Pre-Test: Fundamentals of Accounting, Business, and Management (FABM)

Instructions: Choose the best answer for each question.

1. What is the accounting equation?

A) Assets = Liabilities + Equity

- B) Revenue = Expenses + Profit

- C) Assets = Liabilities - Equity

- D) Revenue = Profit - Expenses

2. What is the purpose of a balance sheet?

- A) To show a company's profitability

- B) To show a company's financial position at a specific time

- C) To record daily transactions

- D) To outline a company's marketing strategy

3. What is a ledger?

- A) A book for recording transactions

- B) A financial statement

- C) A type of accounting software

- D) A list of a company's employees

4. What is the main purpose of a cash flow statement?

- A) To show how changes in balance sheet accounts affect cash

- B) To show a company's profitability

- C) To record daily transactions

- D) To outline a company's marketing strategy

5. What is depreciation?

- A) Increase in asset value over time

- B) Decrease in asset value over time

- C) Transfer of assets

- D) Calculation of taxes
6. What is the double-entry system?

- A) Recording transactions twice for accuracy

- B) Recording both debits and credits for each transaction

- C) Using two different accounting methods

- D) Recording transactions in two different currencies

7. What is the main purpose of an income statement?

- A) To show a company's financial position

- B) To show a company's profitability over a period

- C) To record daily transactions

- D) To outline a company's marketing strategy

8. What is a liability?

- A) An asset

- B) A debt or obligation

- C) A revenue

- D) An equity

9. What is the difference between gross and net income?

- A) Gross income is before taxes; net income is after taxes

- B) Gross income is after taxes; net income is before taxes

- C) There is no difference

- D) Gross income includes expenses; net income does not

10. What is the primary purpose of a trial balance?

- A) To show a company's profitability

- B) To check the equality of debits and credits

- C) To record daily transactions

- D) To outline a company's marketing strategy

11. What is the primary purpose of a journal in accounting?

- A) To record daily transactions in chronological order

- B) To show a company's profitability

- C) To outline a company's marketing strategy

 - D) To show a company's financial position

12. What is the difference between accounts payable and accounts receivable?

- A) Payable is money owed by the company; receivable is money owed to the company

- B) Payable is money owed to the company; receivable is money owed by the company

- C) There is no difference

- D) Payable is short-term; receivable is long-term

13. What is a credit in accounting?

- A) An increase in assets

- B) A decrease in liabilities

- C) An increase in equity or liabilities

- D) A decrease in equity

14. What is the main purpose of cost accounting?

- A) To determine the cost of goods sold

- B) To show a company's profitability

- C) To record daily transactions

- D) To outline a company's marketing strategy

15. What is the difference between capital and revenue expenditure?

- A) Capital is for long-term assets; revenue is for short-term expenses

- B) Capital is for short-term expenses; revenue is for long-term assets

- C) There is no difference

- D) Capital is tax-deductible; revenue is not

16. What is the primary purpose of a petty cash fund?

- A) To pay for large expenses

- B) To pay for small, incidental expenses

- C) To record daily transactions

- D) To outline a company's marketing strategy

17. What is the difference between a debit and a credit in accounting?

- A) Debit increases assets; credit decreases assets

- B) Debit decreases assets; credit increases assets

 - C) There is no difference

- D) Debit is for expenses; credit is for revenue

18. What is the main purpose of managerial accounting?

- A) To prepare financial statements for external users

- B) To provide information for internal decision-making

- C) To record daily transactions

- D) To outline a company's marketing strategy

19. What is a budget in accounting?

- A) A financial plan for a specific period

- B) A list of all transactions

- C) A type of financial statement

- D) A marketing strategy

20. What is the primary purpose of an audit?

- A) To show a company's profitability

- B) To verify the accuracy of financial statements

- C) To record daily transactions

- D) To outline a company's marketing strategy

21. What is a fiscal year?

- A) A calendar year

- B) A tax year for a business

- C) A quarter

- D) A month

22. What is goodwill in accounting?

- A) The value of a company's brand name

- B) The value of a company's physical assets

- C) The value of a company's liabilities

- D) The value of a company's cash reserves

23. What is the main purpose of financial accounting?

- A) To provide information for internal decision-making

 - B) To prepare financial statements for external users

- C) To record daily transactions

- D) To outline a company's marketing strategy

24. What is a dividend?

- A) A tax payment

- B) A payment to shareholders

- C) A loan payment

- D) A payment to employees

25. What is a fixed cost?

- A) A cost that varies with production

- B) A cost that remains constant regardless of production

- C) A cost that changes seasonally

- D) A cost that is tax-deductible

26. What is a variable cost?

- A) A cost that varies with production

- B) A cost that remains constant regardless of production

- C) A cost that changes seasonally

- D) A cost that is tax-deductible

27. What is liquidity in accounting?

- A) The ability to convert assets into cash quickly

- B) The ability to pay off long-term debts

- C) The ability to invest in new assets

- D) The ability to generate profits

28. What is solvency in accounting?

- A) The ability to convert assets into cash quickly

- B) The ability to pay off long-term debts

- C) The ability to invest in new assets

- D) The ability to generate profits

29. What is the main purpose of a statement of retained earnings?

 - A) To show a company's profitability

- B) To show changes in equity over a period

- C) To record daily transactions

- D) To outline a company's marketing strategy

30. What is a contingent liability?

- A) A definite obligation

- B) A potential obligation that depends on a future event

- C) A past obligation

- D) A tax liability

31. What is the primary purpose of a voucher in accounting?

- A) To authorize a payment

- B) To record a sale

- C) To document a purchase

- D) To outline a company's marketing strategy

32. What is a contra account?

- A) An account that offsets another account

- B) An account used for tax purposes

- C) An account used for investments

- D) An account used for loans

33. What is the main purpose of a bank reconciliation statement?

- A) To match the bank statement with the company's records

- B) To show a company's profitability

- C) To record daily transactions

- D) To outline a company's marketing strategy

34. What is a sunk cost?

- A) A cost that can be recovered

- B) A cost that has already been incurred and cannot be recovered

- C) A future cost

- D) A tax-deductible cost
35. What is the primary purpose of a purchase order?

- A) To authorize a purchase from a supplier

- B) To record a sale

- C) To document a purchase

- D) To outline a company's marketing strategy

36. What is the difference between cash and accrual accounting?

- A) Cash accounting records transactions when money changes hands; accrual accounting records
when transactions occur

- B) Cash accounting records when transactions occur; accrual accounting records when money
changes hands

- C) There is no difference

- D) Cash accounting is for small businesses; accrual accounting is for large corporations

37. What is the main purpose of an invoice?

- A) To request payment for goods or services

- B) To record a sale

- C) To document a purchase

- D) To outline a company's marketing strategy

38. What is the primary purpose of a sales journal?

- A) To record all sales transactions

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

39. What is a prepaid expense?

- A) An expense paid after the service is used

- B) An expense paid before the service is used

- C) An expense paid during the service

- D) An expense that is tax-deductible

40. What is the main purpose of a revenue journal?

- A) To record all revenue transactions

 - B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

41. What is the primary purpose of a T-account?

- A) To visualize debits and credits for a single account

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

42. What is the main purpose of a chart of accounts?

- A) To list all accounts used in a company's accounting system

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

43. What is the primary purpose of a general journal?

- A) To record daily transactions in chronological order

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

44. What is a write-off in accounting?

- A) Removing an uncollectible account from the books

- B) Recording a sale

- C) Documenting a purchase

- D) Outlining a company's marketing strategy

45. What is the main purpose of a cash receipts journal?

- A) To record all cash received

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

46. What is the primary purpose of a cash payments journal?

 - A) To record all cash payments

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

47. What is the main purpose of a subsidiary ledger?

- A) To provide detailed information about an account in the general ledger

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

48. What is the primary purpose of a closing entry?

- A) To prepare accounts for the next accounting period

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

49. What is the main purpose of an opening entry?

- A) To start the accounting records for a new business

- B) To show a company's profitability

- C) To document a purchase

- D) To outline a company's marketing strategy

50. What is the primary purpose of an adjusting entry?

- A) To correct errors in the accounting records

- B) To reflect changes in account balances not recorded during the period

- C) To document a purchase

- D) To outline a company's marketing strategy

### Answer Key

1. A) Assets = Liabilities + Equity

2. B) To show a company's financial position at a specific time

3. A) A book for recording transactions

4. A) To show how changes in balance sheet accounts affect cash

5. B) Decrease in asset value over time

6. B) Recording both debits and credits for each transaction

7. B) To show a company's profitability over a period

8. B) A debt or obligation

9. A) Gross income is before taxes; net income is after taxes

10. B) To check the equality of debits and credits

11. A) To record daily transactions in chronological order

12. A) Payable is money owed by the company; receivable is money owed to the company

13. C) An increase in equity or liabilities

14. A) To determine the cost of goods sold

15. A) Capital is for long-term assets; revenue is for short-term expenses

16. B) To pay for small, incidental expenses

17. A) Debit increases assets; credit decreases assets

18. B) To provide information for internal decision-making

19. A) A financial plan for a specific period

20. B) To verify the accuracy of financial statements

21. B) A tax year for a business

22. A) The value of a company's brand name

23. B) To prepare financial statements for external users

24. B) A payment to shareholders

25. B) A cost that remains constant regardless of production

26. A) A cost that varies with production

27. A) The ability to convert assets into cash quickly

28. B) The ability to pay off long-term debts

29. B) To show changes in equity over a period

30. B) A potential obligation that depends on a future event

31. A) To authorize a payment

32. A) An account that offsets another account

33. A) To match the bank statement with the company's records

34. B) A cost that has already been incurred and cannot be recovered

35. A) To authorize a purchase from a supplier

36. A) Cash accounting records transactions when money changes hands; accrual accounting records
when transactions occur

37. A) To request payment for goods or services

38. A) To record all sales transactions

39. B) An expense paid before the service is used

40. A) To record all revenue transactions

41. A) To visualize debits and credits for a single account

42. A) To list all accounts used in a company's accounting system

43. A) To record daily transactions in chronological order

44. A) Removing an uncollectible account from the books

45. A) To record all cash received

46. A) To record all cash payments

47. A) To provide detailed information about an account in the general ledger

48. A) To prepare accounts for the next accounting period

49. A) To start the accounting records for a new business

50. B) To reflect changes in account balances not recorded during the period