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Quizzes > Quizzes for Business > Finance

Test Your Skills with Basic Accounting Quiz

Challenge Yourself with Fundamental Finance Questions

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art promoting a fun Basic Accounting Quiz

Ready to sharpen your bookkeeping and understand accounting fundamentals? This free basic accounting quiz challenges you with practical questions on financial statements and double-entry bookkeeping. Dive into engaging scenarios that mirror real-world finance tasks and test your grasp on core accounting concepts. Feel free to modify any question in our editor and explore more quizzes, like the Basic Accounting Skills Quiz or the Accounting Fundamentals Quiz.

Which of the following best defines an asset?
Revenue earned but not yet received
A resource owned by a business that will provide future economic benefit
Owner's residual interest in the assets
An obligation owed to creditors
An asset is any resource a company owns that is expected to generate future economic benefits. It differs from liabilities and equity, which represent claims against those assets.
What is a liability in accounting?
Resources owned by a company
Revenue earned during the period
A present obligation arising from past events, expected to be settled by outflow of resources
Owner's equity in the business
A liability is a present obligation arising from past transactions that will require an outflow of resources. It contrasts with assets, which are resources owned, and equity, which is the residual interest.
What does accrual basis accounting mean?
Cash account balances are adjusted monthly
Revenues and expenses are recorded only when cash is received or paid
All transactions are recorded only at the end of the fiscal year
Revenues and expenses are recorded when earned or incurred, regardless of cash flows
Accrual accounting recognizes revenues when earned and expenses when incurred, matching them to the period in which they occur. It provides a more accurate picture of financial performance than cash basis.
What is the basic accounting equation?
Assets + Equity = Liabilities
Assets = Revenues + Expenses
Assets = Liabilities + Equity
Liabilities = Assets + Equity
The fundamental accounting equation shows that a company's assets are financed by liabilities and equity. It underpins the double-entry system where total resources equal total claims.
What is bookkeeping?
The analysis of financial ratios
The preparation of financial statements
The process of recording financial transactions systematically
The audit of financial records
Bookkeeping involves the systematic recording of a company's financial transactions. It provides the raw data that is later used to prepare financial statements and reports.
Which of the following best describes the purpose of the income statement?
To detail changes in owner's equity only
To show revenues and expenses and compute profit over a specific period
To show cash inflows and outflows
To list assets and liabilities at a point in time
The income statement summarizes a company's revenues and expenses to determine net income or loss over a period. It does not report assets or cash flows directly.
Which section of the statement of cash flows reports transactions related to borrowing and repaying debt?
Operating activities
Equity activities
Investing activities
Financing activities
Financing activities include cash flows from obtaining and repaying capital, such as issuing debt or equity. Operating and investing activities cover core operations and asset purchases respectively.
When a company purchases inventory for cash, which journal entry is correct?
Debit Inventory, credit Accounts Payable
Debit Cash, credit Inventory
Debit Cost of Goods Sold, credit Cash
Debit Inventory, credit Cash
Paying cash to acquire inventory increases the Inventory asset and decreases Cash. The other entries either reverse that logic or misclassify the expense.
To record depreciation expense at period end, which entry is made?
Debit Equipment, credit Accumulated Depreciation
Debit Depreciation Expense, credit Equipment
Debit Depreciation Expense, credit Accumulated Depreciation
Debit Accumulated Depreciation, credit Depreciation Expense
Depreciation expense is recorded by increasing the expense account and creating a contra-asset in Accumulated Depreciation. This reflects wear usage without directly reducing the asset account.
At the end of a period, which adjusting entry recognizes the earned portion of unearned revenue?
Debit Revenue, credit Unearned Revenue
Debit Unearned Revenue, credit Cash
Debit Unearned Revenue, credit Revenue
Debit Cash, credit Unearned Revenue
Recognizing earned revenue reduces the liability (Unearned Revenue) and increases Revenue. The other options either misstate cash or reverse the required accounts.
If a company reports sales revenue of $120,000 and cost of goods sold of $70,000, what is its gross profit?
$50,000
$70,000
$120,000
$190,000
Gross profit is calculated as sales revenue minus cost of goods sold. In this case, $120,000 minus $70,000 equals $50,000.
How is the current ratio calculated?
Total Assets divided by Total Liabilities
Current Assets minus Current Liabilities
Current Liabilities divided by Current Assets
Current Assets divided by Current Liabilities
The current ratio measures short-term liquidity by dividing current assets by current liabilities. It shows the ability to meet obligations due within one year.
What is the primary purpose of a trial balance?
To reconcile bank statements
To verify that total debits equal total credits
To prepare financial statements
To record closing entries
A trial balance ensures that the sum of debit balances equals the sum of credit balances after posting. It is a preliminary check before preparing financial statements.
When a company earns net income during a period and does not distribute dividends, what happens to equity?
Equity remains unchanged
Liabilities increase
Equity decreases
Equity increases
Net income increases retained earnings, which is part of equity, as long as no dividends are paid. Equity only decreases when distributions or losses occur.
What is the main objective of performing a bank reconciliation?
To calculate net income
To adjust inventory counts
To record depreciation
To identify differences between the company's cash records and bank statement
Bank reconciliations compare the company's cash book with the bank statement to find timing differences and errors. It ensures the cash balance is accurate.
In a vertical analysis of an income statement, expense line items are presented as a percentage of which base amount?
Total assets
Gross profit
Net sales
Total liabilities
Vertical analysis expresses each income statement line item as a percentage of net sales. This allows comparison of expense structure and profitability across periods.
When the owner withdraws cash for personal use, which journal entry is correct?
Debit Owner's Equity, credit Cash
Debit Expense, credit Cash
Debit Owner's Drawings, credit Cash
Debit Cash, credit Owner's Equity
Owner withdrawals reduce equity and decrease cash. The Drawings (or Withdrawals) account captures distributions to the owner, which are not business expenses.
A business prepaid $12,000 for a one-year insurance policy on January 1. What adjusting entry is required on March 31?
Debit Insurance Expense $12,000, credit Prepaid Insurance $12,000
Debit Insurance Expense $3,000, credit Prepaid Insurance $3,000
Debit Prepaid Insurance $3,000, credit Cash $3,000
Debit Prepaid Insurance $3,000, credit Insurance Expense $3,000
Three months of the annual $12,000 policy have expired by March 31, so $3,000 is recognized as expense and the prepaid asset is reduced. The other entries misstate the direction or amount.
A company pays $6,000 for two years of rent on July 1 and immediately records Rent Expense of $6,000. At year-end December 31, what adjusting entry corrects this error?
Debit Prepaid Rent $3,000, credit Rent Expense $3,000
Debit Prepaid Rent $6,000, credit Rent Expense $6,000
Debit Rent Expense $6,000, credit Prepaid Rent $6,000
No adjustment is needed
Only six months of rent (July - December) should be expensed, so $3,000 remains prepaid (12 months × $500). The adjustment reduces expense and restores the prepaid asset.
Which is the correct order of steps in the accounting cycle?
Journalizing, Trial Balance, Posting, Adjusting Entries, Closing Entries, Financial Statements
Posting, Journalizing, Trial Balance, Adjusting Entries, Financial Statements, Closing Entries
Journalizing, Posting, Trial Balance, Adjusting Entries, Financial Statements, Closing Entries
Journalizing, Posting, Adjusting Entries, Trial Balance, Financial Statements, Closing Entries
First transactions are journalized, then posted to ledgers, a trial balance is prepared, adjusting entries are made, financial statements are generated, and finally closing entries are recorded.
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Learning Outcomes

  1. Identify essential accounting terms and principles.
  2. Analyse financial statements to uncover insights.
  3. Apply double-entry bookkeeping to common transactions.
  4. Evaluate sample accounting scenarios for accuracy.
  5. Demonstrate understanding of the complete accounting cycle.

Cheat Sheet

  1. Understand the Accounting Equation - Think of this equation as the ultimate balance beam of your financial world: Assets = Liabilities + Equity. It guarantees every transaction stays perfectly in sync, like a well-choreographed dance. Mastering it gives you the superpower of balanced books! Wikipedia: Accounting Equation
  2. Master Double-Entry Bookkeeping - Imagine every transaction wearing two hats: one debit and one credit, keeping your ledger in perfect harmony. This method is the backbone of reliable accounting and helps you spot mistakes in a flash. Embrace it and watch your confidence soar! Wikipedia: Double-entry Bookkeeping
  3. Grasp the Matching Principle - Picture pairing each expense with its related revenue in the same period, like matching socks straight from the dryer. This keeps your profit picture crystal clear and avoids any fuzzy edges. It's your secret weapon for accurate financial storytelling! IU Controller: Matching Principle
  4. Learn the Revenue Recognition Principle - Revenue isn't about when the cash hits the bank; it's about when you've earned it. This rule ensures you're not counting your chickens before they hatch or scrambling to catch income later. Nail this principle for rock-solid earnings reports! Pass Accounting Class: Revenue Recognition
  5. Familiarize Yourself with T-Accounts - Think of T-accounts as your visual cheat sheet for seeing how debits and credits flow like electricity through your accounts. They simplify complex transactions into neat, two-column sketches. Use them to power up your bookkeeping understanding! UMN Open Textbook: T-Accounts
  6. Understand the Historical Cost Principle - Recording assets at what you originally paid keeps your statements honest and consistent, no matter how crazy market prices get. It's like taking a snapshot in time that never changes. This principle builds trust in your financial story! IU Controller: Historical Cost
  7. Apply the Conservatism Principle - When you're unsure, opt for the outcome that doesn't overstate profits or assets - it's better to be pleasantly surprised later than disappointed. This cautious approach keeps your financial statements honest and reliable. Embrace conservatism and sleep easy! Pass Accounting Class: Conservatism
  8. Recognize the Importance of the Trial Balance - Treat the trial balance like your financial spell-check: it verifies that total debits equal total credits before you publish your final magic. Catching errors early saves you from big headaches down the road. Check it regularly to stay error-free! OpenLearn: Trial Balance Basics
  9. Comprehend the Full Disclosure Principle - Full disclosure means spilling all the financial beans so stakeholders can make smart decisions. Transparency builds trust and keeps you out of hot water. Think of it as shining a spotlight on every corner of your financial stage! Wikipedia: Full Disclosure (GAAP)
  10. Understand the Complete Accounting Cycle - From jotting down transactions to crafting polished financial statements, following each step is like following a recipe for perfect results. Skipping a step is like leaving out sugar - your final dish won't taste right. Master the full cycle and bake flawless reports every time! Tabaldi: Accounting Cycle
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