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1. What is the main purpose of a balance sheet?
A) To show the sources and uses of cash for a business
B) To show the revenues and expenses of a business for a period
C) To show the assets, liabilities, and equity of a business at a point in
time
D) To show the profitability and efficiency of a business operations
Answer: C. A balance sheet is a snapshot of a business's financial position
at a given date. It shows what the business owns (assets), what it owes
(liabilities), and what it has invested (equity).
2. What is the accounting equation?
A) Assets = Liabilities + Equity
B) Assets = Revenues - Expenses
C) Equity = Assets - Liabilities
D) Equity = Revenues - Expenses
Answer: A. The accounting equation is the basis of the balance sheet. It
states that the total assets of a business must equal the total liabilities and
equity.
3. What is an income statement?
A) A statement that shows the changes in equity for a period
B) A statement that shows the inflows and outflows of cash for a period
C) A statement that shows the revenues and expenses for a period
D) A statement that shows the assets and liabilities for a period
Answer: C. An income statement is a summary of a business's
performance for a period. It shows how much revenue the business earned
and how much expenses it incurred.
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