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Quizzes > Quizzes for Business > Finance

Accounting Cycle and Depreciation Knowledge Test

Assess Your Depreciation and Accounting Cycle Skills

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting elements related to Accounting Cycle and Depreciation quiz

Ready to test your mastery of the accounting cycle and depreciation methods? This interactive accounting cycle quiz is ideal for students and educators seeking a focused Accounting Fundamentals Quiz experience. With 15 dynamic questions, you'll practice journal entries, asset valuation, and depreciation calculations in real-world scenarios. You can freely customise the quiz in our editor, or combine it with the Basic Accounting Quiz and the Financial Accounting Knowledge Test. Explore more quizzes to sharpen your accounting skills!

What is the first step in the accounting cycle?
Posting to the ledger
Preparing a trial balance
Journalizing transactions
Closing entries
The first step in the accounting cycle is journalizing transactions, which involves recording each business event in the journal. This initial recording provides the source data for the ledger and subsequent steps in the cycle.
Which document lists all ledger account balances at a specific date?
General journal
Trial balance
Balance sheet
Income statement
A trial balance lists all ledger account balances at a given date and confirms that total debits equal total credits. It is prepared before adjustments and financial statements.
Which of the following best defines depreciation?
Accumulating cash to replace an asset
Valuation of market value decline
Allocation of an asset's cost over its useful life
Recording the gain on asset sale
Depreciation is the systematic allocation of an asset's cost over its useful life. It reflects expense recognition without directly measuring market value changes.
What is the straight-line depreciation expense per year for an asset costing $50,000 with a $5,000 salvage value and a nine-year useful life?
$4,500
$5,000
$2,000
$4,000
Straight-line depreciation is calculated as (Cost - Salvage Value) ÷ Useful Life. Here, ($50,000 - $5,000) ÷ 9 = $5,000 per year.
What is the correct journal entry to record monthly depreciation?
Debit Depreciation Expense; Credit Accumulated Depreciation
Debit Accumulated Depreciation; Credit Depreciation Expense
Debit Depreciation Expense; Credit Cash
Debit Equipment; Credit Depreciation Expense
Depreciation expense is recorded by debiting Depreciation Expense and crediting the contra-asset account Accumulated Depreciation. This entry recognizes the expense without affecting cash.
A company purchases equipment for $60,000 with an estimated $6,000 salvage value and a five-year useful life. What is the annual straight-line depreciation expense?
$10,800
$12,000
$6,000
$5,000
Annual straight-line depreciation is calculated as (Cost - Salvage Value) ÷ Useful Life. Thus, ($60,000 - $6,000) ÷ 5 = $10,800 per year.
How does depreciation expense affect the income statement?
It increases total assets
It reduces net income
It increases liabilities
It increases net income
Depreciation expense is recorded on the income statement, increasing total expenses and thereby reducing net income. It does not directly affect liabilities.
Using the double-declining-balance method, what is the first-year depreciation expense on an asset costing $100,000 with a five-year life and no salvage value?
$20,000
$50,000
$25,000
$40,000
Double-declining-balance rate = 2 ÷ Useful Life = 2 ÷ 5 = 40%. First-year expense = 40% of $100,000 = $40,000.
What is the book value at the end of the second year using double-declining-balance for an asset costing $100,000, no salvage, and five-year life?
$60,000
$40,000
$22,000
$36,000
Year 1 depreciation = $100,000 × 40% = $40,000, book value = $60,000. Year 2 = $60,000 × 40% = $24,000, leaving a book value of $36,000.
Which account is credited when recording depreciation expense?
Equipment
Accumulated Depreciation
Depreciation Payable
Depreciation Expense
Depreciation expense is credited to Accumulated Depreciation, a contra-asset account, to accumulate total depreciation. Depreciation Expense is the debited account.
An asset purchased on April 1 has a year-end of December 31. What fraction of the annual depreciation is recorded for that fiscal year?
3/12
12/12
4/12
9/12
From April 1 to December 31 is nine months, so 9/12 of the annual depreciation expense is recorded in that fiscal year.
How is depreciation expense closed at year-end?
Debit Depreciation Expense; Credit Income Summary
Debit Income Summary; Credit Accumulated Depreciation
Debit Income Summary; Credit Depreciation Expense
Debit Accumulated Depreciation; Credit Income Summary
Closing an expense involves debiting Income Summary and crediting the expense account. This zeroes out Depreciation Expense for the next period.
Which step comes immediately after posting journal entries to the ledger?
Closing entries
Recording adjusting entries
Preparing financial statements
Preparing a trial balance
After posting all journal entries to the ledger, the next step is to prepare a trial balance to ensure total debits equal total credits before adjustments.
Which depreciation method produces decreasing expense amounts each year?
Units-of-production
Sum-of-the-years'-digits
Straight-line
Double-declining-balance
Double-declining-balance is an accelerated method that records higher depreciation in early years and decreasing amounts in later years.
When equipment is sold for cash greater than its book value, how is the excess amount recorded?
Debit Gain on Disposal
Debit Loss on Disposal
Credit Gain on Disposal
Credit Loss on Disposal
If cash received exceeds the book value of the asset, the excess is recorded as a gain. The Gain on Disposal account is credited to reflect this.
At the start of year 4, a machine's useful life is changed from 10 years to 8 years. Cost was $80,000, salvage $8,000, and straight-line depreciation was used. What is the new annual depreciation?
$7,200
$12,600
$10,000
$9,000
Original annual depreciation = ($80,000 - $8,000) ÷ 10 = $7,200. After 3 years depreciation of $21,600, book value = $58,400. New life = 8 years total, so 4 years remaining: ($58,400 - $8,000) ÷ 4 = $12,600.
Five identical machines, each costing $10,000 with no salvage value and a 5-year life, are depreciated on a composite basis. What is the annual composite depreciation rate?
18%
20%
25%
10%
Composite rate = Total annual depreciation ÷ Total cost. Total cost = $50,000; annual depreciation = $50,000 ÷ 5 = $10,000; rate = $10,000 ÷ $50,000 = 20%.
Using the sum-of-the-years'-digits method, what is the first-year depreciation for an asset costing $45,000 with no salvage and a five-year life?
$9,000
$18,000
$15,000
$12,000
Sum of digits = 5+4+3+2+1 = 15. First-year fraction = 5/15. Depreciation = (5/15) × $45,000 = $15,000.
Equipment cost $50,000 with accumulated depreciation of $38,000 is sold for $15,000 cash. What is the gain or loss on sale?
Loss of $3,000
Loss of $27,000
Gain of $3,000
Gain of $27,000
Book value = $50,000 - $38,000 = $12,000. Cash received of $15,000 exceeds book value by $3,000, so a gain of $3,000 is recorded.
When a company changes from straight-line to an accelerated depreciation method, how is the change applied?
Retroactively to all prior periods
Only to the salvage value
To restate prior financial statements
Prospectively for current and future periods
A change in depreciation method is applied prospectively to current and future periods. Prior periods are not restated, and no retroactive adjustments are made.
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Learning Outcomes

  1. Analyse each step of the accounting cycle from journalizing to closing entries
  2. Calculate depreciation using straight-line and declining-balance methods
  3. Identify how depreciation affects balance sheets and income statements
  4. Apply correct journal entries for asset acquisition and depreciation adjustments
  5. Evaluate book values and useful lives of assets over time

Cheat Sheet

  1. Master the Accounting Cycle - Dive into the 8 action-packed steps from spotting transactions to closing the books, and become the financial detective every business needs! Understanding each phase ensures you'll never miss a beat in accurate reporting. Accounting Cycle - 8 Steps in the Accounting Cycle, Diagram, Guide
  2. Navigate Straight-Line Depreciation - Picture an asset wearing the same expense "shirt" every year - simple, steady, and predictable! Use the formula (Cost - Salvage Value) / Useful Life to spread expenses evenly and keep your numbers crystal clear. Depreciation Methods - 4 Types of Depreciation You Must Know!
  3. Unlock Double-Declining Balance Depreciation - Want to front-load costs like a blockbuster movie? This accelerated method charges more depreciation early on using (2 / Useful Life) × Book Value. It's perfect for fast-aging assets and dramatic accounting effects! Depreciation Methods - 4 Types of Depreciation You Must Know!
  4. See How Depreciation Shapes Financial Statements - Depreciation doesn't just vanish - it reduces net income and shrinks asset values on your balance sheet. Grasping this impact helps you evaluate true company health and make savvy decisions! Depreciation: Straight-Line Vs. Double-Declining Methods
  5. Practice Depreciation Journal Entries - Journal wizards unite! Debit your depreciation expense and credit accumulated depreciation to mirror asset wear and tear. Mastering these entries keeps your ledgers impeccable and your audit worries at bay. Depreciation Methods - 4 Types of Depreciation You Must Know!
  6. Calculate and Interpret Book Value - Book Value = Cost - Accumulated Depreciation, your secret formula for tracking an asset's on-paper worth. Regularly checking this number helps you gauge when it's time for an upgrade - or a retirement party! Depreciation Methods - 4 Types of Depreciation You Must Know!
  7. Estimate Useful Life & Salvage Value Accurately - Guess too low or too high, and your depreciation dance falls offbeat! Researching usage patterns and market values ensures your estimates lock in realistic expense schedules. Depreciation Methods - 4 Types of Depreciation You Must Know!
  8. Compare Depreciation Methods for Smart Choices - Straight-line keeps it even, double-declining presses the gas early, and units-of-production ties costs to actual use. Picking the right rhythm aligns expense timing with how assets boost revenue. Depreciation Methods - 4 Types of Depreciation You Must Know!
  9. Leverage Depreciation in Tax Planning - More depreciation today can mean less taxable income tomorrow, giving you a strategic edge on tax liabilities. Understanding rules and limits helps you play the tax game like a pro. Depreciation Methods - 4 Types of Depreciation You Must Know!
  10. Perfect Adjusting Entries for Depreciation - Fine-tune your records at period-end by matching expenses to the correct timeframe. Timely adjustments keep your financials compliant, accurate, and audit-ready - no last-minute panic required! Accounting Cycle - 8 Steps in the Accounting Cycle, Diagram, Guide
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