Unlock hundreds more features
Save your Quiz to the Dashboard
View and Export Results
Use AI to Create Quizzes and Analyse Results

OR
Sign inSign in with Facebook
Sign inSign in with Google
Quizzes > Business & Finance > Finance & Economics

Master the Fundamentals of Accounting - Take the Quiz Now!

Ready for Accounting Test Questions? Start the Accounting Practice Exam!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
paper art illustration of calculator ledger and charts for accounting practice quiz on golden yellow background

Ready to challenge yourself with a set of accounting practice questions that sharpen your skills and boost confidence? Whether you're prepping for accounting test questions or reviewing basic accounting questions, our free accounting practice exam delivers instant feedback on accounting exam questions in real time. Jump into our accounting practice exam questions and then tackle a hands-on accounting equation practice section. Ideal for students and professionals alike, this quiz highlights your strengths and finds gaps so you can improve. Dive in now and ace your next financial assessment!

What is the basic accounting equation?
Assets = Liabilities + Equity
Liabilities = Assets + Equity
Equity = Liabilities - Assets
Assets = Revenue + Expenses
The fundamental accounting equation states that a company's resources (assets) are financed by creditors (liabilities) and owners (equity). It forms the foundation of double-entry bookkeeping, ensuring that the balance sheet remains in balance at all times. Every transaction will affect at least two accounts to keep this equation true. Learn more.
Which financial statement reports a company's revenues and expenses over a period?
Balance Sheet
Statement of Cash Flows
Income Statement
Statement of Changes in Equity
The income statement shows a company's financial performance by listing revenues earned and expenses incurred during a specific period. It reveals the net profit or loss generated in that time frame. Users rely on it to assess profitability and operational efficiency. Investopedia.
Which item is classified as an asset on a company's balance sheet?
Salaries Expense
Inventory
Accounts Payable
Dividends
Inventory represents goods available for sale and meets the definition of an asset because it provides future economic benefit. Assets are resources controlled by the company due to past events. Inventory appears under current assets on the balance sheet. Learn more.
Liabilities represent:
Company's obligations to pay debts
Residual interest in assets
Period costs
Owner's claims after debts
Liabilities are present obligations arising from past events that are expected to result in an outflow of economic resources. They reflect amounts the company owes to creditors. They appear on the liability side of the balance sheet. Investopedia.
Owner's equity is defined as:
Assets minus Liabilities
Liabilities minus Assets
Revenues minus Expenses
Total Assets plus Liabilities
Owner's equity represents the residual interest in the assets after deducting liabilities. It is calculated by subtracting total liabilities from total assets. Equity shows the owners' stake in the company's net resources. Learn more.
What does GAAP stand for?
General Accepted Accounting Policies
General Accounting Application Procedures
Global Accounting and Auditing Policies
Generally Accepted Accounting Principles
GAAP stands for Generally Accepted Accounting Principles, which are the standard framework of guidelines for financial accounting. They include standards, conventions, and rules accountants follow in recording and summarizing transactions. Public companies in the U.S. must adhere to GAAP. FASB.
In double-entry accounting, every transaction:
Affects at least two accounts with equal debits and credits
Affects exactly one account
Requires adjusting entries
Requires cash receipt
Double-entry bookkeeping requires that for each transaction, total debits equal total credits, ensuring the accounting equation remains balanced. This system provides a method of error detection and complete transaction records. It forms the basis for modern accounting. Investopedia.
A trial balance is prepared to:
Verify that debits equal credits
Record closing entries
Show profitability
Allocate overhead
A trial balance lists all ledger accounts and their balances to check that total debits equal total credits. It is an internal report used to detect errors in journalizing and posting. It does not prove that all transactions are correct, but it ensures mathematical accuracy. Learn more.
Under accrual basis accounting, revenues are recognized when:
The service is performed or goods are delivered
Cash is received from customers
The invoice is prepared
All expenses are paid
Accrual accounting recognizes revenue when it is earned, regardless of when cash is received. This approach matches revenues with the period they relate to. It provides a more accurate picture of financial performance than cash basis. Investopedia.
Straight-line depreciation expense is calculated by:
(Cost + Residual value) / Useful life
Cost / Useful life
Residual value / Cost
(Cost - Residual value) / Useful life
The straight-line method spreads the depreciable cost evenly over an asset's useful life. Depreciable cost equals cost minus residual value. This formula yields the same expense amount each period. Learn more.
FIFO inventory method assumes that:
Oldest costs remain in ending inventory
Costs are averaged
Oldest costs are charged to cost of goods sold first
Latest costs are sold first
Under FIFO (First-In, First-Out), the first goods purchased are the first to be sold, so older costs flow to cost of goods sold. Ending inventory reflects the most recent purchase costs. FIFO often yields higher net income during inflation. Investopedia.
An adjusting entry for prepaid insurance usually:
Debits Prepaid Insurance and credits Insurance Expense
Debits Insurance Expense and credits Prepaid Insurance
Debits Insurance Expense and credits Cash
Debits Cash and credits Insurance Expense
Prepaid insurance is initially recorded as an asset. As coverage is used, an adjusting entry moves the expired portion to Insurance Expense. This aligns the cost with the period benefited by the coverage. Learn more.
The matching principle requires that:
Assets be matched to liabilities
Expenses are recorded when paid
Revenues and related expenses be recorded in the same period
Cash flows be matched to revenues
The matching principle dictates that expenses incurred to generate revenue should be recorded in the same period as that revenue. This ensures accurate measurement of profit. It prevents mismatches between revenues and expenses. Investopedia.
Notes payable differ from accounts payable because notes payable:
Never require interest
Are typically short-term trade obligations
Represent owner's equity
May include interest charges and a formal written agreement
Notes payable are formal written promises to pay a sum of money at a future date and often carry interest. Accounts payable are informal, short-term obligations to suppliers. Notes payable can be short or long term, depending on the agreement. Learn more.
The primary purpose of a bank reconciliation is to:
Prove trial balance equality
Record book depreciation
Allocate overhead costs
Adjust bank balances to book balances and identify errors
A bank reconciliation compares the company's cash records with the bank statement to identify discrepancies. It uncovers errors, outstanding checks, or deposits in transit. This ensures the cash balance reported is accurate. Investopedia.
A machine costs $50,000 with a $5,000 residual value and a 5-year life. Under double-declining balance, depreciation in the first year is:
$25,000
$10,000
$20,000
$9,000
Double-declining balance depreciation equals twice the straight-line rate times the book value. The straight-line rate is 1/5 or 20%, so double is 40%. Multiply 40% by the cost of $50,000 to get $20,000. Investopedia.
If a company estimates 2% of $100,000 credit sales as uncollectible, bad debt expense is:
$2,000
$0
$1,000
$500
Under the allowance method, bad debt expense equals estimated uncollectible percentage times credit sales. At 2% of $100,000, expense is $2,000. This estimate aligns expense with the period revenue is recognized. Investopedia.
A bond with a face value of $100,000 issued at 98 is recorded as:
Debit Cash $100,000; Credit Bonds Payable $100,000
Debit Cash $98,000; Credit Bonds Payable $98,000
Debit Cash $98,000; Debit Discount $2,000; Credit Bonds Payable $100,000
Debit Discount $2,000; Credit Cash $2,000; Credit Bonds Payable $100,000
Issuing at 98 means the bond sells for 98% of face value or $98,000. The $2,000 difference is a discount on bonds payable. This discount account is debited to reflect future interest expense over the bond's life. Learn more.
Which of the following is classified as an operating activity on the statement of cash flows?
Cash received from sale of equipment
Cash received from issuing bonds
Cash paid for inventory purchases
Cash paid to acquire long-term assets
Operating activities include transactions that affect net income, such as cash payments to suppliers for inventory. Investing activities cover purchase or sale of long-term assets. Financing activities involve debt or equity transactions. Investopedia.
Goodwill on the balance sheet arises when:
Purchase price is less than fair value of net assets acquired
A company develops its brand internally
Patents expire
Purchase price is greater than fair value of net assets acquired
Goodwill represents the excess paid over the fair value of identifiable net assets during an acquisition. It often reflects intangible factors like reputation or customer relationships. Goodwill is recorded as an asset on the acquirer's balance sheet. Investopedia.
Under IFRS, how often must goodwill impairment testing be performed?
Only when a triggering event occurs
Monthly
Annually at a minimum
Every five years
IFRS requires at least an annual impairment test for goodwill, regardless of whether there is an indication of impairment. This ensures carrying amounts do not exceed recoverable amounts. Additional tests may be required if triggering events occur. IFRS.
Foreign currency transaction gains or losses are reported in:
Operating income
Other comprehensive income
Retained earnings without income statement
Equity section
Foreign currency transaction gains and losses arise from settling transactions or translating monetary assets/liabilities. IFRS and GAAP require these to be recognized in profit or loss (operating income). They reflect real economic effects of exchange rate movements. Learn more.
Under IFRS 16, most leases are:
Finance leases on-balance sheet
Never recognized
Treated as contingent liabilities
Operating leases off-balance sheet
IFRS 16 requires lessees to recognize nearly all leases on the balance sheet, treating them as finance leases. This includes a right-of-use asset and a lease liability. It improves transparency of a company's lease obligations. IFRS.
In hedging variable-rate debt with an interest rate swap designated as a fair value hedge, changes in the hedging instrument's fair value and the hedged item's fair value are:
Recognized in Other Comprehensive Income
Recognized immediately in profit or loss
Deferred until settlement
Offset against equity capital
For a fair value hedge, IAS 39 and ASC 815 require that changes in fair value of both the hedging instrument and the hedged item attributable to the hedged risk are recognized immediately in profit or loss. This treatment ensures that the hedge's effect is reflected in the same period as the exposure it offsets. It eliminates timing mismatches in earnings. IFRS.
Under IFRS 15, the first step in revenue recognition is to:
Recognize revenue when control transfers
Determine the transaction price
Identify the performance obligations in the contract
Allocate the transaction price
IFRS 15 outlines a five-step model for revenue recognition, where the first step is to identify the contract with the customer and the distinct performance obligations within it. This step sets the framework for subsequent pricing and revenue allocation. Correct identification ensures accurate recognition timing and amount. IFRS.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
0
{"name":"What is the basic accounting equation?", "url":"https://www.quiz-maker.com/QPREVIEW","txt":"What is the basic accounting equation?, Which financial statement reports a company's revenues and expenses over a period?, Which item is classified as an asset on a company's balance sheet?","img":"https://www.quiz-maker.com/3012/images/ogquiz.png"}

Study Outcomes

  1. Understand the Double-Entry Accounting Process -

    Grasp how each transaction impacts assets, liabilities, and equity through interactive accounting practice questions.

  2. Record and Classify Financial Transactions -

    Use accounting test questions to accurately journalize entries and post them to ledgers with proper account classifications.

  3. Apply Fundamental Accounting Equations -

    Solve basic accounting questions to calculate the accounting equation and verify the integrity of financial statements.

  4. Analyze Balance Sheet Components -

    Break down assets, liabilities, and equity with accounting practice exams to strengthen your financial statement analysis skills.

  5. Evaluate Trial Balances and Detect Errors -

    Work through accounting exam questions to identify discrepancies and correct mistakes before they affect the bottom line.

  6. Interpret Real-World Accounting Scenarios -

    Apply your knowledge to scenario-based problems, enhancing your decision-making in diverse financial contexts.

Cheat Sheet

  1. Core Accounting Equation -

    The foundational accounting equation (Assets = Liabilities + Equity) underpins every transaction in your accounting practice questions. Remember A = L + E to ensure your trial balances always align; for example, buying office supplies for cash decreases one asset while increasing another. Keeping this equation front-of-mind makes tackling basic accounting questions intuitive and error-free.

  2. Double-Entry System with DEAD CLOR Mnemonic -

    Every accounting test question relies on the double-entry framework: each debit has a corresponding credit. Use the DEAD CLOR mnemonic (Debits: Expenses, Assets, Drawings; Credits: Liabilities, Owner's Equity, Revenue) to remember where entries belong. This simple trick speeds up journalizing and ensures balanced ledgers on your accounting practice exam.

  3. Accrual vs. Cash Basis Accounting -

    Understanding when to recognize revenue and expenses is key for accounting exam questions: accrual basis records transactions when they occur, while cash basis waits for cash exchanges. For instance, services rendered in December but paid in January count in December under accrual. Mastery of this distinction ensures accuracy on more advanced basic accounting questions.

  4. Adjusting Entries & Trial Balance -

    Before preparing financial statements, you must post adjusting entries for items like prepaid expenses, accrued revenue, and depreciation (e.g., straight-line = (Cost - Residual)/Useful life). An unadjusted trial balance helps you spot errors early and verify account balances before adjustments. Regular practice with accounting practice questions on adjustments reinforces precision and boosts confidence.

  5. Key Financial Ratios for Analysis -

    Ratios such as the current ratio (Current Assets ÷ Current Liabilities) and gross profit margin (Gross Profit ÷ Net Sales) are staples in accounting exam questions. These metrics, taught by institutions like the American Institute of CPAs, help assess liquidity and profitability at a glance. Practicing with real-world examples improves speed and understanding for your next accounting practice exam.

Make a Quiz (FREE) Copy & Edit This Quiz Create a Quiz with AI

Finance & Economics Quizzes

Powered by: Quiz Maker