Which of the following statements describes GAAP?

Question

A.
GAAP standards are written and regulated by the government.
B.
It is legally required that all companies meet GAAP standards.
C.
Companies that meet GAAP standards usually use cash basis accounting.
D.
GAAP recommends accrual basis accounting.

Answer 1

The correct statement that describes GAAP (Generally Accepted Accounting Principles) is:

D. GAAP recommends accrual basis accounting.

GAAP standards are not written and regulated by the government (A), it is not legally required for all companies to meet GAAP standards (B), and GAAP does not endorse cash basis accounting for financial reporting but rather recommends accrual basis accounting (C).

Answer 2

Which of the following is a type of liability?
A.
A revenue stream
B.
A liquid asset
C.
Accounts payable
D.
Accounts receivable

Answer 3

The correct answer is:

C. Accounts payable

Accounts payable is a type of liability, as it represents money that a company owes to its suppliers or creditors for goods and services received. The other options listed (A. A revenue stream, B. A liquid asset, and D. Accounts receivable) are not liabilities.

Answer 4

What is the opportunity cost of an investment?
A.
The combined values of the other opportunities available
B.
The value of the next most valuable opportunity
C.
The marginal benefit of the investment
D.
The volatility of the investment

Answer 5

The correct answer is:

B. The value of the next most valuable opportunity.

Opportunity cost refers to the value of the next best alternative that is forgone when making a decision to allocate resources, such as time or money, to a particular investment.

Answer 6

Which of the following tips can hurt your cash flow?
A.
Increase your sales.
B.
Pay your bills early.
C.
Keep a cash reserve.
D.
Offer credit only to low risk borrowers.

Answer 7

The correct answer is:

B. Pay your bills early.

While paying bills on time is important for maintaining good relationships with creditors and suppliers, paying them early can hurt your cash flow as it reduces the cash available for other expenses. The other options (A. Increase your sales, C. Keep a cash reserve, and D. Offer credit only to low-risk borrowers) generally contribute positively to cash flow management.

Answer 8

In double-entry accounting, where should you record money that is leaving your company to pay bills?
A.
In the debits column
B.
In the credits column
C.
In the asset column
D.
In the cash flow column

Answer 9

The correct answer is:

A. In the debits column.

In double-entry accounting, when money leaves the company (for example, to pay bills), it is recorded as a debit in the relevant expense account and as a credit in the cash account (reflecting a decrease in cash). Thus, the cash leaving the company would be recorded as a debit.

Answer 10

The amount that people are willing to pay for each additional unit of a product or service is the _____________?
A.
Opportunity cost
B.
Marginal benefit
C.
Marginal cost
D.
Investment opportunity

Answer 11

The correct answer is:

B. Marginal benefit.

The marginal benefit is the additional satisfaction or value that a consumer derives from consuming one more unit of a good or service, which reflects the amount they are willing to pay for that additional unit.