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Quizzes > Quizzes for Business > Finance

Take the Financial Accounting Fundamentals Quiz

Assess key financial accounting concepts with confidence

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art promoting a Financial Accounting Fundamentals Quiz.

Ready to master financial accounting fundamentals? Try this interactive Financial Accounting Knowledge Quiz or explore the Accounting Fundamentals Quiz to test your core principles with 15 multiple-choice challenges. It's ideal for accounting students and professionals looking to strengthen their grasp on accounting fundamentals and financial statements. Each question is fully editable in our user-friendly editor, so you can customize the quiz to your learning needs. Dive into our quizzes library to discover more tailored assessments and boost your expertise!

Which side of an account is increased when recording an asset?
Liability
Equity
Debit
Credit
Asset accounts carry debit balances, so increases are recorded on the debit side. Credits would decrease an asset or increase a liability or equity account.
What is the fundamental accounting equation?
Equity = Assets + Liabilities
Assets = Liabilities + Equity
Liabilities = Assets + Equity
Assets + Liabilities = Equity
The fundamental accounting equation states that total assets equal the sum of liabilities and equity. This equation ensures the balance sheet remains balanced.
Which financial statement reports revenues and expenses for a period?
Statement of Changes in Equity
Income Statement
Statement of Cash Flows
Balance Sheet
The income statement summarizes a company's revenues and expenses over a reporting period to determine net income. Other statements report position or cash movements.
Which financial statement shows a company's financial position at a specific point in time?
Balance Sheet
Statement of Cash Flows
Statement of Changes in Equity
Income Statement
The balance sheet (statement of financial position) lists assets, liabilities, and equity as of a specific date. Other statements cover flows over a period.
If total debits equal total credits in a trial balance, what does this indicate?
The ledger is balanced
Net income is zero
There are no errors in the accounts
Cash flow is positive
Equal debits and credits on a trial balance show that postings are arithmetically balanced. It does not guarantee there are no omissions or misclassifications.
How would you record the purchase of $500 of supplies on account?
Debit Cash and credit Supplies
Debit Supplies and credit Accounts Payable
Debit Accounts Payable and credit Supplies
Debit Supplies and credit Cash
Buying supplies on account increases the asset Supplies (debit) and increases the liability Accounts Payable (credit). Cash is not affected until payment.
What is the correct adjusting entry at period end for $200 of expired prepaid insurance?
Debit Prepaid Insurance and credit Cash
Debit Prepaid Insurance and credit Insurance Expense
Debit Insurance Expense and credit Prepaid Insurance
Debit Insurance Expense and credit Cash
As prepaid insurance expires, the Prepaid Insurance asset is reduced (credit) and Insurance Expense is recognized (debit). This matches expense to the period incurred.
Which of the following is classified as a liability?
Service Revenue
Accounts Payable
Retained Earnings
Cash
Accounts Payable represents amounts owed to suppliers and is reported as a liability. Cash is an asset, revenue is part of income, and retained earnings are equity.
A trial balance is out of balance by an amount divisible by 9. Which type of error is most likely?
Error of principle
Omission error
Transposition error
Error of commission
A transposition error (swapping digits) often results in a difference divisible by 9. Omission or principle errors do not show this pattern.
To record $1,000 of wages earned by employees but not yet paid, which entry is correct?
Debit Cash and credit Wages Expense
Debit Wages Expense and credit Cash
Debit Wages Expense and credit Wages Payable
Debit Wages Payable and credit Wages Expense
Accrued wages increase the expense (debit) and create a liability Wages Payable (credit). Cash will be affected when payment is made.
Which closing entry will transfer revenue balances to the income summary account?
Debit Service Revenue and credit Retained Earnings
Debit Retained Earnings and credit Service Revenue
Debit Income Summary and credit Service Revenue
Debit Service Revenue and credit Income Summary
Closing revenue accounts requires debiting the revenue account and crediting Income Summary to move the balance for period-end closing. It does not go directly to retained earnings until the summary step.
When an owner invests $5,000 cash into the business, what is the correct entry?
Debit Cash and credit Owner's Capital
Debit Cash and credit Revenue
Debit Owner's Capital and credit Cash
Debit Equity and credit Cash
Owner investments increase business cash (debit) and increase owner's equity (credit). It is not revenue or an expense.
Which statement summarizes the changes in owners' equity over a period?
Balance Sheet
Income Statement
Trial Balance
Statement of Changes in Equity
The statement of changes in equity shows beginning equity, contributions, distributions, and net income to arrive at ending equity. Other statements serve different purposes.
In a multi-step income statement, gross profit is calculated as net sales minus which of the following?
Income Taxes
Total Expenses
Operating Expenses
Cost of Goods Sold
Gross profit equals net sales less cost of goods sold, highlighting profit before operating and other expenses. Operating expenses and taxes come later.
A company issues an invoice for services performed and will collect later. Which accounts are affected?
Debit Accounts Receivable and credit Cash
Debit Accounts Receivable and credit Service Revenue
Debit Service Revenue and credit Accounts Receivable
Debit Cash and credit Service Revenue
When revenue is earned on credit, Accounts Receivable (asset) is debited and Service Revenue (income) is credited. Cash is not involved until collection.
A company received $3,600 for a 12-month service contract. At month-end, one month has passed. What is the adjusting entry?
Debit Service Revenue $300; credit Unearned Revenue $300
Debit Unearned Revenue $3,600; credit Service Revenue $3,600
Debit Cash $300; credit Service Revenue $300
Debit Unearned Revenue $300; credit Service Revenue $300
One month's revenue of $300 (3600/12) has been earned, so Unearned Revenue decreases (debit) and Service Revenue increases (credit). The full amount remains unearned for the remaining months.
Depreciation expense of $500 was omitted at period end. What is the impact on net income and assets?
Net income is understated and assets are overstated
Net income is overstated and assets are overstated
Net income is overstated and liabilities are overstated
Net income is understated and assets are understated
Omitting depreciation fails to record expense, causing net income to be too high. Also accumulated depreciation isn't recorded, so assets remain overstated.
Which items are included in a statement of changes in equity?
Net income, cash receipts, cash payments, and financing
Beginning equity, net income, owner investments, and dividends
Beginning assets, liabilities, revenues, and expenses
Sales, cost of goods sold, operating expenses, and net income
The statement of changes in equity reconciles beginning equity to ending equity by adding net income and owner contributions, and subtracting dividends or distributions.
A company borrows $10,000 from a bank. How does this affect the accounting equation?
Increase liabilities and decrease equity
Decrease assets and increase liabilities
Increase assets and increase equity
Increase assets and increase liabilities
Borrowing cash increases the asset Cash (debit) and increases the liability Notes Payable or Loans Payable (credit), keeping the equation balanced.
Given beginning retained earnings of $100,000, net income of $50,000, and dividends of $5,000, what is ending retained earnings?
$145,000
$105,000
$155,000
$95,000
Ending retained earnings equals beginning retained earnings plus net income minus dividends: 100,000 + 50,000 - 5,000 = 145,000.
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Learning Outcomes

  1. Apply double-entry bookkeeping to record transactions.
  2. Identify the components of primary financial statements.
  3. Analyze trial balances to spot discrepancies.
  4. Demonstrate adjusting entries for period-end closing.
  5. Evaluate transaction impacts on equity and liabilities.
  6. Master the preparation of basic financial statements.

Cheat Sheet

  1. Master the Accounting Equation - Think of the formula Assets = Liabilities + Equity as the backbone of every ledger. When you nail this concept, you ensure every financial move keeps the books perfectly balanced. It's like a seesaw that never tips! Wikipedia: Accounting Equation
  2. Grasp Double-Entry Bookkeeping - Every entry you make affects at least two accounts, with debits and credits dancing in perfect sync. This system guarantees that your accounting equation stays balanced after every transaction. Once you've got this, errors will be easier to spot and fix. Investopedia: Double-Entry Bookkeeping
  3. Understand Debits and Credits - Debits and credits can seem tricky, but remember the "DEAD CLIC" mnemonics: Debits increase Expenses, Assets, Dividends (DEAD) and Credits increase Liabilities, Income, Capital (CLIC). With these rules, you'll always know which side to post transactions on. Practice with sample entries to make it second nature! Wikipedia: Double-Entry Bookkeeping
  4. Identify Financial Statement Components - Get friendly with the balance sheet, income statement and cash flow statement - they're the key reports you'll love (really!). The balance sheet shows what a company owns and owes, the income statement tracks profitability, and the cash flow statement reveals real cash movements. Knowing what goes where is like having a financial GPS. UMN Open Textbook: Double-Entry Intro
  5. Analyze Trial Balances - A trial balance is your first line of defense against posting mistakes. If total debits don't equal total credits, you know there's a slip-up somewhere. It's like proofreading your work before the final publication! OpenTuition: Principles of Double-Entry Bookkeeping
  6. Perform Adjusting Entries - At period end, you need to tweak accounts for things like accrued revenues, expenses, deferrals and depreciation. These adjustments ensure your financial statements reflect the true state of affairs, not just what's hit the cash account. Think of it as an accounting makeover! UMN Open Textbook: Double-Entry Intro
  7. Evaluate Transaction Impacts - Before you record a sale or take a loan, ask: how will this affect equity and liabilities? Issuing stock pumps up equity, while borrowing cash boosts liabilities. By mapping out impacts in advance, you avoid surprises and keep everything crystal clear. Auditing & Accounting: Double-Entry Rules
  8. Prepare Financial Statements - Once all entries and adjustments are in, roll up your sleeves and compile the income statement, balance sheet and cash flow statement. Accuracy here is key - it's your final exam! Presenting clear, error-free statements will make stakeholders give you a big thumbs up. UMN Open Textbook: Double-Entry Intro
  9. Understand Revenue Recognition - Revenue isn't necessarily tied to when you receive cash; it's about when you've earned it and it's realizable, under the accrual basis. Nailing this rule prevents you from counting income too early or too late. Think of it as timing your celebration just right! UMN Open Textbook: Double-Entry Intro
  10. Apply the Consistency Principle - Stick with the same accounting methods period after period to make reports comparable and reliable. Changing methods all the time would be like switching languages mid-sentence - super confusing! Consistency ensures users can trust and track performance over time. UMN Open Textbook: Double-Entry Intro
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