Grade 12 Accounting Quiz

2.

What type of account is unearned revenue?

Asset
Liability
Revenue
Expense

Correct Answer

A. Liability

Explanation

Unearned revenue is considered a liability because it represents money that has been received by a company in advance for goods or services that have not yet been provided. It is a liability because the company has an obligation to deliver the goods or services in the future. Once the goods or services are provided, the unearned revenue is then recognized as revenue on the company's income statement.

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3.

Which of the following best describes an accrued expense?

An expense that has been paid in advance but hasn't been used yet
An expense that was paid in advance but has been used up now
An expense that is owed but hasn't been billed or paid yet
An expense that has been billed and paid

Correct Answer

A. An expense that is owed but hasn't been billed or paid yet

Explanation

An accrued expense refers to an expense that is owed but hasn't been billed or paid yet. This means that the company has received goods or services but has not yet been invoiced for them or made the payment. The expense is recognized in the financial statements even though the payment has not been made, as it represents an obligation that the company has incurred. This is different from an expense that has been paid in advance or an expense that has been billed and paid.

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4.

What is the purpose of the general ledger?

To provide a chronological record of transactions
To categorize transactions by account
To communicate the company's financial position and results of operations
To update capital for net income and to prepare the accounts for the next fiscal period

Correct Answer

A. To categorize transactions by account

Explanation

The purpose of the general ledger is to categorize transactions by account. This allows for easy organization and tracking of financial activities within a company. By categorizing transactions, the general ledger provides a clear overview of how money is being spent, received, and allocated. This information is essential for financial reporting and decision-making processes within the company.

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5.

Which of the following lists the steps of the accounting cycle in the correct order?

Journal, ledger, trial balance, adjustments, closing entries, financial statements
Journal, ledger, adjustments, trial balance, financial statements, closing entries
Journal, ledger, financial statements, trial balance, adjustments, closing entries
Journal, ledger, trial balance, adjustments, financial statements, closing entries

Correct Answer

A. Journal, ledger, trial balance, adjustments, financial statements, closing entries

Explanation

The correct order of the accounting cycle is as follows: journal, ledger, trial balance, adjustments, financial statements, closing entries. The journal is used to record all transactions, which are then posted to the ledger. The trial balance is prepared to ensure that debits and credits are equal. Adjustments are made to update accounts for accruals, deferrals, and estimates. Financial statements are then prepared to provide a summary of the company's financial performance. Finally, closing entries are made to transfer temporary account balances to the retained earnings account and reset the temporary accounts for the next accounting period.

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6.

Which of the following is a TRANSACTION, not an ADJUSTMENT?

Debit interest expense, credit interest payable
Debit unearned rent, credit fees earned
Debit prepaid rent, credit cash
Debit amortization expense, credit accumulated amortization

Correct Answer

A. Debit prepaid rent, credit cash

Explanation

The transaction of debiting prepaid rent and crediting cash represents a payment made in advance for rent. This is a typical transaction where a company pays for rent in advance and records it as a prepaid expense on the balance sheet. As time passes, the prepaid expense is gradually recognized as an expense on the income statement through adjusting entries. This transaction does not involve any adjustments or accruals, making it a straightforward transaction rather than an adjustment.

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7.

What is the best type of auditor's report a company can earn?

Clean / unqualified
Qualified
Adverse

Correct Answer

A. Clean / unqualified

Explanation

A clean/unqualified auditor's report is the best type of report a company can earn. This report indicates that the company's financial statements are free from material misstatements and are presented fairly in accordance with the applicable accounting standards. It signifies that the auditor has conducted a thorough examination of the company's financial records and found no significant issues or discrepancies. This report instills confidence in investors and stakeholders as it assures them that the company's financial statements are reliable and accurate.

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8.

Which of the following lists the sections of an annual report from MOST GENERAL to MOST SPECIFIC

Notes to financial statements, financial statements, auditor's report, MD&A, letter to shareholders
MD&A, letter to shareholders, auditor's report, notes to financial statements, financial statements
Auditor's report, letter to shareholders, financial statements, notes to financial statements, MD&A
Letter to shareholders, MD&A, auditor's report, financial statements, notes to financial statements

Correct Answer

A. Letter to shareholders, MD&A, auditor's report, financial statements, notes to financial statements

Explanation

The annual report typically starts with a letter to shareholders, which provides a general overview of the company's performance and highlights key achievements. The next section is usually the Management's Discussion and Analysis (MD&A), which provides a more detailed analysis of the financial results and the company's operations. The auditor's report comes next, which is a statement from an independent auditor verifying the accuracy of the financial statements. The financial statements section follows, which includes the balance sheet, income statement, and cash flow statement. Finally, the notes to financial statements provide additional details and explanations related to the financial statements. Therefore, the correct order is letter to shareholders, MD&A, auditor's report, financial statements, notes to financial statements.

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9.

Which of the following is an adjustment for an accrued revenue?

Debit salaries expense, credit salaries payable
Debit insurance expense, credit prepaid insurance
Debit unearned revenue, credit fees earned
Debit accounts receivable, credit fees earned

Correct Answer

A. Debit accounts receivable, credit fees earned

Explanation

An accrued revenue is a revenue that has been earned but not yet received. In this case, the adjustment for an accrued revenue would involve recognizing the revenue by debiting the accounts receivable account, which represents the amount owed by customers, and crediting the fees earned account, which represents the revenue earned. This adjustment reflects the increase in the accounts receivable balance and the recognition of the revenue in the fees earned account.

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10.

When does ACCRUAL accounting record revenues and expenses?

Revenue when it is earned; expenses when they help earn revenue
Revenue when it is received; expenses when they are paid
Revenue when it is earned; expenses when they are paid
Revenue when it is received; expenses when they help earn revenue

Correct Answer

A. Revenue when it is earned; expenses when they help earn revenue

Explanation

ACCRUAL accounting records revenues when they are earned, meaning when the goods or services have been provided to the customer and the payment is expected. Expenses are recorded when they help earn revenue, which means when they are incurred in the process of generating revenue, regardless of when the payment is made. This method ensures that the financial statements reflect the true financial position of the company by matching revenues and expenses in the period they occur, rather than when the cash is received or paid.

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Grade 12 Accounting Quiz

What does MD&A stand for?

Quiz Preview

What type of account is unearned revenue?

Which of the following best describes an accrued expense?

What is the purpose of the general ledger?

Which of the following lists the steps of the accounting cycle in the correct order?

Which of the following is a TRANSACTION, not an ADJUSTMENT?

What is the best type of auditor's report a company can earn?

Which of the following lists the sections of an annual report from MOST GENERAL to MOST SPECIFIC

Which of the following is an adjustment for an accrued revenue?

When does ACCRUAL accounting record revenues and expenses?