$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

$$\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}$$

Question 1

Which of the following best describes the accounting equation and its components?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 2

A company purchases office supplies for $1,000 cash. Which of the following journal entries correctly records this transaction?

Accepted Answer

Debit Office Supplies $$1,000; Credit Cash 1$$,000

Question 3

Which of the following accounts normally has a credit balance?

Accepted Answer

Accounts Payable

Question 4

If a company receives $5,000 cash for services to be performed in the future, which accounts are affected and how?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 5

Which of the following best explains the normal balance of an expense account?

Accepted Answer

Debit, because expenses decrease equity

Question 6

A company pays $$2,000 for rent and 1$$,200 for salaries in cash. What is the correct compound journal entry?

Accepted Answer

Debit Rent Expense $$2,000; Debit Salaries Expense 1$$,200; Credit Cash $3,200

Question 7

Which of the following is the correct formula for the debt ratio?

Accepted Answer

$$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$

Question 8

If Smart Touch Learning has total liabilities of $$81,296 and total assets of 99$$,467, what is its debt ratio (rounded to one decimal place)?

Accepted Answer

$$81,296 \div 99,467 = 0.82 or$$ $$82\%$$

Question 9

Which of the following best describes the purpose of a trial balance?

Accepted Answer

To verify that total debits equal total credits in the ledger

Question 10

A company performs services on account for $3,000. What is the correct journal entry?

Accepted Answer

Debit Accounts Receivable $$3,000; Credit Service Revenue 3$$,000

Question 11

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Calculating the company’s tax liability

Question 12

If a company pays $300 on an account payable, which accounts are affected and how?

Accepted Answer

Debit Accounts Payable $$300; Credit Cash 300$$

Question 13

Which of the following best describes the effect of a credit entry on the Common Stock account?

Accepted Answer

It increases the Common Stock account

Question 14

A company receives a $100 telephone bill to be paid next month. What is the correct journal entry?

Accepted Answer

Debit Telephone Expense $$100; Credit Accounts Payable 100$$

Question 15

Which of the following transactions would require a compound journal entry?

Accepted Answer

Paying multiple expenses with a single cash payment

Question 16

What is the effect on the accounting equation when a company pays a cash dividend?

Accepted Answer

Assets decrease; Equity decreases

Question 17

Which of the following best describes the purpose of source documents in accounting?

Accepted Answer

They provide evidence and data for recording transactions

Question 18

If a company prepays three months’ office rent of $3,000, what is the correct journal entry?

Accepted Answer

Debit Prepaid Rent $$3,000; Credit Cash 3$$,000

Question 19

Which of the following statements about the double-entry accounting system is correct?

Accepted Answer

Every transaction affects at least two accounts

Recording Business Transactions: Financial Accounting Study Notes

Study Guide - Practice Questions