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Quizzes > Business & Finance > Finance & Economics

Take the Ultimate Accounting Quiz: Chapters 1-4

Ready to master your chapter 1 accounting test and nail chapter 4 answers?

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
Paper art illustration of notebooks pens charts on sky blue background symbolizing free accounting quiz chapters 1-4.

Students, ready to conquer your accounting chapter 1 test? Dive into our free Ace Your Accounting Chapter 1 Test challenge: a quick, interactive quiz designed to assess your understanding of basic journal entries, financial statement fundamentals, and bookkeeping principles. You'll tackle real-world scenarios to sharpen your skills, test your knowledge with an engaging accounting test chapter 1 format, and gain confidence for upcoming exams. Need more practice? Preview detailed accounting chapter 4 test answers or boost your learning in our exam 2 financial accounting section. Take the leap and start now!

Which financial statement reports a company's revenues and expenses over a period of time?
Statement of Owner's Equity
Statement of Cash Flows
Income Statement
Balance Sheet
The income statement, also known as the profit and loss statement, summarizes revenues and expenses to show net income or loss over a period. It does not report assets or liabilities like the balance sheet or cash flow details like the statement of cash flows. Understanding its role helps analyze operational performance. For more details, see Investopedia.
What is the fundamental accounting equation?
Expenses + Revenues = Net Income
Assets + Equity = Liabilities
Assets = Liabilities + Equity
Liabilities = Assets - Equity
The fundamental accounting equation shows that all assets are financed by either liabilities or owner's equity, ensuring the balance sheet balances. It underpins double-entry bookkeeping and financial statement structure. Mastery of this equation is essential for every accounting student. For more information, see AccountingCoach.
Double-entry accounting requires that each transaction must which of the following?
Affect at least two accounts
Only increase equity
Always record revenue
Involve cash inflows
Double-entry accounting means every financial transaction affects at least two accounts, with total debits equaling total credits. This system helps detect errors and maintains the balance sheet equation. It applies to all transactions, not just cash-based ones. Learn more at Investopedia.
Which account normally has a debit balance?
Equity
Liabilities
Assets
Revenues
Asset accounts normally carry debit balances, meaning debits increase assets and credits decrease them. In contrast, liabilities and equity accounts have normal credit balances. Recognizing normal balances aids in proper journal entry recording. For details, see AccountingCoach.
Which of the following increases owner's equity?
Assets
Liabilities
Revenue
Expenses
Revenues increase net income, which flows into owner's equity through retained earnings. Expenses have the opposite effect by reducing equity. Assets and liabilities affect equity only indirectly through the accounting equation. More info at Investopedia.
Prepaid expenses are classified as which type of account?
Revenue
Expense
Liability
Asset
Prepaid expenses represent payments made in advance for benefits to be received later, classifying them as assets. Over time, these amounts are expensed as they are used. This matching aligns costs with periods they benefit. See AccountingCoach for more.
When a company's expenses exceed its revenues in a period, the result is called a:
Net loss
Contra equity
Net income
Capital gain
A net loss occurs when total expenses are greater than total revenues for a period, reducing owner's equity. Net income, by contrast, is when revenues exceed expenses. Recognizing losses is critical for accurate financial reporting. More can be found at Investopedia.
The owner's equity section of a sole proprietorship's balance sheet primarily includes:
Salaries Expense
Accounts Payable
Accounts Receivable
Capital account
In a sole proprietorship, the capital account reflects the owner's investments and accumulated earnings. Expenses and payables appear elsewhere on the balance sheet. The capital account increases with profits and owner contributions. More at AccountingCoach.
What is the normal balance of an expense account?
Zero
Credit
Debit
Contra balance
Expense accounts normally carry debit balances, meaning debits increase expenses and credits decrease them. This is opposite of revenue accounts, which have credit balances. Understanding normal balances prevents posting errors. For reference, see AccountingCoach.
What does the statement of cash flows show?
Cash inflows and outflows from operating, investing, and financing activities
Assets, liabilities, and equity at a point in time
Revenues and expenses over a period
Changes in owner's equity only
The statement of cash flows categorizes cash transactions under operating, investing, and financing activities. It complements the income statement and balance sheet by showing liquidity and cash management. It is essential for evaluating cash generation capabilities. Learn more at Investopedia.
Which account is increased with a credit entry?
Drawing
Expense
Revenue
Asset
Credit entries increase revenue, liability, and equity accounts, while debits increase asset and expense accounts. Recording revenue as a credit aligns with its normal balance. Recognizing these norms helps ensure accurate posting. More at AccountingCoach.
What is the primary purpose of financial accounting?
Ensure legal compliance only
Track employee performance
Manage internal budgets
Provide financial information to external users
Financial accounting focuses on producing financial statements for external stakeholders like investors, creditors, and regulators. It follows GAAP or IFRS guidelines to ensure comparability and reliability. Internal budgets are more a management accounting function. More details at Investopedia.
A company performed services on account for $5,000. What is the correct journal entry?
Debit Accounts Receivable $5,000; Credit Cash $5,000
Debit Service Revenue $5,000; Credit Cash $5,000
Debit Accounts Receivable $5,000; Credit Service Revenue $5,000
Debit Cash $5,000; Credit Service Revenue $5,000
When services are performed on account, cash is not received immediately. Accounts Receivable is debited for $5,000 to record the amount owed, and Service Revenue is credited to record earned revenue. This aligns with accrual accounting principles. Learn more at AccountingCoach.
On June 1, a company paid $1,200 for 6 months' rent in advance. What adjusting entry is required on June 30?
Debit Rent Expense $1,200; Credit Cash $1,200
Debit Prepaid Rent $200; Credit Rent Expense $200
Debit Prepaid Rent $1,200; Credit Cash $1,200
Debit Rent Expense $200; Credit Prepaid Rent $200
One month of rent ($1,200/6 = $200) has expired by June 30, so Rent Expense is debited and Prepaid Rent is credited for $200. This matches rent cost with the period it benefits. It is a standard adjusting entry for prepaid expenses. More at Investopedia.
Which journal entry records the purchase of equipment on credit for $10,000?
Debit Cash $10,000; Credit Equipment $10,000
Debit Accounts Payable $10,000; Credit Cash $10,000
Debit Equipment $10,000; Credit Accounts Payable $10,000
Debit Equipment $10,000; Credit Cash $10,000
When equipment is purchased on credit, the Equipment account is debited to record the asset, and Accounts Payable is credited to reflect the liability. No cash changes hands initially. This follows the double-entry system. See AccountingCoach for details.
A company received $800 in unearned revenue that has now been earned. What is the correct adjusting entry?
Debit Service Revenue $800; Credit Unearned Revenue $800
Debit Service Revenue $800; Credit Cash $800
Debit Unearned Revenue $800; Credit Service Revenue $800
Debit Cash $800; Credit Service Revenue $800
Unearned Revenue is a liability representing cash received before earning. Once the service is performed, Unearned Revenue is debited and Service Revenue is credited for $800 to recognize earned revenue. This adjustment follows accrual principles. More info at AccountingCoach.
Which of these is classified as a financing activity in the statement of cash flows?
Issuing common stock
Purchasing inventory
Paying supplier invoices
Collecting customer receivables
Issuing common stock generates cash from investors and is classified under financing activities. Purchasing inventory is an operating activity, paying suppliers is operating, and collecting receivables is operating as well. Statement of cash flows separates these for clarity. Learn more at Investopedia.
What is the purpose of preparing a trial balance?
To close temporary accounts
To record transactions
To verify that total debits equal total credits
To prepare tax returns
A trial balance lists all ledger accounts with their balances to ensure total debits equal total credits. It helps identify posting errors before financial statements are prepared. It does not itself close accounts or record transactions. For more, see AccountingCoach.
Under accrual basis accounting, revenue is recorded when it is:
Recorded in the bank statement
Paid for in advance
Earned, regardless of cash receipt
Received in cash
Accrual accounting records revenue when it is earned, not necessarily when cash is received. This matches income to the period in which services are provided or goods delivered. It provides a more accurate picture of financial performance. See Investopedia.
To record accrued wages of $2,000 at year-end, which journal entry is correct?
Debit Wages Expense $2,000; Credit Wages Payable $2,000
Debit Wages Payable $2,000; Credit Wages Expense $2,000
Debit Wages Expense $2,000; Credit Cash $2,000
Debit Cash $2,000; Credit Wages Payable $2,000
Accrued wages represent wages earned by employees but not yet paid. The correct adjusting entry debits Wages Expense and credits Wages Payable to recognize the obligation and expense. This aligns with the matching principle. More at AccountingCoach.
Which account is closed to the Income Summary at the end of the period?
Cash
Service Revenue
Equipment
Accounts Payable
Revenue accounts such as Service Revenue are temporary and closed to the Income Summary account at period end to accumulate net income. Cash, accounts payable, and equipment are permanent accounts and are not closed. Closing transfers revenues so the accounts can start fresh next period. See AccountingCoach.
What is the correct sequence of steps in the accounting cycle?
Record adjusting entries, prepare trial balance, post to ledger, journalize
Post to ledger, journalize transactions, record adjusting entries, prepare trial balance
Prepare financial statements, journalize, post to ledger, adjust entries
Journalize transactions, post to ledger, prepare trial balance, record adjusting entries
The standard accounting cycle begins by journalizing transactions, then posting them to the ledger, preparing an unadjusted trial balance, and finally recording adjusting entries. This sequence ensures accuracy and completeness before financial statements are prepared. Deviating from it can cause errors. More at AccountingCoach.
Which of the following is not part of the accounting cycle?
Preparing financial statements
Preparing adjusting entries
Filing tax returns
Recording transactions
Filing tax returns is an external compliance activity and not part of the internal accounting cycle steps. The cycle involves recording transactions, posting, trial balances, adjustments, and preparing financial statements. Tax return preparation follows after financial reports. For reference, see AccountingTools.
A bank statement shows $1,200; the company's ledger shows $1,150. A $50 bank service charge was not recorded. What adjusting entry is needed?
Debit Bank Service Charge Expense $1,200; Credit Cash $1,200
Debit Cash $1,150; Credit Bank Service Charge Expense $1,150
Debit Cash $50; Credit Bank Service Charge Expense $50
Debit Bank Service Charge Expense $50; Credit Cash $50
The unrecorded $50 bank service charge reduces the company's cash balance. The correct entry debits the expense and credits cash for $50. This aligns the ledger with the bank statement. More details at Investopedia.
Which account would not appear on the post-closing trial balance?
Common Stock
Retained Earnings
Supplies Expense
Accounts Payable
Post-closing trial balances include only permanent accounts. Supplies Expense is temporary and closed to Income Summary at period end, so it does not appear. Accounts Payable, Common Stock, and Retained Earnings are permanent and remain. For more, see AccountingCoach.
Under rising prices, which inventory method yields the highest cost of goods sold and lowest ending inventory?
Average Cost
LIFO
FIFO
Specific Identification
LIFO (Last-In, First-Out) assumes the most recent, higher-cost inventory is sold first, resulting in higher cost of goods sold under inflation. This reduces taxable income but gives lower ending inventory values. FIFO and average cost produce different effects. More at Investopedia.
How is the Allowance for Doubtful Accounts classified on the balance sheet?
Expense
Reserve equity
Liability
Contra asset
Allowance for Doubtful Accounts is a contra asset account that reduces Accounts Receivable to its net realizable value. It reflects estimated uncollectible amounts. This aligns receivables with expected cash inflows. See Investopedia.
On the statement of cash flows, cash paid to purchase equipment is classified as a(n):
Non-cash investing activity
Financing activity
Operating activity
Investing activity
Cash payments to acquire long-term assets like equipment are classified under investing activities. Operating activities relate to core business transactions, and financing covers transactions with owners or creditors. Non-cash investing involves non-cash exchanges. More at Investopedia.
What is the book value of an asset?
Original cost plus accumulated depreciation
Market value minus salvage value
Cost minus accumulated depreciation
Replacement cost
Book value equals an asset's original cost less accumulated depreciation. It represents the carrying amount on the balance sheet. It differs from market or replacement cost. For further reading, see Investopedia.
An adjusting entry for depreciation includes which debit and credit?
Debit Equipment; Credit Depreciation Expense
Debit Depreciation Expense; Credit Equipment
Debit Depreciation Expense; Credit Accumulated Depreciation
Debit Accumulated Depreciation; Credit Depreciation Expense
To record depreciation, Depreciation Expense is debited to recognize the cost allocation, and Accumulated Depreciation is credited as a contra asset. This reflects wear and tear without directly affecting the asset account. More at AccountingCoach.
Which account is credited to close revenue accounts at period end?
Service Revenue
Retained Earnings
Income Summary
Capital
Revenues are closed by debiting each revenue account and crediting Income Summary, which aggregates net income before transferring to equity. Retained Earnings receives the balance after closing Income Summary. Service Revenue is the account being closed, not the recipient. More at AccountingCoach.
What is the effect on net income when depreciation expense is recorded?
Net income increases
Net income decreases
Net income becomes zero
No effect on net income
Depreciation expense is recorded on the income statement, which reduces reported net income. It allocates the cost of tangible assets over their useful lives. Though it does not involve cash outflow at the time, it affects profitability. For more, see AccountingCoach.
If a company uses straight-line depreciation, how is annual depreciation expense calculated?
(Cost ? Salvage Value) ÷ Useful Life
Cost ÷ Salvage Value
(Cost + Salvage Value) ÷ Useful Life
Useful Life ÷ Cost
Straight-line depreciation spreads an asset's depreciable cost (cost minus salvage value) evenly over its estimated useful life. This formula produces the same expense each period. It is the simplest and most widely used method. See Investopedia.
What is the nature of the Income Summary account?
Temporary clearing account
Permanent equity account
Contra asset account
Revenue account
Income Summary is a temporary account used during the closing process to aggregate revenues and expenses before transferring the net balance to equity. It is not reported on financial statements. After closing, its balance returns to zero. More at AccountingCoach.
Which of these describes the effect of an owner's $500 withdrawal on the accounting equation?
Assets increase and owner's equity increases
Assets decrease and liabilities decrease
Liabilities increase and owner's equity decreases
Assets decrease and owner's equity decreases
Owner withdrawals (drawings) reduce both assets (cash) and owner's equity by the withdrawal amount. Liabilities are unaffected. This preserves the accounting equation. For more, see AccountingCoach.
Which of the following best describes a company's post-closing trial balance?
A list of temporary accounts after adjusting entries
A list of all accounts before closing entries
A worksheet for preparing financial statements
A list of only permanent account balances after closing entries
The post-closing trial balance lists only permanent accounts and their balances after closing entries are posted. Temporary accounts are closed and have zero balances. It ensures debits still equal credits before the new period. More at AccountingCoach.
What is the key purpose of a worksheet in the accounting cycle?
To record transactions permanently
To reconcile bank statements
To organize and facilitate preparation of adjusting entries and financial statements
To file tax returns
An accounting worksheet is an internal tool to compile unadjusted trial balances, adjustments, and financial statements in one place. It helps identify errors before formal statements. It is not a permanent record. Learn more at AccountingTools.
During a period of rising prices, which inventory costing method typically results in the highest net income?
Average Cost
LIFO
FIFO
Lower of Cost or Market
Under FIFO (First-In, First-Out), the oldest (lower-cost) inventory is sold first, resulting in lower cost of goods sold and higher net income during inflation. LIFO produces the opposite effect. Average cost yields intermediate results. See Investopedia.
A company's net income is $100,000, depreciation expense is $20,000, and accounts receivable increase by $5,000. Using the indirect method, cash flow from operating activities is:
$115,000
$75,000
$95,000
$120,000
Under the indirect method, net income is adjusted for non-cash expenses and changes in working capital. Add back depreciation ($20,000) and subtract the increase in receivables ($5,000): $100,000 + $20,000 ? $5,000 = $115,000. For details, see AccountingCoach.
Which accounting principle requires that expenses be matched with the related revenues in the period in which they are incurred?
Cost principle
Full disclosure principle
Matching principle
Revenue recognition principle
The matching principle dictates that expenses be recorded in the same period as the revenues they helped generate, ensuring accurate profitability measurement. It is fundamental to accrual accounting. Other principles govern cost measurement and disclosure. More at Investopedia.
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Study Outcomes

  1. Understand Fundamental Accounting Principles -

    Grasp key concepts from the accounting chapter 1 test, including the accounting equation, double-entry system, and standard terminology.

  2. Analyze Financial Transactions -

    Learn to classify and record transactions accurately, reinforcing skills tested in chapter 1 test a accounting and chapter 4 test scenarios.

  3. Apply Double-Entry Techniques -

    Use practical examples to master debit and credit rules, ensuring you can tackle accounting test chapter 1 questions with confidence.

  4. Interpret Chapter 4 Scenarios -

    Break down complex situations using concepts from accounting chapter 4 test answers, improving your problem-solving and analytical abilities.

  5. Evaluate Answer Strategies -

    Review correct and incorrect responses to identify common pitfalls and learn strategies for selecting the best option on chapter 4 test a accounting answers.

  6. Build Exam Confidence -

    Track your progress with scored results to pinpoint strengths and weaknesses, boosting readiness for real-world assessments.

Cheat Sheet

  1. Master the Accounting Equation -

    The cornerstone formula Assets = Liabilities + Equity underlies every transaction and is essential for acing your accounting chapter 1 test. For example, buying equipment for $5,000 increases both assets and liabilities by $5,000 (source: University of Michigan School of Accounting). Keep a sticky note with "A = L + E" to reinforce this habit!

  2. Embrace Double-Entry Bookkeeping -

    Every transaction affects at least two accounts, using debits and credits to keep the books balanced (Harvard Business School Online). A handy mnemonic is "DEAD CLIC" (Debits: Expenses, Assets, Dividends; Credits: Liabilities, Income, Capital). Practicing T-accounts daily will boost your confidence before any chapter 1 test A questions!

  3. Differentiate Account Types -

    Know the five main categories - Assets, Liabilities, Equity, Revenue, Expenses - and how each responds to debits or credits (Investopedia). Use the "DEAR LIE" trick: Debits increase Expenses, Assets, Dividends; Credits increase Liabilities, Income, Equity. This shortcut ingrains account behavior for quick recall.

  4. Journalize Transactions and Post to the Ledger -

    Start by recording transactions in your general journal with dates, accounts, and amounts, then post totals to the general ledger (Cornell University Accounting Department). For instance, a cash sale of $1,200 is journalized as a debit to Cash and a credit to Sales Revenue. Regular practice solidifies the accounting cycle steps!

  5. Compile a Trial Balance and Prepare Core Financials -

    After posting, list all account balances in an unadjusted trial balance to check that total debits equal total credits (AICPA). From there, draft the Income Statement and Balance Sheet to see real-world impacts. These fundamentals will help you breeze through any accounting test chapter 1 section!

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