FOUNDATION CERTIFICATE IN ACCOUNTING Exam
Question 1 Which of the following best describes the primary purpose of accounting?
- To provide information for decision making
- To create personal budgets
- To increase the cost of doing business
- To replace managerial roles
Correct Answer: A
Explanation: Accounting is primarily used to record, summarize, and
communicate financial information to help stakeholders make informed decisions.
Question 2 The accounting equation is represented by which of the following?
- Assets = Equity – Liabilities
- Assets = Liabilities – Equity
- Assets = Liabilities + Equity
- Liabilities = Assets + Equity
Correct Answer: C 1 / 4
FOUNDATION CERTIFICATE IN ACCOUNTING Exam
Explanation: The standard form of the accounting equation is Assets = Liabilities + Equity, showing the relationship between what a company owns and owes.
Question 3 Which financial statement reports a company’s financial position at a specific point in time?
- Income Statement
- Balance Sheet
- Cash Flow Statement
- Statement of Retained Earnings
Correct Answer: B
Explanation: The Balance Sheet (or Statement of Financial Position) details assets, liabilities, and equity at a specific date.
Question 4 Which of these is an example of an asset?
- Revenue from sales
- A bank loan
- Equipment owned by the business
- Salaries payable 2 / 4
FOUNDATION CERTIFICATE IN ACCOUNTING Exam
Correct Answer: C
Explanation: Assets are resources controlled by a business that have economic
value, such as equipment.
Question 5 Which term refers to the owner’s residual interest in the assets of an entity after deducting liabilities?
- Capital
- Drawings
- Equity
- Retained Earnings
Correct Answer: C
Explanation: Equity (or owner’s equity) is the residual interest once all liabilities are subtracted from total assets.
Question 6 How are expenses best described in accounting terms?
- Future economic benefits
- Obligations to transfer resources 3 / 4
FOUNDATION CERTIFICATE IN ACCOUNTING Exam
- Outflows of economic benefits
- Increases in equity from primary activities
Correct Answer: C
Explanation: Expenses are outflows or depletions of assets (or incurs of liabilities) from delivering goods or services.
Question 7
When revenue exceeds expenses, the result is known as:
- A loss
- Net profit
- Retained earnings
- Break-even point
Correct Answer: B
Explanation: Net profit occurs when a company’s revenues are higher than its
expenses for a given period.
Question 8 A business pays cash to settle its telephone bill. Which accounts are affected?
- Assets decrease, Liabilities increase
- / 4