported on the Income Statement.
Answer: True ✅
Explanation: Revenue accounts appear on the Income Statement to determine profitability.
46. Supplies are typically classified as assets before use.
Answer: True ✅
Explanation: Unused supplies provide future benefits and are therefore assets.
47. A company records only transactions that affect the business.
Answer: True ✅
Explanation: Personal transactions of owners are not recorded in company accounts.
48. The going concern concept assumes the business will continue operating.
Answer: True ✅
Explanation: This assumption supports the valuation and classification of assets and liabilities.
49. The primary objective of accounting is to provide useful financial information.
Answer: True ✅
Explanation: Financial information helps users evaluate performance and make decisions.
50. Understanding basic accounting concepts is essential before studying advanced accounting topics.
Answer: True ✅
Explanation: Topics such as financial reporting, auditing, taxation, CMA, CPA, ACCA, and CFA build upon foundational accounting principles. A strong understanding of accounting basics is crucial for professional success.
Introduction to Accounting Quiz – 50 True or False Questions
1. Accounting Basics & Definitions
1. True or False: Accounting is often referred to as the “language of business” because it communicates financial information about an organization to various users.
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Answer: True
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Explanation: Accounting provides the quantitative and qualitative data needed by managers, investors, and creditors to evaluate a company’s economic performance and make informed decisions, making it the primary language of business communication.
2. True or False: Bookkeeping and accounting are identical terms that can be used interchangeably.
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Answer: False
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Explanation: Bookkeeping is just the mechanical process of recording and clerical documenting of daily financial transactions. Accounting involves a broader scope, including analyzing, interpreting, classifying, summarizing, and reporting financial data.
3. True or False: Financial accounting focus primarily on providing information to internal users such as managers and CEOs.
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Answer: False
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Explanation: Financial accounting is explicitly designed to meet the needs of external users (such as investors, creditors, regulators, and tax authorities). Internal users are served by managerial accounting.
4. True or False: Managerial accounting information must strictly comply with Generally Accepted Accounting Principles (GAAP).
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Answer: False
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Explanation: Unlike financial accounting, managerial accounting reports are prepared for internal management purposes. Therefore, they do not need to follow strict GAAP or IFRS guidelines; instead, they focus on relevance and flexibility for decision-making.
5. True or False: The primary purpose of financial statements is to help tax authorities calculate a company’s income tax.
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Answer: False
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Explanation: While tax authorities use financial statements, the primary general purpose is to provide structured financial information about a company’s performance and position to a wide range of external stakeholders for decision-making.
2. The Accounting Equation
6. True or False: The basic accounting equation is expressed as: $Assets = Liabilities + Equity$.
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Answer: True
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Explanation: This is the foundational foundation of double-entry bookkeeping. It signifies that everything a business owns (Assets) is financed either by borrowing money from creditors (Liabilities) or through funding from owners (Equity).
7. True or False: Purchasing an asset for cash increases the total value of the company’s total assets.
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Answer: False
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Explanation: This transaction represents an asset shift. One asset (Equipment/Inventory) increases while another asset (Cash) decreases by the same amount, leaving the total value of assets unchanged.
8. True or False: Paying off an accounts payable balance reduces both total assets and total liabilities.
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Answer: True
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Explanation: Paying cash to a creditor decreases the asset account (Cash) and simultaneously decreases the liability account (Accounts Payable), keeping the accounting equation balanced.
9. True or False: When a company provides services to a customer on account, its assets and equity both increase.
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Answer: True
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Explanation: Providing services on account increases an asset (Accounts Receivable) and generates revenue, which increases net income and subsequently increases owner’s equity.
10. True or False: A net loss achieved during a specific financial period will decrease the total owner’s equity.
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Answer: True
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Explanation: Net income adds to equity, while a net loss reduces retained earnings, which directly lowers the total equity component of the accounting equation.
3. Financial Statements
11. True or False: The Balance Sheet reports a company’s financial performance over a specific period of time.
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Answer: False
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Explanation: The Income Statement measures performance over a period of time. The Balance Sheet reports the company’s financial position (assets, liabilities, and equity) at a specific point in time (a snapshot).
12. True or False: Revenues and expenses are permanently reported on the Balance Sheet.
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Answer: False
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Explanation: Revenues and expenses are temporary accounts reported on the Income Statement. At the end of the fiscal period, they are closed out into Retained Earnings (Equity) on the Balance Sheet.
13. True or False: Dividends paid to shareholders are considered an operating expense on the Income Statement.
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Answer: False
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Explanation: Dividends are not expenses incurred to generate revenue. They are a distribution of net profits to owners and are reported in the statement of retained earnings or changes in equity.
14. True or False: The Statement of Cash Flows is categorized into three main activities: Operating, Investing, and Financing.
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Answer: True
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Explanation: This classification helps users analyze the sources and uses of cash from regular business activities (operating), buying/selling long-term assets (investing), and borrowing or issuing shares (financing).
15. True or False: Net income from the Income Statement is directly transferred to the Statement of Retained Earnings.
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Answer: True
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Explanation: Net income increases retained earnings. The ending balance of retained earnings is then transferred to the equity section of the Balance Sheet.
4. Principles, Assumptions, and Concepts
16. True or False: The Economic Entity Assumption states that the personal financial transactions of a business owner should be kept separate from the business transactions.
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Answer: True
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Explanation: For accounting purposes, a business is treated as an economic unit distinct from its owners or any other business entity, preventing confusion between corporate and personal funds.
17. True or False: The Monetary Unit Assumption implies that inflation is always adjusted for in basic financial statements.
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Answer: False
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Explanation: The monetary unit assumption presumes that the currency remains stable over time. Traditional accounting ignores the effects of inflation unless specific hyperinflationary adjustments are required.
18. True or False: The Going Concern Assumption presumes that a company will continue operating indefinitely into the foreseeable future.
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Answer: True
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Explanation: This assumption justifies recording long-term assets at historical cost rather than liquidation values, assuming the business will stay afloat long enough to utilize those assets.
19. True or False: The Historical Cost Principle dictates that assets should always be adjusted to their current market value on the balance sheet.
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Answer: False
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Explanation: The Historical Cost Principle requires that assets be recorded and reported at their original acquisition price, as it is objective and verifiable.
20. True or False: Under accrual-basis accounting, revenue is recognized only when cash is received from the customer.
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Answer: False
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Explanation: Accrual accounting recognizes revenue when it is earned (goods delivered or services performed), regardless of when the actual cash transaction takes place.
21. True or False: The Revenue Recognition Principle states that revenue should be recognized in the accounting period in which the performance obligation is satisfied.
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Answer: True
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Explanation: This ensures that revenues are tied to the actual economic effort of providing goods or services rather than the timing of cash receipts.
22. True or False: The Matching Principle (Expense Recognition) requires that expenses be recognized in the same period as the revenues they helped to generate.
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Answer: True
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Explanation: This is critical for measuring accurate profitability, ensuring that the costs incurred to earn specific revenue are reported in the exact same timeframe.
23. True or False: Cash-basis accounting is fully acceptable under International Financial Reporting Standards (IFRS).
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Answer: False
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Explanation: IFRS and US GAAP require the use of accrual-basis accounting for financial statements because it provides a more accurate reflection of a company’s financial health during a period.
24. True or False: The Materiality Concept allows accountants to ignore certain accounting standards for transactions that involve insignificant amounts.
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Answer: True
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Explanation: If an item’s amount is so small that it would not influence the decisions of a reasonable user, it can be treated in the simplest way possible (e.g., expensing a small trash can instead of depreciating it).
25. True or False: Conservatism principle implies that accountants should intentionally understate assets and revenues to play safe.
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Answer: False
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Explanation: Conservatism means that when faced with two equally likely options, accountants should choose the one least likely to overstate assets or income, but it does not justify deliberate understatement or manipulation.
5. Debits, Credits, and Accounts
26. True or False: The term “Debit” simply means the left side of an accounting T-account.
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Answer: True
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Explanation: By definition, “Debit” refers to the left side and “Credit” refers to the right side. They do not intrinsically mean “good” or “bad”, “increase” or “decrease”.
27. True or False: An increase in an asset account is recorded as a credit.
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Answer: False
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Explanation: Asset accounts have a normal debit balance, which means they are increased with a debit and decreased with a credit.
28. True or False: Liability and Equity accounts normally have debit balances.
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Answer: False
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Explanation: Liabilities, common stock, and retained earnings have normal credit balances, meaning they are increased by credits.
29. True or False: Expenses and Dividends are increased with a debit entry.
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Answer: True
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Explanation: Although they fall under equity, expenses and dividends reduce total equity, which gives them a normal debit balance.
30. True or False: Revenue accounts are increased by recording a credit entry.
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Answer: True
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Explanation: Revenue increases net income and equity, and since equity is increased by credits, revenues carry a normal credit balance.
6. The Accounting Cycle
31. True or False: A journal entry is known as the book of original entry because transactions are logged there first chronologically.
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Answer: True
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Explanation: Transactions are initially analyzed and written down in the General Journal before being transferred or posted to any ledgers.
32. True or False: Posting is the process of transferring info from the General Ledger to the General Journal.
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Answer: False
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Explanation: Posting is the exact opposite: transferring figures from the General Journal entries to the specific accounts in the General Ledger.
33. True or False: A Trial Balance proves that all ledger transactions have been recorded correctly in the right accounts.
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Answer: False
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Explanation: A Trial Balance only proves that total debits equal total credits. It cannot detect errors such as completely omitting a transaction, posting to the wrong account name, or duplicating an entry.
34. True or False: Adjusting journal entries are necessary at the end of an accounting period to bring accounts up to date under the accrual basis.
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Answer: True
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Explanation: Adjusting entries ensure that unrecognized revenues earned and unrecorded expenses incurred during the period are properly matched before final statement preparation.
35. True or False: Prepaid Expenses are classified as liability accounts before they are used.
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Answer: False
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Explanation: Prepaid expenses (like prepaid insurance or rent) represent future economic benefits owned by the company, meaning they are classified as assets until consumed.
36. True or False: Unearned Revenue is a liability account that represents cash received before a service is provided.
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Answer: True
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Explanation: Because the company owes the customer a service or product in the future, the unearned amount is classified as a liability until the performance obligation is met.
37. True or False: Depreciation is the process of valuation used to determine the exact current market resale value of a fixed asset.
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Answer: False
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Explanation: Depreciation is an asset allocation process, not a valuation process. It spreads the historical cost of a tangible asset over its useful life.
38. True or False: Accumulated Depreciation is a contra-asset account with a normal credit balance.
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Answer: True
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Explanation: As a contra-asset account, it is presented on the asset side of the balance sheet but carries a credit balance to offset and reduce the gross value of the related property asset.
39. True or False: Closing entries are performed to reduce the balances of permanent accounts (like cash and equipment) to zero.
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Answer: False
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Explanation: Closing entries are only made for temporary accounts (revenues, expenses, dividends). Permanent accounts carry their balances forward into the next fiscal year.
40. True or False: The Income Summary account is a temporary account used exclusively during the closing process.
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Answer: True
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Explanation: Income Summary is a clearing account used to pool revenues and expenses together before shifting the net balance into Retained Earnings.
7. Internal Control, Inventory, & Multi-Step Accounting
41. True or False: An inventory system that continuously updates the inventory balance after every sale is called a Periodic Inventory System.
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Answer: False
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Explanation: This describes a Perpetual Inventory System. A periodic system only updates inventory balances at the end of a period through a physical count.
42. True or False: Cost of Goods Sold (COGS) is classified as an asset account on the Balance Sheet.
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Answer: False
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Explanation: Cost of Goods Sold is an expense account on the Income Statement representing the cost of inventory sold to customers during the period.
43. True or False: Gross Profit is calculated by subtracting Operating Expenses from Net Sales.
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Answer: False
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Explanation: Gross Profit is calculated by subtracting Cost of Goods Sold (COGS) from Net Sales. Operating expenses are deducted later to find Operating Income.
44. True or False: The term “FOB Shipping Point” means the buyer assumes ownership and pays for shipping costs as soon as the goods leave the seller’s premises.
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Answer: True
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Explanation: Under FOB shipping point, title passes to the buyer at the shipping origin, meaning the buyer is responsible for transit risk and freight-in costs.
45. True or False: Accounts Receivable represents amounts owed by the company to its suppliers for goods purchased on credit.
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Answer: False
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Explanation: Accounts Receivable represents money owed to the company by its customers. Amounts owed to suppliers are called Accounts Payable.
46. True or False: The Allowance for Doubtful Accounts is a contra-asset account used to estimate uncollectible accounts receivable.
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Answer: True
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Explanation: It reduces the total gross Accounts Receivable to its net realizable value, reflecting the cash amount expected to be collected.
47. True or False: A bank reconciliation should be prepared regularly to ensure the company’s internal cash books match the bank statement records.
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Answer: True
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Explanation: Bank reconciliations identify discrepancies caused by timing differences (like outstanding checks or deposits in transit) or errors made by either party.
48. True or False: Outstanding checks are checks written by the company that have not yet been cleared or processed by the bank.
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Answer: True
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Explanation: Because the company already deducted these amounts but the bank hasn’t, outstanding checks are subtracted from the bank balance during reconciliation.
49. True or False: Good internal control practices suggest that the same employee should handle cash receipts and record them in the ledger.
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Answer: False
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Explanation: This violates the principle of Separation of Duties. Asset handling should always be separated from accounting records to reduce fraud risks.
50. True or False: Liquidity refers to how quickly and easily a company can convert its assets into cash without losing value.
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Answer: True
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Explanation: Cash is the most liquid asset, followed by short-term investments and accounts receivable, which is why they are listed first under current assets.
Introduction to Accounting Quiz – 50 True or False Questions
1. Accounting is only the process of recording financial transactions.
Answer: False
Explanation: Accounting involves identifying, measuring, recording, classifying, summarizing, and communicating financial information to support decision-making.
2. The main purpose of accounting is to provide useful information for making economic decisions.
Answer: True
Explanation: According to the Financial Accounting Standards Board (FASB), the primary objective of accounting is to provide information useful to investors, creditors, and other users.
3. Internal users of accounting information include only managers.
Answer: True
Explanation: Managers and employees inside the organization are considered internal users, while investors, creditors, and regulators are external users.
4. The fundamental accounting equation is Assets = Liabilities + Owner’s Equity.
Answer: True
Explanation: This equation must always remain in balance and forms the foundation of double-entry bookkeeping.
5. Assets are economic resources owned by a business.
Answer: True
Explanation: Assets include cash, inventory, buildings, equipment, and accounts receivable.
6. Liabilities represent the owners’ claims on the business assets.
Answer: False
Explanation: Liabilities are the business’s obligations to outsiders (debts), while Owner’s Equity represents the owners’ residual claim.
7. In double-entry accounting, every transaction affects only one account.
Answer: False
Explanation: Every transaction affects at least two accounts (debit and credit) to keep the accounting equation balanced.
8. Debit entries always increase asset accounts.
Answer: True
Explanation: Debit increases assets and expenses, while credit increases liabilities, revenues, and equity.
9. Revenues increase Owner’s Equity.
Answer: True
Explanation: Revenues represent increases in economic benefits that ultimately increase owners’ equity.
10. Expenses decrease assets or increase liabilities.
Answer: True
Explanation: This is the natural effect of incurring expenses on the accounting equation.
11. The Balance Sheet shows the financial position of a business at a specific point in time.
Answer: True
Explanation: It reports assets, liabilities, and equity on a particular date.
12. The Income Statement covers a specific period of time.
Answer: True
Explanation: It shows revenues, expenses, and net income over a period (month, quarter, or year).
13. The Statement of Cash Flows explains changes in cash during a period.
Answer: True
Explanation: It is divided into operating, investing, and financing activities.
14. Accrual-basis accounting records revenues when cash is received.
Answer: False
Explanation: Revenues are recorded when earned (revenue recognition principle), regardless of cash receipt.
15. Cash-basis accounting is more complex than accrual-basis accounting.
Answer: False
Explanation: Cash-basis is simpler as it only records transactions when cash changes hands.
16. GAAP stands for Generally Accepted Accounting Principles.
Answer: True
Explanation: GAAP is the standard framework of guidelines for financial accounting in the United States.
17. The consistency principle requires a company to use the same accounting methods from period to period.
Answer: True
Explanation: This allows for meaningful comparisons over time.
18. The going concern assumption means a business is expected to continue operating indefinitely.
Answer: True
Explanation: This assumption underlies many accounting practices, such as depreciation.
19. Materiality means that all transactions, no matter how small, must be recorded in detail.
Answer: False
Explanation: Only information that influences the economic decisions of users is considered material.
20. A sole proprietorship is a separate legal entity from its owner.
Answer: False
Explanation: In a sole proprietorship, the owner and the business are not legally separate.
21. Accounts Payable is an example of a liability.
Answer: True
Explanation: It represents amounts owed to suppliers for goods or services purchased on credit.
22. Owner’s withdrawals decrease Owner’s Equity.
Answer: True
Explanation: Withdrawals (or drawings) reduce the owner’s claim on the business assets.
23. Prepaid expenses are classified as liabilities.
Answer: False
Explanation: Prepaid expenses are assets because they represent future economic benefits.
24. Unearned revenue is recorded as a liability until the service is performed.
Answer: True
Explanation: It represents an obligation to deliver goods or services in the future.
25. Depreciation is a process of asset valuation.
Answer: False
Explanation: Depreciation is the systematic allocation of the cost of a tangible asset over its useful life.
26. Trial Balance is prepared after posting all transactions to the ledger.
Answer: True
Explanation: It tests whether total debits equal total credits.
27. If the Trial Balance balances, there are no errors in the accounting records.
Answer: False
Explanation: Some errors (such as omitting a transaction) do not affect the Trial Balance.
28. Adjusting entries are required only in cash-basis accounting.
Answer: False
Explanation: Adjusting entries are essential in accrual accounting to match revenues and expenses properly.
29. Closing entries are made at the beginning of the accounting period.
Answer: False
Explanation: Closing entries are made at the end of the period to transfer temporary accounts to Retained Earnings.
30. Net Income increases Retained Earnings.
Answer: True
Explanation: Net income from the Income Summary is credited to Retained Earnings.
31. Financial accounting focuses on providing information to external users.
Answer: True
Explanation: Managerial accounting focuses on internal users.
32. A chart of accounts is a list of all accounts used by a business.
Answer: True
Explanation: It is usually organized by assets, liabilities, equity, revenues, and expenses.
33. The matching principle requires that expenses be recorded in the same period as the revenues they help generate.
Answer: True
Explanation: This is a core principle of accrual accounting.
34. Historical cost is the most objective basis for recording assets.
Answer: True
Explanation: It is based on actual transactions and is verifiable.
35. Intangible assets have physical substance.
Answer: False
Explanation: Intangible assets (patents, trademarks, goodwill) lack physical substance.
36. Current assets are expected to be converted to cash within one year.
Answer: True
Explanation: Examples include cash, accounts receivable, and inventory.
37. Long-term liabilities are due within one year.
Answer: False
Explanation: Long-term liabilities are due after one year or more.
38. The accounting cycle ends with the preparation of financial statements.
Answer: False
Explanation: The full accounting cycle includes closing entries and preparing a post-closing trial balance.
39. Bookkeeping and accounting are the same thing.
Answer: False
Explanation: Bookkeeping is the recording phase; accounting includes analysis and interpretation.
40. An audit is an independent examination of a company’s financial statements.
Answer: True
Explanation: It provides assurance that statements are fairly presented.
41. IFRS is used only in the United States.
Answer: False
Explanation: IFRS (International Financial Reporting Standards) is used in many countries outside the US.
42. Owner’s equity can be negative if liabilities exceed assets.
Answer: True
Explanation: This situation indicates the business is technically insolvent.
43. Revenue is recorded when cash is collected under the accrual basis.
Answer: False
Explanation: Revenue is recorded when it is earned.
44. The entity assumption states that the business is separate from its owners.
Answer: True
Explanation: This allows the business to be treated as a distinct accounting entity.
45. A journal is also called the book of original entry.
Answer: True
Explanation: Transactions are first recorded chronologically in the journal.
46. Ledger is a collection of all accounts.
Answer: True
Explanation: It contains the summarized effects of all journal entries.
47. The conservatism principle means recording revenues as soon as possible.
Answer: False
Explanation: Conservatism means recognizing expenses and liabilities as soon as possible but revenues only when assured.
48. A balance sheet must always balance.
Answer: True
Explanation: Assets must always equal Liabilities + Equity.
49. Management accounting is primarily concerned with external reporting.
Answer: False
Explanation: It focuses on providing information for internal planning, control, and decision-making.
50. The accounting profession is regulated by government agencies only.
Answer: False
Explanation: It is also guided by professional bodies such as AICPA, IASB, and national accounting organizations.