Basic Accounting Quiz Questions And Answers

Double-entry bookkeeping is a system in which every financial transaction is recorded in at least two accounts, with one being a debit and the other a credit. Debits and credits are the fundamental building blocks of this system, representing the flow of assets and liabilities. Therefore, it is correct to state that debits and credits are a part of double-entry bookkeeping.

In accounting, the term "debit" refers to the left side of a ledger account. When recording transactions, debits are used to represent increases in assets, expenses, and losses, while credits are used to represent decreases in liabilities, revenues, and gains. The left side of a ledger account is typically reserved for recording debits, while the right side is used for recording credits. Therefore, the correct answer is "Left."

When you want to increase an asset, you debit the account. Debiting an account means recording an entry on the left side of the account, which increases the account balance. Therefore, the statement "To increase an Asset, you Debit the account" is true.

In accounting, the principle of double-entry states that for every debit entry, there must be a corresponding credit entry. In this case, if we debit the receiver, it means we are increasing their account balance. Therefore, the corresponding credit entry should be made to the giver, as they are the source of the transaction or the one providing the asset.

Under the accrual method of accounting, expenses are recorded when they are incurred. This means that expenses are recognized and recorded in the accounting records when they are earned or consumed, regardless of when the payment is made or when the invoice is received. This approach ensures that expenses are matched with the revenue they generate or the period in which they are used, providing a more accurate representation of the financial position and performance of a business.

Profit is calculated by subtracting expenses from revenue. Revenue represents the total income generated from sales or services, while expenses refer to the costs incurred in running a business, such as wages, rent, and utilities. By subtracting expenses from revenue, we can determine the amount of profit a business has earned. This formula is commonly used in financial analysis to evaluate the financial performance of a company.

The income statement is the financial statement that provides information about a company's profitability. It shows the company's revenues, expenses, and net income or loss over a specific period of time. By analyzing the income statement, investors and stakeholders can determine how well a company is generating profits from its core operations. The cash flow statement, on the other hand, focuses on the company's cash inflows and outflows, while the balance sheet provides a snapshot of the company's assets, liabilities, and shareholders' equity at a specific point in time. Therefore, the income statement is the correct answer as it specifically measures a company's profitability.

Assets are typically recorded on the Balance Sheet at their historical cost, not their estimated fair market value. The historical cost represents the original cost of acquiring the asset, including any additional costs incurred to bring it to its present condition and location. Fair market value, on the other hand, represents the estimated price that an asset would fetch in the open market. While fair market value may be used in certain situations, such as when an asset is being sold or transferred, it is not the typical method of recording assets on the Balance Sheet.

Recognition of Depreciation Expense results in a decrease in income because it represents the allocation of the cost of an asset over its useful life, reflecting the wear and tear or obsolescence of the asset. This decrease in income is necessary to accurately match the expenses with the revenues generated by the asset over its useful life, as required by the matching principle. Therefore, both options A and C are correct.

A periodical bookkeeping worksheet is a trial balance. A trial balance is a statement that lists all the accounts in the general ledger along with their debit or credit balances. It is prepared at the end of an accounting period to ensure that the total debits equal the total credits. The purpose of the trial balance is to detect any errors in the recording or posting of transactions before preparing the financial statements.