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Quizzes > Quizzes for Business > Finance

Test Your Basic Accounting Skills Quiz

Evaluate Core Bookkeeping and Accounting Concepts

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting elements related to a Basic Accounting Skills Quiz

Ready to test and strengthen your accounting fundamentals? This Basic Accounting Quiz offers 15 targeted questions to challenge both newcomers and those revisiting essential bookkeeping concepts. Ideal for students and early-career professionals seeking to boost financial accuracy and confidence, it covers debit-credit entries, statement structures, and trial balance checks. Participants can freely modify questions in our quizzes editor or deepen their practice with the Accounting Fundamentals Quiz.

Which of the following is reported on the balance sheet?
Expenses
Assets
Cash flows
Revenue
The balance sheet reports a company's assets, liabilities, and equity. Revenues and expenses appear on the income statement, and cash flows appear on the statement of cash flows.
On a trial balance, the total of debit balances should be:
Less than total credits
Equal to total credits
Greater than total credits
Unrelated to total credits
A trial balance is used to verify that total debits equal total credits in the ledger. If they match, it indicates the books are arithmetically correct. Unequal totals signal an error in recording or posting.
In double-entry accounting, every debit entry must be matched with:
Another debit
An equal and opposite credit
An increase to equity
A change in the trial balance only
Double-entry accounting requires each debit to have a corresponding credit of equal amount. This ensures the accounting equation stays balanced. Without matching credits, the books would not balance.
When a business pays cash for utilities, the utility expense is recorded as:
Debit utilities expense; credit cash
Debit expenses; credit liabilities
Debit cash; credit utilities expense
Debit liabilities; credit cash
Payment of utilities in cash increases the expense account and decreases cash. Thus, utilities expense is debited and cash is credited. This reflects the outflow of funds for the expense.
Under the cash basis of accounting, revenue is recognized when:
It is earned
Cash is received
Invoices are issued
Delivery of goods occurs
Cash basis accounting records revenue only when cash is received, regardless of when the sale is made. This differs from accrual basis, which recognizes revenue when earned. Cash basis is simpler but may not match revenues and expenses in the same period.
A company incurs $5,000 of salaries at the end of December but pays employees in January. The correct adjusting entry on December 31 is to:
Debit salaries payable and credit cash
Debit salaries payable and credit salaries expense
Debit salaries expense and credit cash
Debit salaries expense and credit salaries payable
Under accrual accounting, expenses are recognized when incurred. The adjusting entry debits salaries expense to record the cost and credits salaries payable to establish the liability. Payment of cash occurs in January.
On the income statement, which of the following is subtracted from net sales to determine gross profit?
Cost of goods sold
Income tax expense
Depreciation expense
Operating expenses
Gross profit equals net sales minus cost of goods sold (COGS). COGS represents direct costs of producing the goods sold. Other expenses are deducted after gross profit to determine operating income.
If a business receives $10,000 cash in advance for services to be performed, the initial journal entry is:
Debit cash $10,000; credit unearned revenue $10,000
Debit unearned revenue $10,000; credit cash $10,000
Debit cash $10,000; credit service revenue $10,000
Debit service revenue $10,000; credit cash $10,000
Advance receipts create a liability until services are performed. The correct entry debits cash and credits unearned revenue. Revenue is recognized later when the performance obligation is satisfied.
If a trial balance has a $198 difference, the most likely cause is:
An arithmetic addition error
An omitted ledger account
Posting to the wrong account
A transposition error
A difference divisible by 9 often indicates digits have been transposed in an entry. A transposition error involves reversing digits, which affects balancing. Other errors may not produce such characteristic differences.
Under accrual accounting, revenue is recognized when:
Services are performed regardless of cash
Invoices are mailed
Cash is received
Expenses are paid
Accrual accounting follows the revenue recognition principle by recording revenue when it is earned, not when cash is received. This ensures revenues are matched to the period in which they are earned. Cash receipt timing is immaterial to recognition.
Which financial statement summarizes a company's cash inflows and outflows over a period?
Income statement
Balance sheet
Statement of retained earnings
Statement of cash flows
The statement of cash flows reports a company's cash receipts and payments during a period. It is divided into operating, investing, and financing activities. Other statements do not detail cash movements.
A purchase of inventory on credit for $5,000 would be recorded as:
Debit cash; credit inventory
Debit accounts payable; credit inventory
Debit inventory; credit accounts payable
Debit inventory; credit cash
Buying inventory on credit increases assets (inventory) and liabilities (accounts payable). The correct entry debits inventory and credits accounts payable. Cash is unaffected until payment is made.
Which adjusting entry is required for prepaid insurance of $1,200 covering 12 months, after one month has passed?
Debit prepaid insurance; credit insurance expense
Debit cash; credit prepaid insurance
Debit prepaid insurance; credit cash
Debit insurance expense; credit prepaid insurance
One month of the prepaid insurance has expired, so the expense must be recognized. The entry debits insurance expense for $100 and credits prepaid insurance to reduce the asset. This aligns expense recognition with usage.
A company incorrectly debited maintenance expense instead of equipment. What type of error is this?
Omission error
Commission error
Compensating error
Principles error
A commission error occurs when the correct amount is posted to the wrong account. Debiting maintenance expense rather than equipment misclassifies the transaction. It does not affect the accounting equation but misstates accounts.
The current ratio is computed as:
Current liabilities divided by current assets
Current assets divided by current liabilities
Total assets divided by total liabilities
Net income divided by revenue
The current ratio measures liquidity by comparing current assets to current liabilities. A higher value indicates better ability to meet short-term obligations. Other ratios measure different aspects of performance.
Accrued interest on a $2,000 note payable at 6% annually must be recorded at year-end. What is the adjusting entry?
Debit interest payable $200; credit interest expense $200
Debit interest payable $120; credit interest expense $120
Debit interest expense $120; credit interest payable $120
Debit interest expense $200; credit interest payable $200
Interest expense is calculated as $2,000 × 6% = $120 for the year. Under accrual accounting, this expense must be recorded when incurred. The entry debits interest expense and credits interest payable.
Which accounting basis conforms to the matching principle by recognizing expenses when incurred?
Accrual basis
Modified cash basis
Cash basis
Tax basis
Accrual basis accounting matches expenses to the period in which they are incurred, regardless of cash flow. This adherence to the matching principle yields more accurate financial results. Cash basis does not match expenses with related revenues.
A company makes a correcting entry by reversing an incorrect debit to accounts receivable and then debiting inventory. This is an example of:
Compensating error
Adjusting entry
Correction of error by reversal
Reversing entry
When an error is discovered, the proper method is to reverse the wrong entry and then post the correct one. This approach ensures the ledger reflects accurate balances. It differs from routine adjusting or reversing accrual entries.
On December 31, supplies per the records are $1,200 but a physical count shows $800. What adjusting entry is required?
Debit supplies expense $1,200; credit supplies $1,200
Debit supplies $400; credit supplies expense $400
Debit supplies $1,200; credit supplies expense $800
Debit supplies expense $400; credit supplies $400
Supplies used equal the difference between the recorded amount and physical count: $1,200 − $800 = $400. To record usage, supplies expense is debited and supplies are credited. This adjusts the asset to its actual on-hand value.
A company has current assets of $150,000, inventory of $50,000, and current liabilities of $100,000. What is the quick ratio?
2.0
1.5
0.8
1.0
The quick ratio is calculated as (current assets − inventory) ÷ current liabilities = ($150,000 − $50,000) ÷ $100,000 = 1.0. It measures the ability to meet short-term obligations without relying on inventory. Other ratios use different formulas.
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Learning Outcomes

  1. Analyse financial statements to identify key components.
  2. Apply double-entry principles for accurate ledger entries.
  3. Identify debits and credits in common transactions.
  4. Interpret trial balances to uncover discrepancies.
  5. Demonstrate understanding of accrual and cash accounting methods.

Cheat Sheet

  1. Master the Accounting Equation - Assets = Liabilities + Equity is the heartbeat of every balance sheet, keeping your numbers in perfect harmony. Picture a balanced scale: if one side tips, the other must follow to stay level. Mastering this will give you a solid foundation to record every financial transaction. Accounting Equation
  2. Understand Double-Entry Bookkeeping - Every financial move touches at least two accounts, ensuring that core equation stays balanced like clockwork. It's like recording a loan: one account goes up while another shows where the cash came from. Once you see how credits and debits dance together, you'll never look at numbers the same way. A Comprehensive Guide to Double-Entry Accounting
  3. Know Normal Account Balances - Assets and expenses normally carry debit balances, while liabilities, equity, and revenues favor credits. Memorizing these habits saves you from trial-and-error entries and keeps your ledgers pristine. Dive into the rules now, and you'll breeze through reconciliations later. A Comprehensive Guide to Double-Entry Accounting
  4. Remember the DEADCLIC Mnemonic - Debit to increase Expenses, Assets, Drawings; Credit to increase Liabilities, Income, Capital makes transaction tagging a breeze. Think of it as your superhero sidekick pointing you to the right entry every time. With DEADCLIC in your toolkit, you'll conquer bookkeeping challenges like a seasoned pro. Double-entry bookkeeping
  5. Use a Trial Balance as a Health Check - A trial balance verifies that total debits equal total credits, catching mismatches before they snowball into bigger problems. Spotting errors early saves you from late-night fixes and stressful audits. Make this quick check a habit after major entries to keep your books error-free. A Comprehensive Guide to Double-Entry Accounting
  6. Compare Accrual vs. Cash Accounting - Accrual records revenues and expenses when they're incurred, giving you a sneak peek at your financial health, while cash waits for real money movement. Choosing the right method balances immediacy with insight. Understanding both helps you pick the best fit for your business. Double-entry accounting: What it is and why your business needs it
  7. Embrace GAAP - Generally Accepted Accounting Principles (GAAP) are your rulebook for clear, consistent financial reporting, making sure everyone plays by the same fair standards. From revenue recognition to matching costs with benefits, these guidelines keep companies out of trouble. Following GAAP earns you trust from investors, banks, and teammates. Generally Accepted Accounting Principles (United States)
  8. Practice Common Transactions - Recording sales, purchases, and expenses over and over builds your accounting muscles and sharpens your instincts. The more you practice, the more patterns you'll recognize and the fewer mistakes you'll make. Soon you'll tackle real-world entries with confidence. A Comprehensive Guide to Double-Entry Accounting
  9. Visualize with T-Accounts - T-accounts give you a two-column lab to test how transactions affect individual accounts before posting them. They're perfect for analyzing tricky entries and spotting imbalances in seconds. Try sketching them out, and you'll gain clarity on even the most complex transactions. A Comprehensive Guide to Double-Entry Accounting
  10. Prepare Financial Statements - The income statement, balance sheet, and cash flow statement are the grand finale that showcases your company's financial story. Think of it as delivering a news broadcast where you're the star analyst. With accurate, well-structured statements, you'll empower smart decision-making and earn stakeholder trust. A Comprehensive Guide to Double-Entry Accounting
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