Question 1

Which of the following best describes the purpose of closing entries in the accounting cycle?

Accepted Answer

To reset the balances of revenue, expense, and withdrawal accounts to zero for the next period

Question 2

A company has current assets of $$50,000 and current liabilities of 25$$,000. What is its current ratio? Use the formula $$	ext{Current Ratio} = \frac{	ext{Total Current Assets}}{	ext{Total Current Liabilities}}.$$

Accepted Answer

$$2.0$$

Question 3

Which of the following accounts is NOT closed at the end of the accounting period?

Accepted Answer

Owner's Capital account

Question 4

A business incorrectly records a $10,000 furniture purchase as Office Supplies. Which correcting entry approach provides a clear audit trail?

Accepted Answer

Reverse the original entry and then record the correct entry

Question 5

Which of the following is considered a current asset?

Accepted Answer

Inventory

Question 6

If a company has total assets of $$200,000 and total liabilities of 120$$,000, what is its debt ratio? Use the formula $$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}.$$

Accepted Answer

$$0.60$$

Question 7

Which statement about the post-closing trial balance is correct?

Accepted Answer

It contains only the balances of permanent accounts

Question 8

Which of the following is a reason why financial statement users are interested in liquidity?

Accepted Answer

Liquidity shows how quickly a business can convert assets to cash to pay debts

Question 9

Which of the following is TRUE regarding reversing entries?

Accepted Answer

They are used to simplify accounting for accrual-type adjustments

Question 10

A company accrues $$3,000 in salaries on July 31 and pays a total payroll of 5$$,000 on August 2. If a reversing entry is made on August 1, what is the journal entry on August 2?

Accepted Answer

Debit Salaries Expense $$5,000; Credit Cash 5$$,000

Question 11

Which of the following is NOT a current liability?

Accepted Answer

Long-term notes payable

Question 12

Which of the following best describes the classified balance sheet?

Accepted Answer

It lists assets and liabilities in order of their relative liquidity

Question 13

Which ratio is considered safer for a company, according to the study materials?

Accepted Answer

A low debt ratio

Question 14

Which of the following is a temporary (nominal) account?

Accepted Answer

Income Summary

Question 15

Why is it unwise to rely on a single financial ratio when evaluating a company?

Accepted Answer

Because a single ratio does not provide a complete picture of a company's financial health

Question 16

Which of the following is TRUE about the worksheet used in the accounting cycle?

Accepted Answer

It helps organize accounting data and prepare financial statements

Question 17

A company has total current assets of $$80,000 and total current liabilities of 40$$,000. What is the current ratio, and what does it indicate about the company's liquidity?

Accepted Answer

Current ratio is $$2.0$$, indicating strong liquidity

Question 18

Which of the following is an example of a long-term asset?

Accepted Answer

Property, plant, and equipment

Question 19

Under IFRS, which aspect of the accounting cycle is most affected?

Accepted Answer

The classification and presentation of financial statements

Question 20

If an error is detected after posting, what is the appropriate way to correct it?

Accepted Answer

Make a correcting entry

Completing the Accounting Cycle: Study Notes for Financial Accounting

Study Guide - Practice Questions

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