Basic Accounting Practice And Definitions.

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Basic Accounting Practice And Definitions. - Quiz

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Questions and Answers
  • 1. 

    Which of the following best describes a liability? Liabilities are:

    • A.

      A form of paid-in-capital

    • B.

      Future economic benefits to which a company is entitled

    • C.

      Debts payable to outsiders called creditors

    • D.

      Economic obligations to owners to be paid at some future date by the corporation

    Correct Answer
    C. Debts payable to outsiders called creditors
    Explanation
    Liabilities are debts payable to outsiders called creditors. This means that a liability represents an obligation or a debt that a company owes to external parties, such as suppliers, lenders, or other creditors. It is a financial obligation that the company is required to fulfill in the future, typically by making payments or providing goods or services. Liabilities are an important aspect of a company's financial position and are recorded on the balance sheet.

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  • 2. 

    The major types of transactions that affect retained earnings are:

    • A.

      Paid-in capital and common stock

    • B.

      Assets and liabilities

    • C.

      Revenues, expenses, and dividends

    • D.

      Revenues and liabilities

    Correct Answer
    C. Revenues, expenses, and dividends
    Explanation
    The major types of transactions that affect retained earnings are revenues, expenses, and dividends. Revenues increase retained earnings as they represent the income generated by a company's primary activities. Expenses decrease retained earnings as they represent the costs incurred to generate revenue. Dividends, on the other hand, are distributions of earnings to shareholders and reduce retained earnings. Paid-in capital and common stock are related to equity financing and do not directly impact retained earnings. Assets and liabilities are balance sheet items and do not directly affect retained earnings. Revenues and liabilities are not the only types of transactions that affect retained earnings.

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  • 3. 

    The amount of net income shown on the income statement also appears on the:

    • A.

      Balance sheet and operations statement

    • B.

      Statement of assets

    • C.

      Statement of financial position

    • D.

      Statement of retained earnings

    Correct Answer
    D. Statement of retained earnings
    Explanation
    The correct answer is statement of retained earnings. The statement of retained earnings shows the changes in a company's retained earnings over a specific period of time. It includes net income, as well as any dividends or other adjustments that affect retained earnings. Therefore, the amount of net income shown on the income statement is also reflected in the statement of retained earnings.

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  • 4. 

    Jason purchased office equipment for $4,800 on account. This transaction would

    • A.

      Increase assets and increase owners equity

    • B.

      Increase assets and increase liabilities

    • C.

      Increase one asset and decrease another asset

    • D.

      Decrease assets and decrease liabilities

    Correct Answer
    B. Increase assets and increase liabilities
    Explanation
    When Jason purchased office equipment for $4,800 on account, it means that he acquired an asset (office equipment) which increases the total assets of the company. At the same time, since he made the purchase on account, it implies that he has a liability (accounts payable) to pay off the amount owed. Therefore, this transaction increases both the assets and liabilities of the company, ultimately affecting the owner's equity.

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  • 5. 

    Jason paid $3,700 on account to the company from which equipment was purchased on credit. This transaction would

    • A.

      Decrease assets and decrease liabilities

    • B.

      Increase assets and increase owners equity

    • C.

      Increase assets and increase liabilities

    • D.

      Increase one asset and decrease another asset

    Correct Answer
    A. Decrease assets and decrease liabilities
    Explanation
    When Jason paid $3,700 on account to the company, it means he is reducing the amount owed to the company, which decreases the liabilities. Additionally, since he is paying with cash, the assets are also decreasing. Therefore, this transaction would decrease assets and decrease liabilities.

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  • 6. 

    Stephen purchased office supplies for $800 in cash. This transaction would

    • A.

      Increase assets and increase owners equity

    • B.

      Increase one asset and decrease another asset

    • C.

      Increase assets and increase liabilities

    • D.

      Decrease assets and decrease liabilities

    Correct Answer
    B. Increase one asset and decrease another asset
    Explanation
    This transaction would increase one asset and decrease another asset. When Stephen purchased office supplies for $800 in cash, it would increase the asset "office supplies" as he now owns $800 worth of supplies. However, it would also decrease the asset "cash" as he spent $800 in cash to make the purchase. Therefore, one asset (office supplies) increases and another asset (cash) decreases.

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  • 7. 

    Meghan started her business by investing $30,000 in cash. This transaction would

    • A.

      Increase assets and increase owners equity

    • B.

      Increase assets and increase liabilities

    • C.

      Increase one asset and decrease another asset

    • D.

      Decrease assets and decrease liabilities

    Correct Answer
    A. Increase assets and increase owners equity
    Explanation
    When Meghan invests $30,000 in cash to start her business, it increases the assets of the business because cash is considered an asset. Additionally, it increases the owner's equity because Meghan's investment is considered her ownership stake in the business. Therefore, the correct answer is that this transaction would increase assets and increase owner's equity.

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  • 8. 

    Any accounting period of twelve monts duration is usually referred to as a(n)

    • A.

      Fiscal year

    • B.

      Calendar year

    • C.

      Physical year

    • D.

      Operating year

    Correct Answer
    A. Fiscal year
    Explanation
    A fiscal year is an accounting period of twelve months duration that is commonly used by businesses and governments for financial reporting purposes. It does not necessarily align with the calendar year and can start at any point within the year. This term is widely recognized and used in the field of accounting and finance. A calendar year, on the other hand, refers to the twelve-month period starting from January 1st and ending on December 31st. A physical year and operating year are not commonly used terms in accounting and do not accurately describe the concept of a twelve-month accounting period.

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  • 9. 

    An example of an expense is

    • A.

      Investments

    • B.

      Supplies consumed

    • C.

      Withdraws by owner

    • D.

      Prepaid insurance

    Correct Answer
    B. Supplies consumed
    Explanation
    The correct answer is "supplies consumed" because it refers to the cost of supplies that have been used up or consumed in the normal course of business operations. This expense is typically recorded on the income statement and represents the cost of materials or resources that are necessary to produce goods or provide services. It is important to track and account for supplies consumed in order to accurately calculate the cost of goods sold and determine the profitability of the business.

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  • 10. 

    The financial statement that should be comleted first is the

    • A.

      Balance sheet

    • B.

      Statement of financial position

    • C.

      Statement of financial condition

    • D.

      Income statement

    Correct Answer
    D. Income statement
    Explanation
    The income statement should be completed first because it provides a summary of a company's revenues, expenses, and net income or loss for a specific period. It helps to determine the profitability of the business and provides important information for decision-making. The balance sheet and statement of financial position, on the other hand, provide a snapshot of the company's financial position at a specific point in time and require information from the income statement to calculate certain figures. Therefore, the income statement is usually prepared before the other financial statements.

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  • 11. 

    Current assets are assets expected to be converted to cash, sold, or consumed within the next:

    • A.

      12 months

    • B.

      9 months

    • C.

      6 months

    • D.

      24 months

    Correct Answer
    A. 12 months
    Explanation
    Current assets are assets that are expected to be converted into cash, sold, or consumed within a relatively short period of time, typically within 12 months. These assets include cash, accounts receivable, inventory, and prepaid expenses. By classifying assets as current, businesses can assess their liquidity and ability to meet short-term obligations. Therefore, the correct answer is 12 months.

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  • 12. 

    The financial statement that shows the state of the firms assets, liablities, and owners equity on a specific date is called a(n)

    • A.

      Balance sheet

    • B.

      Statement of operations

    • C.

      Statement of owners equity

    • D.

      Income statement

    Correct Answer
    A. Balance sheet
    Explanation
    A balance sheet is a financial statement that provides a snapshot of a company's financial position on a specific date. It shows the firm's assets, liabilities, and owners' equity, providing a clear picture of what the company owns (assets), what it owes (liabilities), and the remaining value for the owners (owners' equity). This statement helps stakeholders, such as investors and creditors, assess the company's financial health and make informed decisions. The other options listed, such as statement of operations, statement of owners' equity, and income statement, focus on different aspects of a company's financial performance and do not provide a comprehensive view of its financial position like a balance sheet does.

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  • 13. 

    A net profit of the business is:

    • A.

      Expenses are more than revenue

    • B.

      Revenue is more than expenses

    • C.

      Revenue is less than expenses

    Correct Answer
    B. Revenue is more than expenses
    Explanation
    This is on the final test

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  • 14. 

    Any event that has a financial impact on the business and can be measured is a

    • A.

      Income statement

    • B.

      Transaction

    • C.

      Asset

    • D.

      Journal

    Correct Answer
    B. Transaction
    Explanation
    A transaction refers to any event that has a financial impact on a business and can be measured. It involves the exchange of goods, services, or money between two parties. Transactions are recorded in the journal and later summarized in the income statement, which shows the financial performance of a business over a specific period. Therefore, a transaction is the correct answer as it encompasses all events that affect the financial position of a business.

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  • 15. 

    Revenues are recorded when

    • A.

      The company signs a contract

    • B.

      Work is begun on the job

    • C.

      Cash is received from the customer

    • D.

      The work is completed on the job, whether or not the cash is received

    Correct Answer
    D. The work is completed on the job, whether or not the cash is received
    Explanation
    Revenues are recorded when the work is completed on the job, whether or not the cash is received. This is because revenue recognition is based on the completion of the performance obligation, which is the transfer of goods or services to the customer. The completion of the work signifies that the company has fulfilled its obligation and is entitled to recognize revenue. The timing of cash receipt does not affect the recognition of revenue as it may be received before or after the work is completed.

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  • 16. 

    A company received cash in exchange for issuing stock. This transaction increased assets and

    • A.

      Increased expenses

    • B.

      Increased revenues

    • C.

      Increased liabilities

    • D.

      Increased equity

    Correct Answer
    D. Increased equity
    Explanation
    When a company receives cash in exchange for issuing stock, it increases its equity. Equity represents the ownership interest in the company, and when new stock is issued, it means that new owners have invested in the business. This increases the company's equity because the company now has more funds available for its operations and growth. It is important to note that this transaction does not impact expenses, revenues, or liabilities directly, as they are not directly related to the issuance of stock.

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  • 17. 

    When a business makes a sale on account, the asset created is a(n)

    • A.

      Revenue

    • B.

      Expense

    • C.

      Account receivable

    • D.

      Account payable

    Correct Answer
    C. Account receivable
    Explanation
    When a business makes a sale on account, it means that the customer will pay for the product or service at a later date. In this scenario, the asset created is an account receivable. This represents the amount of money that the customer owes to the business and is recorded as an asset on the company's balance sheet. Account receivable is an important financial metric for businesses as it represents the amount of money that is expected to be received in the future.

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  • 18. 

    The debit created by a business when it makes a purchase on account is a(n)

    • A.

      Account receivable

    • B.

      Revenue

    • C.

      Prepaid expenses

    • D.

      Account payable

    Correct Answer
    D. Account payable
    Explanation
    When a business makes a purchase on account, it means that they are buying something and promising to pay for it at a later date. This creates a liability for the business, as they owe money to the supplier or vendor. This liability is recorded as a debit in the accounting system, and is called an account payable. Therefore, the correct answer is account payable.

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  • 19. 

    A company paid cash for an amount owed to a creditor. This transaction decreased cash and

    • A.

      Decreased revenues

    • B.

      Decreased liabilities

    • C.

      Decreased expenses

    • D.

      Increased expenses

    Correct Answer
    B. Decreased liabilities
    Explanation
    When a company pays cash to a creditor, it reduces its liabilities because it is fulfilling its obligation to pay the amount owed. This transaction does not affect revenues or expenses directly, as it is only related to the payment of a debt. Therefore, the correct answer is decreased liabilities.

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  • 20. 

    What type of account is cash?

    • A.

      A liability

    • B.

      An expense

    • C.

      Stock holders equity

    • D.

      An asset

    Correct Answer
    D. An asset
    Explanation
    Cash is considered an asset because it represents the value of money or cash equivalents that a company has on hand. It is readily available to be used for transactions, paying off debts, or investing. As an asset, cash holds value and can be easily converted into other assets or used to generate income.

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  • 21. 

    Purchasing supplies on account would

    • A.

      Increase total assets and decrease total liabilities

    • B.

      Increase total liabilities and decrease total assets

    • C.

      Increase total assets and increase total liabilities

    • D.

      Increase total liabilities and increase stockholders equity

    Correct Answer
    C. Increase total assets and increase total liabilities
    Explanation
    Purchasing supplies on account would increase total assets because supplies are considered an asset. Additionally, it would also increase total liabilities because the purchase is made on credit, resulting in an increase in accounts payable or a similar liability account. Therefore, both total assets and total liabilities would increase as a result of purchasing supplies on account.

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  • 22. 

    A company paid cash for employee wages. This transaction:

    • A.

      Increased cash and increased expenses

    • B.

      Increased cash and decreased expenses

    • C.

      Decreased cash and increased expenses

    • D.

      Decreased cash and decreased revenues

    Correct Answer
    C. Decreased cash and increased expenses
    Explanation
    The payment of employee wages involves a cash outflow from the company, resulting in a decrease in cash. Additionally, this transaction represents an expense for the company as it incurs a cost in the form of wages paid to employees. Therefore, the transaction decreases cash and increases expenses.

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  • 23. 

    Notes payable, accounts payable, taxes payable and salaries payable are all examples of

    • A.

      Liabilities

    • B.

      Revenues

    • C.

      Expenses

    • D.

      Assets

    Correct Answer
    A. Liabilities
    Explanation
    The given answer is liabilities because liabilities are debts or obligations that a company owes to external parties. Notes payable, accounts payable, taxes payable, and salaries payable are all examples of such obligations. These represent the company's financial responsibilities that need to be fulfilled in the future.

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  • 24. 

    The left side of a T-acccount is always the:

    • A.

      Increase side

    • B.

      Decrease side

    • C.

      Debit side

    • D.

      Credit side

    Correct Answer
    C. Debit side
    Explanation
    In accounting, a T-account is a visual representation of a general ledger account. The left side of a T-account is known as the debit side, while the right side is the credit side. Debit entries are used to record increases in assets, expenses, and losses, while credit entries are used to record decreases in assets, revenues, and gains. Therefore, the left side of a T-account is always the debit side, making it the correct answer.

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  • 25. 

    A listing of all the accounts that make up the ledger is called the:

    • A.

      T-account

    • B.

      Ledger

    • C.

      Journal

    • D.

      Chart of accounts

    Correct Answer
    D. Chart of accounts
    Explanation
    The chart of accounts is a listing of all the accounts that make up the ledger. It provides a systematic and organized structure for categorizing and classifying financial transactions. It helps in the efficient management of financial information by providing a clear overview of the different accounts and their balances. The chart of accounts is essential for accurate financial reporting and analysis.

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  • 26. 

    An account will have a debit balance if:

    • A.

      The amount of the credits exceeds the amount of the debits

    • B.

      The amount of the debits exceeds the amount of the credits

    • C.

      The account has more debit entries than credit entries

    • D.

      It is a liability account

    Correct Answer
    B. The amount of the debits exceeds the amount of the credits
    Explanation
    An account will have a debit balance if the amount of the debits exceeds the amount of the credits. This means that there have been more entries on the debit side of the account, indicating that more money has been debited or taken out of the account than has been credited or deposited into it. This results in a negative balance or a debit balance.

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  • 27. 

    Receiving a check from a customer on account would include a credit to:

    • A.

      Cash

    • B.

      Accounts payable

    • C.

      Sales revenue

    • D.

      Accounts receivable

    Correct Answer
    D. Accounts receivable
    Explanation
    When a customer pays with a check on their account, it means they are making a payment towards their outstanding balance. This payment would be recorded as a credit to the Accounts Receivable account. Accounts Receivable represents the amount of money owed to the company by its customers. By receiving a check from a customer, the company is reducing the amount owed and therefore, a credit entry is made in the Accounts Receivable account.

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  • 28. 

    The trial balance is used to determine whether:

    • A.

      Total assets equal total liabilities

    • B.

      Total debits equal total credits

    • C.

      Total revenues plus gains equal total expenses plus losses

    • D.

      Total increases in accounts equal total decreases in accounts

    Correct Answer
    B. Total debits equal total credits
    Explanation
    The trial balance is a tool used to ensure that the total debits in the accounting system equal the total credits. This is important because in double-entry bookkeeping, every transaction has both a debit and a credit entry. If the total debits do not equal the total credits, it indicates that there is an error in the recording of transactions. Therefore, the trial balance helps to identify any discrepancies and ensures the accuracy of the financial records.

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  • 29. 

    The accounting equation can be stated as:

    • A.

      Assets + Stockholders' equity = liabilites

    • B.

      Assets - liabilities = Stockholders' equity

    • C.

      Assets = liabilities - Stockholders' equity

    • D.

      Assets - Stockholders' + liabilities = Zero

    Correct Answer
    B. Assets - liabilities = Stockholders' equity
    Explanation
    The accounting equation states that the value of a company's assets is equal to the sum of its liabilities and stockholders' equity. This equation is based on the fundamental principle of double-entry bookkeeping, which requires that every financial transaction have an equal and opposite effect on both sides of the equation. Therefore, if we subtract the liabilities from the assets, we are left with the stockholders' equity, representing the residual interest in the company's assets after deducting its liabilities.

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  • 30. 

    Which of the following financial statements shows the net increase or decrease in cash during the period?

    • A.

      Balance sheet only

    • B.

      Statement of Operations

    • C.

      Statement of Retained Earnings and Balance Sheet

    • D.

      Statement of cash flows

    Correct Answer
    D. Statement of cash flows
    Explanation
    on quiz answered

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  • 31. 

    Notes recievable due in 60 days would be classified as a

    • A.

      Current liability on the balance sheet

    • B.

      Current asset o n the balance sheet

    • C.

      Long-term asset on the balance sheet

    • D.

      Long-term liability on the balance sheet

    Correct Answer
    B. Current asset o n the balance sheet
    Explanation
    Notes receivable due in 60 days would be classified as a current asset on the balance sheet. This is because current assets are those that are expected to be converted into cash or used up within one year or one operating cycle, whichever is longer. Since the notes receivable will be collected within 60 days, they are considered as a current asset.

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  • 32. 

    What type of account is prepaid insurance?

    • A.

      A liability

    • B.

      An expense

    • C.

      Stockholders' equity

    • D.

      An asset

    Correct Answer
    D. An asset
    Explanation
    Prepaid insurance is considered an asset because it represents an advance payment made by a company for insurance coverage that will be used in the future. As the coverage is used over time, it is gradually recognized as an expense on the income statement. However, at the time of payment, it is recorded as an asset on the balance sheet because it represents a future economic benefit to the company.

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  • 33. 

    The owner of a business paid cash from his personal checking account to purchase an automobile for his personal use. This transaction

    • A.

      Increased a liability account and increased liabilities

    • B.

      Decreased cash and increased expenses

    • C.

      Increased assets and increased owners equity

    • D.

      Is not a transaction recognized by the business

    Correct Answer
    D. Is not a transaction recognized by the business
  • 34. 

    The balance sheet lists

    • A.

      Assets, liabilities, and revenues

    • B.

      Revenues and expenses

    • C.

      Assets, liabilities, and stockholders equity

    • D.

      Dividends and assets

    Correct Answer
    C. Assets, liabilities, and stockholders equity
    Explanation
    The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and stockholders' equity. Assets are the resources owned by the company, such as cash, inventory, and property. Liabilities are the company's debts and obligations, such as loans and accounts payable. Stockholders' equity represents the ownership interest in the company and is calculated by subtracting liabilities from assets. Therefore, the correct answer is assets, liabilities, and stockholders' equity.

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  • 35. 

    The credit side of an account

    • A.

      Is the left side of the account

    • B.

      Depends on whether the account is an asset of liability

    • C.

      Is the right side of the account

    • D.

      Can change as needed

    Correct Answer
    C. Is the right side of the account
    Explanation
    The credit side of an account is the right side of the account. In accounting, a T-account is used to represent accounts, with the left side being the debit side and the right side being the credit side. When recording transactions, credits are used to increase liabilities, equity, and revenue accounts, while debits are used to increase assets and expense accounts. Therefore, the credit side of an account is the side where increases in these specific accounts are recorded.

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  • 36. 

    The right side of a T-account is always the

    • A.

      Increase side

    • B.

      Decrease side

    • C.

      Debit side

    • D.

      Credit side

    Correct Answer
    D. Credit side
    Explanation
    In accounting, a T-account is a visual representation of an account where the left side is the debit side and the right side is the credit side. The credit side is used to record increases in liabilities, revenues, and equity accounts, while the debit side is used to record decreases in assets, expenses, and withdrawals. Therefore, the correct answer is "credit side" because it represents the side of the T-account where increases are recorded.

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  • 37. 

    Double-entry accounting means that each transaction

    • A.

      Increases at least one account and decreases at least one account

    • B.

      Debits at least one account and credits at least one account

    • C.

      Is recorded in both the journal and in the ledger

    • D.

      Affects both an income statement account and a balance sheet account

    Correct Answer
    B. Debits at least one account and credits at least one account
    Explanation
    Double-entry accounting is a system in which each transaction is recorded by debiting at least one account and crediting at least one account. This means that for every transaction, there will be an equal amount recorded on both the debit side and the credit side of the accounting equation. This ensures that the accounting equation remains balanced and accurate. By debiting and crediting different accounts, the system captures the flow of assets, liabilities, and equity throughout the accounting records.

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  • 38. 

    ABC company had a beginning cash balance of $10,000, recieved cash of $8,000 and ended the month with a cash balance of $6,000. Cash payments for the month were:

    • A.

      $6,000

    • B.

      Can't be determined from the information given

    • C.

      $12,000

    • D.

      $24,000

    Correct Answer
    C. $12,000
    Explanation
    Based on the information given, we know that the beginning cash balance was $10,000 and the company received $8,000 in cash. We also know that the ending cash balance was $6,000. To find the cash payments for the month, we can subtract the ending cash balance from the sum of the beginning cash balance and cash received. Therefore, the cash payments for the month would be $10,000 + $8,000 - $6,000 = $12,000.

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  • 39. 

    The normal balance of accounts receivable is a ___________ because it is a(n) ________________ account

    • A.

      Credit, liability

    • B.

      Debit, asset

    • C.

      Credit, stockholders equity

    • D.

      Debit, expense

    Correct Answer
    B. Debit, asset
    Explanation
    The normal balance of accounts receivable is a debit because it is an asset account. Accounts receivable represents the amount of money owed to a company by its customers for goods or services provided on credit. As an asset, it has a debit balance, meaning that an increase in accounts receivable is recorded as a debit entry. This helps to track the amount of money the company is owed and is considered an asset that can be converted into cash in the future.

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  • 40. 

    A trial balance has which of the following features

    • A.

      Totals for balance sheet accounts only

    • B.

      Totals for income statement accounts only

    • C.

      Totals for all accounts listed in the ledger

    • D.

      Both A and B are correct

    Correct Answer
    C. Totals for all accounts listed in the ledger
    Explanation
    A trial balance is a statement that lists all the accounts in the ledger and their respective balances. It is prepared to ensure that the debits and credits in the accounting system are in balance. Therefore, the correct answer is "Totals for all accounts listed in the ledger" because a trial balance includes the balances of all accounts, whether they are balance sheet accounts or income statement accounts.

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  • 41. 

    The normal balance of the Accounts Payable account is _____________ because it is a(n) ___________ account

    • A.

      Credit, liability

    • B.

      Debit, stockholders equity

    • C.

      Credit, expense

    • D.

      Debit, asset

    Correct Answer
    A. Credit, liability
    Explanation
    The normal balance of the Accounts Payable account is credit because it is a liability account. Accounts Payable represents the amount of money owed by a company to its creditors or suppliers for goods or services received on credit. A credit balance in this account indicates that the company owes money to its creditors, which is a liability.

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  • 42. 

    A net loss of the business is:

    • A.

      Expenses are less than revenue

    • B.

      Revenue is more than expenses

    • C.

      Revenue is less than expenses

    Correct Answer
    C. Revenue is less than expenses
    Explanation
    on quiz

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  • 43. 

    The financial statement that shows the state of the firms revenue and expenses is called a(n)

    • A.

      Balance sheet

    • B.

      Statement of operations

    • C.

      Statement of owners equality

    • D.

      Income statement

    Correct Answer
    D. Income statement
    Explanation
    The income statement is the financial statement that shows the state of a firm's revenue and expenses. It provides a summary of the company's financial performance over a specific period of time, typically a month, quarter, or year. The income statement helps to assess the profitability of the business by showing the net income or loss generated from its operations. It includes revenues, expenses, gains, and losses, and calculates the net income by subtracting expenses from revenues. This statement is crucial for investors, creditors, and other stakeholders to evaluate the financial health and profitability of the company.

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  • 44. 

    A business purchases a truck by signing a note payable to the seller. This transaction would include a:

    • A.

      Credit to truck

    • B.

      Debit to note payable

    • C.

      Credit to note payable

    • D.

      Debit to prepaid maintenance

    Correct Answer
    C. Credit to note payable
    Explanation
    When a business purchases a truck by signing a note payable to the seller, it means that the business has agreed to pay the seller for the truck at a later date. This creates a liability for the business, as they owe the seller the amount stated in the note payable. Therefore, the correct answer is a credit to note payable, as it represents the increase in the business's liability.

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  • 45. 

    The entry to record the purchase of supplies on account would include a debit to:

    • A.

      Supplies

    • B.

      Accounts payable

    • C.

      Supplies Expenses

    • D.

      Retained Earnings

    Correct Answer
    A. Supplies
    Explanation
    The entry to record the purchase of supplies on account would include a debit to Supplies. This is because when supplies are purchased on account, it increases the company's inventory of supplies, which is represented by the Supplies account. The debit entry increases the balance of the Supplies account, reflecting the increase in the company's assets. The other options, such as Accounts payable, Supplies Expenses, and Retained Earnings, are not relevant in this context and would not be debited in the entry.

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  • 46. 

    The payment for monthy rent of an office building would include a:

    • A.

      Debit to cash

    • B.

      Debit to prepaid rent

    • C.

      Debit to rent expense

    • D.

      Credit to revenue

    Correct Answer
    C. Debit to rent expense
    Explanation
    The payment for monthly rent of an office building would be recorded as a debit to rent expense. This is because rent expense is an operating expense that represents the cost of utilizing the office building for business operations. By debiting rent expense, the company is recognizing the cost incurred for using the office space during the month.

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  • 47. 

    The purchase of office furniture for cash would include a debit to:

    • A.

      Accounts payable

    • B.

      Office furniture

    • C.

      Office furniture expense

    • D.

      Cash

    Correct Answer
    B. Office furniture
    Explanation
    When office furniture is purchased for cash, it means that the company is using its cash to buy the furniture. In accounting, a debit entry is made to the account that is receiving the benefit or the asset. In this case, the office furniture account is debited because it is the asset that the company is acquiring. Therefore, the correct answer is office furniture.

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  • 48. 

    The purchase of office computers for cash would include a debit to:

    • A.

      Cash and a credit to office equipment

    • B.

      Office Equipment

    • C.

      Accounts receivable and credit to office equipment

    • D.

      Office equipment and a credit to cash

    Correct Answer
    D. Office equipment and a credit to cash
    Explanation
    When office computers are purchased for cash, it means that cash is being used to pay for the computers. Therefore, there will be a decrease in the cash account, which is recorded as a debit. At the same time, there will be an increase in the office equipment account, which is recorded as a credit. This is because the company is acquiring new office equipment, which increases the value of the office equipment account.

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  • 49. 

    The classification and normal balance of the cash account is:

    • A.

      An expense account with a debit balance

    • B.

      An expense account with a a credit balance

    • C.

      An asset account with a credit balance

    • D.

      An asset account with a debit balance

    Correct Answer
    D. An asset account with a debit balance
    Explanation
    The cash account is classified as an asset account because it represents the amount of cash that a company possesses. The normal balance of an asset account is a debit balance, meaning that increases in cash are recorded as debits and decreases in cash are recorded as credits. Therefore, the correct answer is "an asset account with a debit balance."

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  • 50. 

    An example of an expense is

    • A.

      Owner investments cash in business

    • B.

      Telephone bill

    • C.

      Prepaid

    • D.

      Accounts receivable

    Correct Answer
    B. Telephone bill
    Explanation
    The correct answer is "telephone bill" because it is a payment made by the business for using telephone services. It is a regular expense that a business incurs to maintain communication and carry out its operations. This expense is typically recorded in the company's financial records and is considered a necessary cost for running the business.

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