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1. What is the primary objective of financial accounting?
 a) Record financial transactions
 b) Facilitate managerial decision-making
 c) Provide information that is useful in making economic decisions
 d) Ensure legal compliance
 Answer: c) Provide information that is useful in making economic
decisions
 Rationale: The main goal of financial accounting is to provide financial
information that users need to make informed economic decisions.
2. Which of the following is not a characteristic of useful financial
information?
 a) Relevance
 b) Faithful representation
 c) Predictive value
 d) Costliness
 Answer: d) Costliness
 Rationale: While relevance, faithful representation, and predictive value
are all qualities that make financial information useful, costliness is not a
characteristic of the information itself but a consideration in its
production.
3. What does the accrual basis of accounting recognize?
 a) Transactions only when cash is received or paid
 b) Expenses only when they are paid
 c) Revenues when they are earned and expenses when they are incurred
 d) Transactions only when there is a legal contract
 Answer: c) Revenues when they are earned and expenses when they are
incurred
 Rationale: The accrual basis of accounting recognizes revenues and
expenses when they are earned or incurred, regardless of when the cash
transactions occur.
4. In financial accounting, what does the 'going concern' assumption
imply?
 a) The business will remain in operation for the foreseeable future
 b) The business is currently facing financial difficulties
 c) The business will be liquidated in the near term
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