#1
Which of the following is a liability account?
Accounts Payable
ExplanationAn obligation to pay for goods or services received.
#2
Which account type increases with a debit entry?
Assets
ExplanationItems of economic value owned by an individual or corporation.
#3
What does the term 'contra account' refer to in accounting?
An account that offsets another account
ExplanationAn account that reduces the value of a related account.
#4
Which accounting principle states that expenses should be recognized in the period in which they are incurred?
Matching Principle
ExplanationExpenses should be recognized in the same period as the related revenues.
#5
What is the purpose of the contra asset account?
To offset the effects of accumulated depreciation
ExplanationReduces the value of a related asset account on the balance sheet.
#6
What is the accounting equation?
Assets = Liabilities + Owner's Equity
ExplanationBasic framework showing the relationship between a company's resources and its creditors' and owners' claims to those resources.
#7
Which financial statement reports a company's profitability over a specific period?
Income Statement
ExplanationSummarizes revenues, expenses, and net income or loss for a specific period.
#8
What is the purpose of the trial balance?
To identify errors in the financial statements
ExplanationSummarizes all the ledger balances to ensure they are mathematically accurate.
#9
In a journal entry, which account is credited in a purchase transaction?
Accounts Payable
ExplanationIndicates a liability created when a company purchases goods or services on credit.
#10
When recording a sales transaction, which account is debited?
Cash
ExplanationRepresents a company's cash balance.
#11
What is the purpose of the post-closing trial balance?
To ensure that all accounts have zero balances
ExplanationConfirms that all temporary accounts have been closed at the end of an accounting period.
#12
What is the purpose of the adjusting journal entry?
To update account balances for accruals and deferrals
ExplanationEnsures that revenues and expenses are recognized in the period they occur.
#13
How does the double-entry accounting system work?
It records both the debit and credit aspects of a transaction
ExplanationEvery transaction involves at least two accounts, with one account debited and another credited.
#14
What is the primary purpose of the cash flow statement?
To provide information about cash receipts and payments
ExplanationShows how changes in balance sheet accounts and income affect cash and cash equivalents.
#15
What is the accounting cycle?
The process of recording financial transactions in chronological order
ExplanationSeries of steps performed to record, classify, and summarize accounting information.
#16
How does the accrual basis of accounting differ from the cash basis?
Cash basis recognizes transactions when they are incurred
ExplanationRecords revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.
#17
What is the purpose of the general ledger?
To organize and summarize all financial transactions
ExplanationMain accounting record that contains all the financial transactions of a company.