DEPARTMENT OF ACCOUNTING AND FINANCE

FUNDAMENTAL OF ACCOUNTING EXIT MODEL EXAM

PREPARED BY– Dr. Aron Abraham
Instruction – Choose the best answers from the given alternatives.
1. That a business may only report activities on financial statements that are specifically related to company
operations, not those activities that affect the owner personally, is known as which of the following?

A. separate entity concept

B. monetary measurement concept
C. going concern assumption
D. time period assumption

2. That companies can present useful information in shorter time periods such as years, quarters, or months is
known as which of the following?

A. separate entity concept

B. monetary measurement concept
C. going concern assumption
D. time period assumption

3. The system of using a monetary unit, such as the US dollar, to value the transaction is known as which of
the following?

A. separate entity concept

B. monetary measurement concept
C. going concern assumption
D. time period assumption

4. Which of the following terms is used when assuming a business will continue to operate in the foreseeable
future?

A. separate entity concept

B. monetary measurement concept
C. going concern assumption
D. time period assumption

5. The independent, nonprofit organization that sets financial accounting and reporting standards for both
public- and private-sector businesses that use generally accepted accounting principles (GAAP) in the
United States is which of the following?

A. Financial Accounting Standards Board (FASB)

B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework

6. These are used by the FASB, and it is a set of concepts that guide financial reporting.

A. Financial Accounting Standards Board (FASB)

B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
7. Which of the following is the principle that a company must recognize revenue in the period in which it is
earned; it is not considered earned until a product or service has been provided?

A. revenue recognition principle

B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle

8. Which of the following is the principle that a business must report any business activities that could affect
what is reported on the financial statements?

A. revenue recognition principle

B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle

9. Also known as the historical cost principle, ________ states that everything the company owns or controls
(assets) must be recorded at their value at the date of acquisition.

A. revenue recognition principle

B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle

10. Which of the following principles matches expenses with associated revenues in the period in which the
revenues were generated?

A. revenue recognition principle

B. matching principle
C. cost principle
D. full disclosure principle

11. Which of the following does not accurately represent the accounting equation?

A. Assets – Liabilities = Stockholders’ Equity

B. Assets – Stockholders’ Equity = Liabilities
C. Assets = Liabilities + Stockholders’ Equity
D. Assets + Liabilities = Stockholders’ Equity

12. Which of these statements is false?

A. Assets = Liabilities + Equity

B. Assets – Liabilities = Equity
C. Liabilities – Equity = Assets
D. Liabilities = Assets – Equity

13. Which of these accounts is an asset?

A. Common Stock
B. Supplies
C. Accounts Payable
 D. Fees Earned

14. Which of these accounts is a liability?

A. Accounts Receivable
B. Supplies
C. Salaries Expense
D. Accounts Payable

15. If equity equals $100,000, which of the following is true?

A. Assets exceed liabilities by $100,000.

B. Liabilities exceed equity by $100,000.
C. Assets + liabilities equal $100,000.
D. None of the above is true.

16.  ________ takes all transactions from the journal during a period and moves the information to a general
ledger (ledger).

A. Hitching
B. Posting
C. Vetting
D. All of the above

17. Which of these events will not be recognized?

A. A service is performed, but the payment is not collected on the same day.
B. Supplies are purchased. They are not paid for; the company will be billed.
C. A copy machine is ordered. It will be delivered in two weeks.
D. Electricity has been used but has not been paid for.

18. A company purchased a building twenty years ago for $150,000. The building currently has an appraised
market value of $235,000. The company reports the building on its balance sheet at $235,000. What concept
or principle has been violated?

A. separate entity concept

B. recognition principle
C. monetary measurement concept
D. cost principle

19. What is the impact on the accounting equation when a current month’s utility expense is paid?

A. both sides increase

B. both sides decrease
C. only the Asset side changes
D. neither side changes

20. What is the impact on the accounting equation when a payment of account payable is made?

A. both sides increase

B. both sides decrease
 C. only the Asset side changes
D. neither side changes

21. What is the impact on the accounting equation when an accounts receivable is collected?

A. both sides increase

B. both sides decrease
C. only the Asset side changes
D. the total of neither side changes

22. Which of the following accounts is increased by a debit?

A. Common Stock
B. Accounts Payable
C. Supplies
D. Service Revenue

23. Which of the following accounts does not increase with a debit entry?

A. Retained Earnings
B. Buildings
C. Prepaid Rent
D. Electricity Expense

24. Which of the following pairs increase with credit entries?

A. supplies and retained earnings

B. rent expense and unearned revenue
C. prepaid rent and common stock
D. unearned service revenue and accounts payable

25. Which of the following pairs of accounts are impacted the same with debits and credits?

A. Cash and Unearned Service Revenue

B. Electricity Expense and Office Supplies
C. Accounts Receivable and Accounts Payable
D. Buildings and Common Stock

26. What type of account is prepaid insurance?

A. Stockholders’ Equity
B. Expense
C. Liability
D. Asset

27. Unearned service revenue occurs when which of the following occurs?

A. company receives cash from a customer before performing the service

B. company pays cash before receiving a service from a supplier
C. company pays cash after receiving a service from a supplier
D. company receives cash from a customer after performing a service
28. Which set of accounts has the same type of normal balance?

A. Cash, accounts payable

B. Prepaid rent, unearned service revenue
C. Dividends, common stock
D. Accounts payable, retained earning

29. Which of these transactions requires a debit entry to Cash?

A. paid balance due to suppliers

B. sold merchandise on account
C. collected balance due from customers
D. purchased supplies for cash

30. Which of these transactions requires a credit entry to Revenue?

A. received cash from services performed this month

B. collected balance due from customers
C. received cash from bank loan
D. refunded a customer for a defective product

31. When you hear the term depreciation, what comes to your mind?

A. Distribution or allocation of fixed assets among the rightful owners.

B. Depletion of the price of assets following the modern market demand.
C. Reduction in the quoted price of any fixed asset in a set pattern.
D. Increase in value of assets over time.
32. Why do we need to assess the depreciation value of a particular fixed asset?

A. It gives us useful strategies applying which we can reduce taxation amount.

B. It helps us to determine the profit secured in the previous fiscal year.
C. It is a mandatory rule stipulated by the income tax department.
D. Through depreciation, we get an idea regarding the net profit of a transaction.
33. Why do fixed assets need to go through depreciation?

A. A firm has to face depreciation in asset values due to the piling up of liabilities each year.
B. A reduction in capital worth leads to depreciation.
C. Wear and tear resulting from repeated operation reduces the efficiency of pieces of machinery or
equipment, thus price decreases.
D. The particular asset’s net worth gets reduced with time in the market.
34. How can someone define the terminology ‘obsolete’ in business accounting?

A. Obsolete refers to a range of similar products that were manufactured to fulfill a purpose and no longer
prove to live up to their commitment.
B. A product status that indicates that there are better options available in the marketplace.
C. Amount of money spent to reorganize the industry’s inventory.
D. Disposal of old stuff as the company can afford new variations to garner more profit.
35. Where does the accountant allocate the charges marked under the depreciation section while
preparing the balance sheet?

A. In a separate account maintained by the firm only to list depreciation costs.

B. An account that keeps a record of the cash flow.
 C. Machinery account that tracks the costs incurred due to maintenance of equipment and machinery.
D. Repair folio.
36. What do you understand by ‘salvage’?

A. It is the market rate price or the definite selling price determined by the asset vendor.
B. Salvage value represents the expected disposal value. It is a forecasted metric.
C. Receivable cash amount that is credited to the depreciation account once the life of a fixed asset ends.
D. Payable amount by the owner when the asset turns out to be obsolete.
37. In which method of accountancy do we find the depreciation as a constant value?

A. The method of a straight line.

B. Declining balance methodology.
C. Unit Production Rate.
D. The accelerated sum-of-years methodology.
38. Please choose the best possible answer that explains the meaning of ‘residual value’.

A. It is a metric that is determined by assimilating the cost of buying and installing the company’s assets
the price of which is bound to deplete in course of time and it will be subtracted by its salvage value.
B. Residual value depicts the company’s valuation by studying the situation of the stock market.
C. Residual value is defined as the net worth of all the constituent parts of the physical assets when the
fixed asset has become obsolete and proves to be ill-worthy for operations.
D. The estimated price of an asset when it is approaching its obsolescence.
39. How do we define the straight-line method?

A. It is a strategic technique for evaluating the value depreciation of any asset in course of time. 
B. It is a theory that states depreciation rates are identical every year and the depreciable values are even
the same.
C. It is a system of noting down the greater depreciation expenditures that had already occurred in the
previous years. 
D. This straight-line technique is an accelerated formula for understanding an asset’s depreciation.
40. How to describe the accounting term ‘amortization’?

A. Amortization refers to a specific accrual accounting method that is implemented to deliver the expenses
of extracting every possible natural resource.
B. It is the only method that is periodically reducing the book value against loans taken by a firm.
C. The depreciation of assets in monetary terms.
D. The wear and tear of fixed assets diminishes their physical capacity with time.