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Quizzes > Quizzes for Business > Finance

Accounting Knowledge Assessment Quiz

Assess Core Financial Accounting Skills Here

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art displaying various accounting symbols for a trivia quiz on Accounting Knowledge Assessment

I'm Joanna Weib, here to guide you through this dynamic Accounting Knowledge Assessment Quiz that sharpens your grasp of core financial principles. This accounting quiz features 15 thoughtfully crafted multiple-choice questions that challenge your skills in journal entries, statements, and valuation methods. Ideal for students, educators, and finance professionals seeking a quick skills check, this assessment provides actionable insights and immediate feedback. Feel free to explore more practice options like the Accounting Fundamentals Quiz or the Basic Accounting Quiz to broaden your expertise. Customize this quiz effortlessly in our editor and browse other quizzes to keep your learning journey evolving.

What is the fundamental accounting equation?
Assets = Liabilities - Equity
Assets = Liabilities + Equity
Revenue - Expenses = Equity
Assets + Liabilities = Equity
The fundamental accounting equation states that assets equal liabilities plus equity. This equation is the basis for the balance sheet and ensures the accounting records remain balanced.
When a company purchases equipment for cash, which entry reflects the double-entry rule?
Debit Equipment, Credit Accounts Payable
Debit Equipment, Debit Cash
Debit Equipment, Credit Cash
Debit Cash, Credit Equipment
Purchasing equipment for cash decreases the cash account (credit) and increases the equipment account (debit). Double-entry accounting requires equal debits and credits.
Which document lists all ledger account balances to verify that total debits equal total credits?
Income Statement
Balance Sheet
Trial Balance
Cash Flow Statement
A trial balance compiles all ledger account balances to ensure total debits equal total credits before preparing financial statements. This helps detect posting errors.
Which inventory valuation method assumes the oldest inventory costs are charged to cost of goods sold first?
LIFO
Specific Identification
FIFO
Average Cost
FIFO (First-In, First-Out) assumes the earliest purchased items are sold first, matching older costs against current revenues. This method often results in lower cost of goods sold in rising price environments.
Which financial statement reports a company's financial position on a specific date, showing assets, liabilities, and equity?
Income Statement
Statement of Cash Flows
Statement of Retained Earnings
Balance Sheet
The balance sheet presents assets, liabilities, and equity at a point in time. It provides a snapshot of financial position and ensures the accounting equation holds.
In a period of rising prices, using FIFO results in which of the following compared to LIFO?
The same cost of goods sold and ending inventory
Higher cost of goods sold and lower ending inventory
Lower cost of goods sold and higher ending inventory
Lower cost of goods sold and lower ending inventory
FIFO uses the oldest (lower) costs first, resulting in lower cost of goods sold and higher ending inventory in periods of rising prices. LIFO yields the opposite effect.
When revenue is earned but cash has not yet been received, which journal entry records the transaction?
Debit Accounts Payable, Credit Revenue
Debit Revenue, Credit Accounts Receivable
Debit Accounts Receivable, Credit Revenue
Debit Cash, Credit Revenue
Under accrual accounting, earned revenue is recorded by debiting Accounts Receivable and crediting Revenue when the service is delivered or goods are shipped, even if cash has not yet been received.
A company paid $1,200 for a one-year insurance policy on January 1. What adjusting entry should be made at the end of January?
Debit Prepaid Insurance $100, Credit Insurance Expense $100
Debit Insurance Expense $100, Credit Prepaid Insurance $100
Debit Insurance Expense $1,200, Credit Cash $1,200
Debit Prepaid Insurance $1,200, Credit Cash $1,200
One month of the 12-month policy has expired by January 31, so $100 ($1,200/12) is moved from the Prepaid Insurance asset to Insurance Expense to match expense to the period.
How should the purchase of inventory on credit be recorded in the journal?
Debit Accounts Payable, Credit Inventory
Debit Inventory, Credit Accounts Payable
Debit Inventory, Credit Cash
Debit Cash, Credit Inventory
Buying inventory on credit increases Inventory (debit) and creates a liability in Accounts Payable (credit), reflecting the obligation to pay the supplier later.
Which accounting principle requires that expenses be recognized in the same period as the revenues they help generate?
Materiality Principle
Revenue Recognition Principle
Matching Principle
Conservatism Principle
The matching principle dictates that expenses should be recorded in the same period as the related revenues, ensuring accurate measurement of profit for that period.
If the trial balance shows total debits exceed total credits, this indicates which of the following?
Revenues have been understated
The trial balance is correct
Assets have been overstated
A journal or posting error has occurred
A discrepancy in the trial balance means that at least one transaction was recorded incorrectly or posted to the wrong account. Debits should always equal credits.
XYZ Co. owns equipment costing $50,000 with a salvage value of $5,000 and a useful life of 9 years. Using straight-line depreciation, what is the annual depreciation expense?
$45,000
$5,000
$4,444
$6,000
Straight-line depreciation is (Cost - Salvage Value) ÷ Useful Life = ($50,000 - $5,000) ÷ 9 = $5,000 per year.
Under the lower of cost or net realizable value rule, if cost is $15 and net realizable value is $12, inventory should be reported at:
$12
$17
$15
$13.50
The lower of cost or net realizable value rule requires valuing inventory at the lower amount, which in this case is $12, to reflect potential losses in value.
According to the revenue recognition principle, when should revenue from the sale of goods be recorded?
When cash is received
When goods are delivered to the customer
When the sales order is placed
At the end of the accounting period
Revenue is recognized when control of goods transfers to the customer, which is typically when the goods are delivered, not when cash is received or the order is placed.
A correction is needed when a previous transaction recorded a drawing as an expense. Which entry corrects this error?
Debit Expense, Credit Drawings
Debit Expense, Credit Cash
Debit Drawings, Credit Expense
Debit Cash, Credit Expense
Drawing is an equity account, not an expense. To correct the error, the expense must be reduced (credited) and the drawing account increased (debited).
In a vertical analysis of the income statement, if sales are $200,000 and operating expenses are $80,000, what percentage of sales do operating expenses represent?
40%
60%
35%
50%
Vertical analysis expresses each line item as a percentage of sales. Operating expenses of $80,000 ÷ $200,000 sales = 40%.
An owner invests $10,000 cash and equipment valued at $5,000 into a business. What is the correct journal entry?
Debit Cash $10,000, Debit Equipment $5,000, Credit Owner's Equity $15,000
Debit Cash $10,000, Credit Owner's Equity $10,000, Debit Equipment $5,000, Credit Owner's Equity $5,000
Debit Cash $5,000, Debit Equipment $10,000, Credit Owner's Equity $15,000
Debit Owner's Equity $15,000, Credit Cash $10,000, Credit Equipment $5,000
The investment increases assets (Cash and Equipment) and increases equity by the total contributed amount of $15,000, keeping debits and credits in balance.
Which concept requires a company to use the same inventory valuation method for financial reporting and tax purposes when using LIFO?
LIFO conformity rule
Cost principle
Matching principle
Consistency concept
The LIFO conformity rule mandates that if LIFO is used for tax reporting, it must also be used for financial reporting. This prevents companies from reporting lower income to the IRS while showing higher profits to investors.
In an inflationary environment, using FIFO instead of LIFO will typically have what effect on the current ratio?
Increases the current ratio
No change to the current ratio
Makes the current ratio unpredictable
Decreases the current ratio
FIFO results in higher ending inventory values during inflation, which increases current assets and therefore raises the current ratio compared to LIFO.
At year-end, a company estimates warranty expense at 2% of $500,000 sales. What adjusting entry is recorded?
Debit Warranty Liability $10,000, Credit Cash $10,000
Debit Warranty Expense $10,000, Credit Warranty Liability $10,000
Debit Warranty Expense $10,000, Credit Cash $10,000
Debit Accounts Payable $10,000, Credit Warranty Expense $10,000
Estimating warranty costs creates an expense and a liability. $500,000 × 2% = $10,000, so Warranty Expense is debited and Warranty Liability credited to match expense with current sales.
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Learning Outcomes

  1. Analyse financial statements for accuracy and compliance
  2. Identify key accounting principles and concepts in scenarios
  3. Apply double-entry rules to diverse transaction examples
  4. Evaluate inventory valuation methods and their impacts
  5. Demonstrate understanding of trial balance and adjustments

Cheat Sheet

  1. Understand the Matching Principle - Think of expenses as sidekicks to your revenue heroes: they must show up in the same period to keep the story straight. By matching costs with the revenue they help generate, your financial report stays accurate and honest. OpenStax: Matching Principle
  2. Grasp the Cost Principle - Historical cost is like taking a no-filter snapshot of your assets at purchase - what you paid is what you report. This gives your statements consistency and reliability, with no surprise value jumps. OpenStax: Cost Principle
  3. Master Double-Entry Accounting - Every transaction brings a twin: a debit and a credit that must balance, keeping Assets = Liabilities + Equity in perfect harmony. This system helps you catch errors early and ensures your books always add up. OpenStax: Double-Entry Accounting
  4. Learn Inventory Valuation Methods - FIFO, LIFO, and Weighted Average are like different game strategies for costing your goods. Each method changes your Cost of Goods Sold and ending inventory values, so pick wisely to optimize profits. OpenStax: Inventory Valuation
  5. Comprehend the Trial Balance - Think of this as your financial checklist where debits and credits line up like players on a team. When they match, you know your bookkeeping is solid and ready for the next level of reporting. OpenStax: Trial Balance
  6. Recognize the Importance of Adjusting Entries - End-of-period tweaks that ensure every penny is in the right place before statements go live. These adjustments capture accrued revenues, prepaid expenses, and more so your numbers tell the full story. OpenStax: Adjusting Entries
  7. Understand the Revenue Recognition Principle - Don't count your chickens before they hatch: recognize revenue when it's earned and realizable, not just when cash hits the bank. This keeps your financial highlights honest and on point. OpenStax: Revenue Recognition
  8. Familiarize Yourself with the Economic Entity Assumption - Your business has its own financial fingerprint, separate from yours or anyone else's. This clarity avoids mixing personal expenses with business ones and keeps the drama out of your ledgers. OpenStax: Economic Entity
  9. Learn the Time Period Assumption - Slice your business story into neat chapters - months, quarters, or years - so you can track progress and report results regularly. It's like binge-watching your financial performance in digestible episodes. OpenStax: Time Period
  10. Understand the Going Concern Assumption - Assume your business will keep going and growing indefinitely. This mindset influences how you value assets and liabilities, ensuring you don't understate the long-term potential of your company. OpenStax: Going Concern
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