Basic Accounting Exam: Quiz! MCQ

1. Which is the correct sequence for recording transactions and preparing financial statements?

Ledger, trial balance, journal, financial statements

Journal, ledger, trial balance, financial statements

Financial statements, trial balance, ledger, journal

Ledger, journal, trial balance, financial statements

The correct sequence for recording transactions and preparing financial statements is to first record the transactions in the journal, then transfer the information from the journal to the ledger, next prepare a trial balance to ensure that the debits and credits are equal, and finally prepare the financial statements based on the information in the ledger and trial balance.

Explanation

The correct sequence for recording transactions and preparing financial statements is to first record the transactions in the journal, then transfer the information from the journal to the ledger, next prepare a trial balance to ensure that the debits and credits are equal, and finally prepare the financial statements based on the information in the ledger and trial balance.

2. A debit entry to an account.

Increases liabilities

Increases OE

Increases Assets

Increases both a and b

A debit entry to an account increases the assets of a company. This means that the company has received or acquired more resources or valuables, which are considered as assets. Therefore, the correct answer is "Increases Assets."

Explanation

A debit entry to an account increases the assets of a company. This means that the company has received or acquired more resources or valuables, which are considered as assets. Therefore, the correct answer is "Increases Assets."

3. Which account types normally have a credit balance?

Revenues

Liabilities

Expenses

Both a and b

Both revenues and liabilities normally have a credit balance because they represent increases in the owner's equity and amounts owed to external parties respectively. Revenues are the income earned by a business, which increases the owner's equity and is recorded as a credit. Liabilities, on the other hand, represent the amounts owed by a business to external parties, such as loans or accounts payable, and are also recorded as a credit. Therefore, both revenues and liabilities have credit balances in the accounting equation.

Explanation

Both revenues and liabilities normally have a credit balance because they represent increases in the owner's equity and amounts owed to external parties respectively. Revenues are the income earned by a business, which increases the owner's equity and is recorded as a credit. Liabilities, on the other hand, represent the amounts owed by a business to external parties, such as loans or accounts payable, and are also recorded as a credit. Therefore, both revenues and liabilities have credit balances in the accounting equation.

4. The list of accounts with their balances is the:

Journal

Trial balance

Chart of accounts

Balance sheet

A trial balance is a list of all the accounts in a company's general ledger along with their respective balances. It is used to ensure that the total debits equal the total credits in the accounting system, which helps in identifying any errors or discrepancies. Therefore, the given answer is correct as it accurately describes the purpose and content of a trial balance.

Explanation

A trial balance is a list of all the accounts in a company's general ledger along with their respective balances. It is used to ensure that the total debits equal the total credits in the accounting system, which helps in identifying any errors or discrepancies. Therefore, the given answer is correct as it accurately describes the purpose and content of a trial balance.

5. In a double-entry accounting system:

Liabilities, OE, and revenues all have normal debit balances

A debit entry is recorded on the left side of a T-account

Half of all the accounts have a normal credit balance

Both a and c are correct

In a double-entry accounting system, a debit entry is recorded on the left side of a T-account. This means that when a transaction occurs, the amount is recorded on the left side of the T-account, which is known as the debit side. This is consistent with the general rule that assets, expenses, and dividends have normal debit balances. On the other hand, liabilities, owner's equity, and revenues have normal credit balances, which means they are recorded on the right side of the T-account. Therefore, the correct answer is that a debit entry is recorded on the left side of a T-account.

Explanation

In a double-entry accounting system, a debit entry is recorded on the left side of a T-account. This means that when a transaction occurs, the amount is recorded on the left side of the T-account, which is known as the debit side. This is consistent with the general rule that assets, expenses, and dividends have normal debit balances. On the other hand, liabilities, owner's equity, and revenues have normal credit balances, which means they are recorded on the right side of the T-account. Therefore, the correct answer is that a debit entry is recorded on the left side of a T-account.

6. Which accounts appear on which financial statement?

Balance sheet- receivables, land, payables; Income statement- Revenues, supplies

BS- cash, revenues, land; IS- expenses, payables

BS- Cash, receivables, payables; IS- revenues, expenses

BS- expenses, payables, cash; IS- revenues, receivables, land

The balance sheet includes accounts such as cash, receivables, and payables, which represent the financial position of a company at a specific point in time. On the other hand, the income statement includes accounts such as revenues and expenses, which represent the company's financial performance over a period of time. Therefore, the correct answer is BS- Cash, receivables, payables; IS- revenues, expenses.

Explanation

The balance sheet includes accounts such as cash, receivables, and payables, which represent the financial position of a company at a specific point in time. On the other hand, the income statement includes accounts such as revenues and expenses, which represent the company's financial performance over a period of time. Therefore, the correct answer is BS- Cash, receivables, payables; IS- revenues, expenses.

7. An attorney performs services of $1,100 for a client and receives $400 cash with the remainder on the account. The journal entry for this would:

Debit cash, credit AR, credit service revenue

Debit cash, debit service revenue, credit AR

Debit cash, debit AR, credit service revenue

Debit cash, credit service revenue

The correct answer is debit cash, debit AR, credit service revenue. This is because the attorney receives $400 in cash, which is recorded as a debit to the cash account. The remaining amount of $700 is recorded as a debit to accounts receivable (AR), representing the amount owed by the client. Finally, the attorney performed services worth $1,100, which is recorded as a credit to the service revenue account.

Explanation

The correct answer is debit cash, debit AR, credit service revenue. This is because the attorney receives $400 in cash, which is recorded as a debit to the cash account. The remaining amount of $700 is recorded as a debit to accounts receivable (AR), representing the amount owed by the client. Finally, the attorney performed services worth $1,100, which is recorded as a credit to the service revenue account.

8. The beginning cash balance was $3,000. At the end of the period, the balance was $2,000. If total cash paid out during the period was 27,000, the number of cash receipts was:

22000

28000

32000

26000

The beginning cash balance was $3,000 and the ending cash balance was $2,000. This means that there was a decrease of $1,000 in the cash balance. The total cash paid out during the period was $27,000. Since the cash balance decreased by $1,000, and the total cash paid out was $27,000, it can be inferred that $26,000 was received as cash receipts during the period.

Explanation

The beginning cash balance was $3,000 and the ending cash balance was $2,000. This means that there was a decrease of $1,000 in the cash balance. The total cash paid out during the period was $27,000. Since the cash balance decreased by $1,000, and the total cash paid out was $27,000, it can be inferred that $26,000 was received as cash receipts during the period.

9. The basic summary device of accounting is the:

Account

Ledger

Journal

Trial balance

The basic summary device of accounting is an account. Accounts are used to record and track the financial transactions of a business. They provide a systematic way of organizing and summarizing financial information, allowing businesses to analyze their financial performance. Accounts are typically categorized into different types, such as assets, liabilities, equity, revenue, and expenses, to provide a clear picture of the financial position and performance of a business.

Explanation

The basic summary device of accounting is an account. Accounts are used to record and track the financial transactions of a business. They provide a systematic way of organizing and summarizing financial information, allowing businesses to analyze their financial performance. Accounts are typically categorized into different types, such as assets, liabilities, equity, revenue, and expenses, to provide a clear picture of the financial position and performance of a business.

10. The error of posting $500 as a $50 can be detected by:

Totaling each account's balance in the ledger

Dividing the out of balance amount by 2

Dividing the out of balance amount by 9

Examining the chart of accounts

Dividing the out of balance amount by 9 can detect the error of posting $500 as $50 because if the error occurred, there would be a difference of $450 ($500 - $50) in the total balance. Dividing this difference by 9 would give a quotient of 50, indicating that the error was made in posting $450 to one account instead of another.

Explanation

Dividing the out of balance amount by 9 can detect the error of posting $500 as $50 because if the error occurred, there would be a difference of $450 ($500 - $50) in the total balance. Dividing this difference by 9 would give a quotient of 50, indicating that the error was made in posting $450 to one account instead of another.