Financial Transactions and Accounting Effects Quiz

Test your knowledge with 13 questions on accounting concepts, including accrual, depreciation, financial ratios, and more!

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2. Which financial statement represents the financial position of a company at a specific point in time?

Income Statement

Cash Flow Statement

Balance Sheet

Statement of Retained Earnings

4. What is the purpose of the double-entry accounting system?

To track only expenses

To ensure that the accounting equation is always balanced

To record only cash transactions

To prepare financial statements

10. What is the role of a journal entry in the accounting cycle?

To summarize financial transactions

To calculate total revenue

To prepare the balance sheet

To record initial investments in a business

1. What is the accounting equation?

Assets = Liabilities + Equity

Income = Expenses

Revenue - Costs

Profit = Revenue - Expenses

3. What does the term 'accrual' mean in accounting?

The recognition of revenue or expenses when incurred, not when cash changes hands

The process of depreciating assets over time

The recording of transactions in a journal

The reconciliation of bank statements

6. What is the purpose of the general ledger in accounting?

To record all financial transactions of a business

To prepare the income statement

To calculate depreciation

To track employee salaries

8. What is the purpose of the trial balance in the accounting process?

To ensure that total debits equal total credits

To calculate net income

To prepare financial statements

To record adjusting entries

11. What is the difference between a debit and a credit in accounting?

Debits increase liabilities, while credits decrease assets

Debits increase assets, while credits decrease liabilities

Debits and credits have the same effect on accounts

Debits decrease expenses, while credits increase revenue

5. How does the recognition of revenue differ between accrual accounting and cash accounting?

Accrual accounting recognizes revenue when cash is received, while cash accounting recognizes revenue when earned

Accrual accounting recognizes revenue when earned, while cash accounting recognizes revenue when cash is received

There is no difference in the recognition of revenue between accrual and cash accounting

Accrual accounting only recognizes revenue from sales of goods, while cash accounting includes all revenue sources

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7. How does the straight-line depreciation method work?

Depreciation is calculated based on the asset's remaining useful life

Depreciation is calculated based on the asset's initial cost

Depreciation is only recorded when an asset is sold

Depreciation is not applicable in accounting

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9. In accounting, what does the term 'amortization' refer to?

The process of allocating the cost of intangible assets over their useful life

The recording of revenue from sales

The calculation of interest on loans

The process of allocating the cost of tangible assets over their useful life

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13. What is the accounting principle of conservatism?

Recognizing revenue when earned

Choosing the accounting methods that are least likely to overstate assets and income

Matching expenses to the period in which they are incurred

Reporting assets at their historical cost

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14. How does the FIFO (First-In-First-Out) method affect inventory valuation?

It values the oldest inventory items first, which affects the cost of goods sold

It values the newest inventory items first, which affects the ending inventory

It has no impact on inventory valuation

It values inventory based on the average cost