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Quizzes > Quizzes for Business > Finance

Take the Basic Accounting and Finance Knowledge Test

Challenge Your Accounting and Finance Fundamentals

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art illustrating a quiz on basic accounting and finance knowledge

Looking to boost your finance know-how? This Basic Accounting and Finance Knowledge Test offers an engaging accounting quiz for students and pros alike. Tackle questions on bookkeeping, financial statements, and budgeting to gain fresh insights and build confidence. You can even tweak any question in our editor to suit your needs. After completing, explore a Basic Accounting Quiz, try the Finance Knowledge Assessment Quiz , or browse more quizzes to broaden your skills.

What is the fundamental accounting equation?
Assets = Liabilities + Equity
Assets = Revenues - Expenses
Liabilities = Assets + Equity
Equity = Assets - Liabilities - Revenue
The accounting equation states that assets are financed by liabilities and equity. This formula underpins double-entry bookkeeping by showing the balance between resources and claims against them.
In double-entry bookkeeping, an increase in a liability account is recorded on which side?
Debit
Credit
Both debit and credit
Neither
Liabilities increase with credits according to accounting conventions. Credits record increases in liability and equity accounts.
Which type of account is increased by a debit entry?
Asset
Liability
Equity
Revenue
Debit entries increase asset and expense accounts in double-entry bookkeeping. Assets grow when debited, reflecting resource acquisition.
Which financial statement reports a company's financial position at a point in time?
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Retained Earnings
The balance sheet provides a snapshot of assets, liabilities, and equity at a specific date. It differs from income and cash flow statements that cover periods.
Under the accrual basis, revenue is recognized when _____.
Earned, regardless of cash receipt
Cash is received
Expenses are paid
Invoices are sent
The accrual basis recognizes revenue when it is earned, not when cash is received. This ensures financial statements reflect the economic activity of the period.
What is the journal entry to record the purchase of office supplies on account for $500?
Debit Office Supplies $500; Credit Accounts Payable $500
Debit Accounts Payable $500; Credit Office Supplies $500
Debit Cash $500; Credit Office Supplies $500
Debit Office Supplies Expense $500; Credit Cash $500
Purchasing supplies on account increases the supplies asset and creates a liability in accounts payable. Debiting supplies records the asset increase, crediting accounts payable records the obligation.
A company receives $2,000 cash for services to be performed next month. What is the correct journal entry?
Debit Cash $2,000; Credit Unearned Revenue $2,000
Debit Revenue $2,000; Credit Cash $2,000
Debit Cash $2,000; Credit Revenue $2,000
Debit Unearned Revenue $2,000; Credit Cash $2,000
Receiving cash before earning revenue creates a liability called unearned revenue. Debiting cash increases assets, and crediting unearned revenue recognizes the obligation to perform future services.
What is the current ratio if a company has current assets of $50,000 and current liabilities of $25,000?
0.5
1.0
2.0
3.0
The current ratio is calculated by dividing current assets by current liabilities. In this case, $50,000 divided by $25,000 equals 2.0.
Which accounting principle requires that expenses be recorded in the same period as the revenues they help generate?
Matching Principle
Conservatism Principle
Revenue Recognition Principle
Historical Cost Principle
The matching principle requires companies to record expenses in the same period as the revenues they help generate. This aligns expenses with related income for accurate profit measurement.
How is a bank loan due within 90 days classified on the balance sheet?
Current Liability
Long-Term Liability
Current Asset
Owners' Equity
Liabilities due within one year are classified as current liabilities on the balance sheet. A bank loan maturing in 90 days meets this criterion.
What is the formula for gross profit margin?
Gross Profit ÷ Revenue
Net Income ÷ Revenue
COGS ÷ Revenue
Revenue ÷ Gross Profit
Gross profit margin measures the percentage of revenue that exceeds the cost of goods sold. It is calculated as gross profit divided by revenue.
If a company reports revenue of $100,000 and net income of $10,000, what is its net profit margin?
1%
10%
90%
110%
Net profit margin is net income divided by revenue, expressed as a percentage. Here, $10,000 divided by $100,000 yields 10%.
Which method of preparing the statement of cash flows begins with net income and adjusts for non-cash items and changes in working capital?
Indirect Method
Direct Method
Both Methods
Accrual Method
The indirect method of the cash flow statement starts with net income and adjusts for non-cash items and changes in working capital. It contrasts with the direct method that lists actual cash receipts and payments.
In the indirect method of the cash flow statement, an increase in accounts payable is shown as:
Addition to Net Income
Deduction from Net Income
No Effect
Financing Cash Flow
In the indirect method, an increase in accounts payable is added back to net income because it represents cash not yet paid. This adjustment increases cash flow from operating activities.
What is the primary difference between accrual accounting and cash accounting?
Accrual records when earned or incurred; cash records when cash is exchanged
Accrual is only for large companies; cash for small companies
Accrual ignores expenses; cash records expenses
Accrual records only cash sales; cash records credit sales
Accrual accounting records revenues and expenses when they are earned or incurred, regardless of cash flow. Cash accounting records transactions only when cash is exchanged.
At the end of the year, a company needs to record one month's insurance expense from a $1,200 prepaid insurance that covers 12 months. What is the adjusting entry?
Debit Insurance Expense $100; Credit Prepaid Insurance $100
Debit Prepaid Insurance $1,200; Credit Insurance Expense $1,200
Debit Insurance Expense $1,200; Credit Cash $1,200
Debit Cash $100; Credit Insurance Expense $100
One month of insurance expense equals $1,200 divided by 12 months, or $100. Debiting insurance expense and crediting prepaid insurance reduces the asset and records the period cost.
Using the straight-line method, what is the annual depreciation expense for equipment costing $50,000 with a $5,000 salvage value and a 9-year useful life?
$5,000
$5,500
$45,000
$4,444
Straight-line depreciation spreads the cost minus salvage evenly over the asset's useful life. For equipment costing $50,000 with $5,000 salvage and a 9-year life, the annual charge is $5,000.
If a company has total debt of $200,000 and equity of $100,000, what is the debt-to-equity ratio?
0.5
1.0
2.0
3.0
The debt-to-equity ratio is calculated by dividing total debt by equity. With $200,000 debt and $100,000 equity, the ratio is 2.0.
Which formula correctly represents the DuPont analysis for return on equity (ROE)?
(Net Profit Margin) × (Asset Turnover) × (Equity Multiplier)
(Current Ratio) × (Quick Ratio)
(Gross Profit Margin) + (Asset Turnover) + (Debt Ratio)
(Operating Income) ÷ (Total Assets)
DuPont analysis breaks return on equity into profit margin, asset turnover, and the equity multiplier. Multiplying these three ratios yields ROE.
A company has a beginning cash balance of $10,000, expected cash receipts of $50,000, and expected cash disbursements of $45,000 for the period. What is the ending cash balance?
$15,000
$5,000
$10,000
$45,000
Ending cash equals beginning cash plus receipts minus disbursements. $10,000 + $50,000 - $45,000 equals $15,000.
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Learning Outcomes

  1. Apply double-entry bookkeeping to record business transactions.
  2. Analyse basic financial statements including balance sheets and income statements.
  3. Identify key accounting principles such as accruals and matching.
  4. Evaluate fundamental financial ratios for assessing company health.
  5. Demonstrate understanding of budgeting and cash flow management.

Cheat Sheet

  1. Accounting Equation - The backbone of every ledger: Assets = Liabilities + Equity. Mastering this keeps your books in perfect harmony and helps you spot imbalances in a snap. Explore on Wikipedia
  2. Double-Entry Bookkeeping - Think of it as a financial seesaw: every debit has a matching credit, so your totals always balance out. It's like accounting's version of a perfect dance partnership. Read on Investopedia
  3. Rules of Debits and Credits - Assets and expenses go up with debits; liabilities, equity, and revenue rise with credits. Remember the catchy mnemonic DEADCLIC to unlock this cheat code. Learn more on Wikipedia
  4. T-Accounts - These are like mini scoreboards showing debits on the left and credits on the right. They make tracking each account's activity as easy as reading your favorite comic strip. Dive into UMN's guide
  5. Balance Sheets - Your company's financial selfie at a specific moment: assets on one side, liabilities plus equity on the other. It's the ultimate snapshot of where you stand. Check it out on Investopedia
  6. Income Statements - Often called P&L statements, these highlight revenue earned and expenses incurred over time. Picture it as your business's highlight reel of profit-making action. View details on Investopedia
  7. Accrual Accounting - Record transactions when they happen, not when cash changes hands, for a clearer picture of financial health. It's like keeping a diary of every fiscal event as it unfolds. Explore more
  8. Financial Ratios - Formulas like the current ratio (Current Assets ÷ Current Liabilities) act as your financial fitness tracker. Use them to gauge liquidity, efficiency, and overall strength. Learn about ratios
  9. Budgeting Techniques - Plan income and expenses to steer your finances toward goals without surprises. Think of budgeting as your financial GPS for smooth sailing. Get budgeting tips
  10. Cash Flow Management - Monitor inflows and outflows so you never run dry and can seize growth opportunities. It's the lifeblood that keeps your business engine purring. Read more
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