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Quizzes > Quizzes for Business > Finance

Take the Accounting Basics Quiz Today

Sharpen your accounting fundamentals with this interactive quiz

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
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Ready to boost your grasp of accounting basics? This Basic Accounting Quiz offers a fun, interactive way to test your knowledge of journal entries, ledgers, and financial statements. Ideal for students and professionals looking to reinforce accounting fundamentals, you'll gain confidence in applying key concepts. Every question can be freely modified in the editor to suit your learning style. Explore more practice exercises by visiting our quizzes or try the Accounting Fundamentals Quiz for an added challenge!

Which financial statement reports a company's revenues and expenses over a period?
Balance Sheet
Statement of Retained Earnings
Income Statement
Statement of Cash Flows
The income statement summarizes a company's revenues and expenses over a specific period. It reports net income or net loss resulting from these operations.
What is the fundamental accounting equation?
Assets = Equity - Liabilities
Liabilities = Assets + Equity
Assets = Liabilities + Equity
Equity = Liabilities - Assets
The fundamental accounting equation is Assets = Liabilities + Equity. This relationship forms the basis for the double-entry recording system.
Which term describes resources owned by a company?
Revenues
Expenses
Assets
Liabilities
Assets represent resources owned by the business that provide future economic benefits. Liabilities and equity represent other parts of the equation, but assets specifically are owned resources.
Which account type normally has a debit balance?
Asset
Equity
Liability
Revenue
Asset accounts normally have debit balances because debits increase assets. Revenue, liability, and equity accounts have normal credit balances instead.
In double-entry accounting, every transaction must affect at least how many accounts?
One
Three
Two
None
Double-entry accounting requires at least two accounts per transaction to keep the accounting equation in balance. Debits and credits must always equal in total for each transaction.
Which section of the statement of cash flows reports cash transactions related to the day-to-day operations?
Operating Activities
Equity Activities
Investing Activities
Financing Activities
Operating activities include cash transactions related to a company's core business operations. Investing and financing activities cover asset acquisitions and funding sources, respectively.
A company purchases equipment for $5,000 cash. Which journal entry is correct?
Debit Accounts Payable $5,000; Credit Cash $5,000
Debit Cash $5,000; Credit Equipment $5,000
Debit Equipment $5,000; Credit Cash $5,000
Debit Equipment $5,000; Credit Accounts Payable $5,000
Purchasing equipment with cash decreases cash and increases property, plant, and equipment. Therefore, Equipment is debited for $5,000 and Cash is credited for $5,000.
A business receives $1,200 in advance for consulting services to be performed next month. What is the correct journal entry?
Debit Consulting Revenue $1,200; Credit Cash $1,200
Debit Cash $1,200; Credit Consulting Revenue $1,200
Debit Unearned Revenue $1,200; Credit Cash $1,200
Debit Cash $1,200; Credit Unearned Revenue $1,200
Cash received in advance creates an unearned revenue liability because services have not yet been performed. Thus, you debit Cash and credit Unearned Revenue for $1,200.
What does an accrued expense represent?
Expense paid in advance
Revenue earned but not yet received
Liability that has been settled
Expense incurred but not yet paid
An accrued expense is one that has been incurred but not yet paid in cash. It is recorded by recognizing the expense and a corresponding payable liability.
Which report lists all ledger account balances to verify debits equal credits?
Statement of Cash Flows
Balance Sheet
Trial Balance
Income Statement
A Trial Balance lists all ledger accounts and their balances to verify that total debits equal total credits. It is prepared after posting journal entries and before preparing financial statements.
If a company declares a dividend of $2,000, how does this affect the accounting equation?
Assets increase by $2,000
Equity increases by $2,000
Equity decreases by $2,000
Liabilities increase by $2,000
Declaring a dividend reduces retained earnings, which is a component of equity. Therefore, equity decreases by the dividend amount, while assets and liabilities remain unchanged until payment.
A journal entry debits Cash for $500 and credits Sales Revenue for $500. How does this entry affect the fundamental accounting equation?
Assets increase and liabilities increase
Liabilities increase and equity increase
Assets increase and equity increase
Assets decrease and equity decrease
Debiting Cash for $500 increases the asset account, and crediting Sales Revenue increases equity via net income. This transaction thus raises both assets and equity by $500.
When a company pays off a $1,000 accounts payable balance, what is the effect on the fundamental accounting equation?
Equity decreases by $1,000
Assets increase by $1,000 and liabilities increase by $1,000
Assets decrease by $1,000 and liabilities decrease by $1,000
Assets decrease by $1,000 and equity decrease by $1,000
Paying accounts payable reduces the cash asset account and lowers the liabilities account by the same amount. There is no impact on equity because the payment settles an existing liability.
What is the primary purpose of the Statement of Retained Earnings?
To display cash inflows and outflows
To summarize revenues and expenses
To list all assets and liabilities at a point in time
To show changes in retained earnings over a period
The Statement of Retained Earnings reconciles the beginning and ending retained earnings balances over a period, incorporating net income and dividends. It shows how earnings are retained or distributed to shareholders.
If depreciation expense is overstated, what is the impact on net income and assets?
Net income is overstated and assets are understated
Net income is overstated and assets are overstated
Net income is understated and assets are understated
Net income is understated and liabilities are understated
Overstating depreciation expense increases total expenses, which reduces net income. It also increases accumulated depreciation, a contra asset, resulting in understated net asset values.
A company prepays $2,400 for one-year insurance coverage on January 1. What is the adjusting entry at January 31?
Debit Prepaid Insurance $200; Credit Insurance Expense $200
Debit Prepaid Insurance $2,400; Credit Cash $2,400
Debit Insurance Expense $200; Credit Prepaid Insurance $200
Debit Insurance Expense $2,400; Credit Prepaid Insurance $2,400
One month's worth of insurance is $200 ($2,400/12). The adjusting entry debits Insurance Expense and credits Prepaid Insurance for $200 to reflect the expense incurred.
A purchase of office supplies for $300 was incorrectly recorded as Office Supplies Expense instead of Office Supplies (asset). What is the correcting entry?
Debit Office Supplies $300; Credit Cash $300
Debit Office Supplies Expense $300; Credit Office Supplies $300
Debit Office Supplies $300; Credit Office Supplies Expense $300
Debit Cash $300; Credit Office Supplies Expense $300
The original entry misstated an asset purchase as an expense, understating assets and overstating expenses. The correct entry transfers $300 back to the asset account by debiting Office Supplies and crediting Office Supplies Expense.
Which accounting principle requires matching expenses with the revenues they help to generate?
Matching Principle
Revenue Recognition Principle
Cost Principle
Conservatism Principle
The matching principle requires that expenses be recorded in the same period as the revenues they help generate. It ensures accurate measurement of net income within an accounting period.
The adjusting entry for depreciation expense includes which of the following?
Debit Accumulated Depreciation; Credit Depreciation Expense
Debit Equipment; Credit Accumulated Depreciation
Debit Depreciation Expense; Credit Equipment
Debit Depreciation Expense; Credit Accumulated Depreciation
Depreciation expense reduces equity via retained earnings and accumulates in a contra asset account rather than directly reducing the asset. Thus, you debit Depreciation Expense and credit Accumulated Depreciation.
A utility bill for $500 received after period end relates to the ending month but has not been recorded. What adjusting entry is required at period end?
Debit Cash $500; Credit Utilities Expense $500
Debit Utilities Payable $500; Credit Utilities Expense $500
Debit Utilities Expense $500; Credit Utilities Payable $500
Debit Utilities Expense $500; Credit Cash $500
Since the utility expense relates to the period already ended but remains unpaid, it must be recognized as an expense and a liability. The adjusting entry debits Utilities Expense and credits Utilities Payable for $500.
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Learning Outcomes

  1. Identify the core components of financial statements
  2. Apply double-entry accounting to sample transactions
  3. Analyse journal entries for accuracy and completeness
  4. Evaluate the fundamental accounting equation in examples
  5. Master essential accounting terminology and concepts

Cheat Sheet

  1. Fundamental Accounting Equation - Assets = Liabilities + Equity is the backbone of every balance sheet, ensuring nothing magically appears or disappears. Think of it as a seesaw: what you own on one side must be funded by someone on the other to stay perfectly balanced. Learn more
  2. Key Financial Statement Components - Assets are what a company owns, liabilities are what it owes, and equity is the owner's claim after obligations. Understanding how these three pieces fit together helps you read any balance sheet like a pro. Explore further
  3. Double-Entry Bookkeeping - Every transaction hits at least two accounts, keeping the accounting equation in perfect harmony. For example, buying equipment with cash both increases one asset and decreases another - always balanced! Discover details
  4. Journal Entry Accuracy - Ensure total debits always equal total credits to catch mistakes early and keep records reliable. This simple check is your best defense against errors and audit surprises. See examples
  5. Revenues vs. Expenses Impact - Revenues boost equity while expenses chip away at it, directly shaping a business's financial health. Tracking this dance reveals how profits or losses flow into retained earnings. Uncover insights
  6. Current vs. Long-Term Classifications - Current assets and liabilities are settled within a year, while long-term items take longer. This split is key to gauging liquidity and planning for future cash needs. Check it out
  7. Debits and Credits Demystified - Remember DEADCLIC: Debit increases Expense, Asset, Drawing; Credit increases Liability, Income, Capital. This mnemonic lets you post entries confidently and avoid rookie mistakes. Understand more
  8. Hands-On Equation Practice - Apply the accounting equation to real-world scenarios, like taking a loan that boosts both cash (asset) and loan payable (liability). Active practice cements your understanding. Practice exercises
  9. Retained Earnings Role - Retained earnings are the accumulated profits not paid out as dividends, showing how much has been reinvested. This figure reveals a company's growth strategy over time. Read on
  10. Balance Sheet Snapshot - A balance sheet captures a company's financial position at a single moment, summarizing assets, liabilities, and equity. Studying its structure offers clear insights into stability and efficiency. Get the full story
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