Can You Pass This Test On Business Accounting?

1. Which word do liabilities often have in their account title?

Profitable

Payable

Risked

Losing

Liabilities often have the word "payable" in their account title because liabilities represent the debts or obligations that a company owes to its creditors. "Payable" indicates that the liability is an amount that the company is obligated to pay, usually within a specified period of time. This can include accounts payable, which are short-term debts owed to suppliers or vendors, or long-term liabilities such as loans or bonds payable.

Explanation

Liabilities often have the word "payable" in their account title because liabilities represent the debts or obligations that a company owes to its creditors. "Payable" indicates that the liability is an amount that the company is obligated to pay, usually within a specified period of time. This can include accounts payable, which are short-term debts owed to suppliers or vendors, or long-term liabilities such as loans or bonds payable.

2. What are obligations (amounts owed) reported on the balance sheet referred to as?

Profits

Losses

Risks

Liabilities

Obligations (amounts owed) reported on the balance sheet are referred to as liabilities. Liabilities represent the company's debts or obligations to pay money or provide goods or services in the future. They can include loans, accounts payable, accrued expenses, and other obligations. Liabilities are an important component of the balance sheet as they reflect the company's financial obligations and can impact its overall financial health and stability.

Explanation

Obligations (amounts owed) reported on the balance sheet are referred to as liabilities. Liabilities represent the company's debts or obligations to pay money or provide goods or services in the future. They can include loans, accounts payable, accrued expenses, and other obligations. Liabilities are an important component of the balance sheet as they reflect the company's financial obligations and can impact its overall financial health and stability.

3. What is the initial investment by an owner of a sole trader (sole proprietorship) or partnership business called?

Capital

Asset

Drawing

Liability

The initial investment made by the owner of a sole trader or partnership business is called "Capital." This refers to the owner's contribution of funds or assets into the business to start its operations. It represents the owner's equity in the business and is recorded on the balance sheet as a liability.

Explanation

The initial investment made by the owner of a sole trader or partnership business is called "Capital." This refers to the owner's contribution of funds or assets into the business to start its operations. It represents the owner's equity in the business and is recorded on the balance sheet as a liability.

4. Which of these is the most important feature of accounting?

Drinking lots of coffee

Noting down the debits and credits

Interpreting the accounts and financial activity

Recording transactions and financial activity

The most important feature of accounting is recording transactions and financial activity. This is because it is the foundation of all accounting processes and provides the necessary data for analysis, interpretation, and decision-making. Without accurately recording transactions, it would be impossible to track and analyze financial information, create financial statements, or ensure compliance with accounting principles and regulations.

Explanation

The most important feature of accounting is recording transactions and financial activity. This is because it is the foundation of all accounting processes and provides the necessary data for analysis, interpretation, and decision-making. Without accurately recording transactions, it would be impossible to track and analyze financial information, create financial statements, or ensure compliance with accounting principles and regulations.

5. Accounting entries involve a minimum of how many accounts?

Three

Two

One

Four

Accounting entries involve a minimum of two accounts because every transaction affects at least two accounts. One account is debited, representing the increase in that account, while another account is credited, representing the decrease in that account. This double-entry system ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced. Therefore, a minimum of two accounts is required to record any transaction accurately.

Explanation

Accounting entries involve a minimum of two accounts because every transaction affects at least two accounts. One account is debited, representing the increase in that account, while another account is credited, representing the decrease in that account. This double-entry system ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced. Therefore, a minimum of two accounts is required to record any transaction accurately.

6. Which of the following items would be accounted for as an expense?

Repayment of a bank loan

Dividends to stockholders

The purchase of land

Payment of the current period's rent

Payment of the current period's rent would be accounted for as an expense because it is a cost incurred in order to use the rented property for a specific period of time. Expenses are typically incurred to generate revenue or to support the operations of a business, and rent is a common operating expense for many businesses. Repayment of a bank loan, dividends to stockholders, and the purchase of land are not considered expenses as they do not directly relate to the day-to-day operations of a business.

Explanation

Payment of the current period's rent would be accounted for as an expense because it is a cost incurred in order to use the rented property for a specific period of time. Expenses are typically incurred to generate revenue or to support the operations of a business, and rent is a common operating expense for many businesses. Repayment of a bank loan, dividends to stockholders, and the purchase of land are not considered expenses as they do not directly relate to the day-to-day operations of a business.

7. Which of the following would not be included on a balance sheet?

Accounts receivable

Accounts payable

Sales

Cash

Sales would not be included on a balance sheet because a balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It includes assets, liabilities, and equity. Sales, on the other hand, represents revenue generated by the company over a period of time and is reported on the income statement, not the balance sheet.

Explanation

Sales would not be included on a balance sheet because a balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It includes assets, liabilities, and equity. Sales, on the other hand, represents revenue generated by the company over a period of time and is reported on the income statement, not the balance sheet.

8. When a company pays a bill, the account Cash will be

Debited

Credited

Depends on what kind of payment

Nothing changes

When a company pays a bill, the account Cash will be credited. This is because when a company pays a bill, it is using its cash reserves to make the payment. By crediting the Cash account, it reflects a decrease in the company's cash balance. This transaction follows the basic accounting principle of double-entry, where every transaction affects at least two accounts, with one account being debited and the other being credited. In this case, the Cash account is credited to show the decrease in cash.

Explanation

When a company pays a bill, the account Cash will be credited. This is because when a company pays a bill, it is using its cash reserves to make the payment. By crediting the Cash account, it reflects a decrease in the company's cash balance. This transaction follows the basic accounting principle of double-entry, where every transaction affects at least two accounts, with one account being debited and the other being credited. In this case, the Cash account is credited to show the decrease in cash.

9. Assets are usually reported on the balance sheet at which amount?

Cost

Current Market Value

Expected Selling Price

Selling price

Assets are usually reported on the balance sheet at their cost. This means that the amount recorded for an asset on the balance sheet is the original purchase price of the asset, including any additional costs incurred to bring the asset into use. The cost is considered a reliable and objective measure of the asset's value and is used for reporting purposes. Current market value, expected selling price, and selling price may all fluctuate and are not typically used to report assets on the balance sheet.

Explanation

Assets are usually reported on the balance sheet at their cost. This means that the amount recorded for an asset on the balance sheet is the original purchase price of the asset, including any additional costs incurred to bring the asset into use. The cost is considered a reliable and objective measure of the asset's value and is used for reporting purposes. Current market value, expected selling price, and selling price may all fluctuate and are not typically used to report assets on the balance sheet.

10. Gerald had beginning total stockholders' equity of $160,000. During the year, total assets increased by $240,000, and total liabilities increased by $120,000. Gerald's net income was $180,000. No additional investments were made; however, dividends did occur during the year. How much were the dividends?

$20,000

$60,000

$220,000

$140,000

During the year, Gerald's total assets increased by $240,000, and total liabilities increased by $120,000. This means that the net increase in total stockholders' equity is $240,000 - $120,000 = $120,000.

Gerald's net income was $180,000, which means that his retained earnings increased by $180,000.

To find the amount of dividends, we need to subtract the increase in retained earnings from the net increase in total stockholders' equity: $120,000 - $180,000 = -$60,000.

Since dividends represent a distribution of earnings to stockholders, a negative value indicates that dividends were paid out. Therefore, the amount of dividends paid out by Gerald is $60,000.

Explanation

During the year, Gerald's total assets increased by $240,000, and total liabilities increased by $120,000. This means that the net increase in total stockholders' equity is $240,000 - $120,000 = $120,000.

Gerald's net income was $180,000, which means that his retained earnings increased by $180,000.

To find the amount of dividends, we need to subtract the increase in retained earnings from the net increase in total stockholders' equity: $120,000 - $180,000 = -$60,000.

Since dividends represent a distribution of earnings to stockholders, a negative value indicates that dividends were paid out. Therefore, the amount of dividends paid out by Gerald is $60,000.