$\text{Owner's Equity}_{\text{end}} = \text{Owner's Equity}_{\text{beginning}} + \text{Investments} + \text{Net Income} - \text{Withdrawals}$

Question 1

Which of the following best describes the purpose of a trial balance in financial accounting?

Accepted Answer

To ensure that total debits equal total credits after posting transactions.

Question 2

Which of the following accounts would appear on the balance sheet but not on the income statement?

Accepted Answer

Accounts receivable

Question 3

If a company pays $1,500 for supplies on account, which of the following journal entries is correct?

Accepted Answer

Debit Supplies $1,500; Credit Accounts Payable $1,500

Question 4

Which of the following is the correct formula for calculating owner's equity at the end of the period?

Accepted Answer

$	ext{Owner's Equity}_{	ext{end}} = 	ext{Owner's Equity}_{	ext{beginning}} + 	ext{Investments} + 	ext{Net Income} - 	ext{Withdrawals}$

Question 5

A company receives $2,000 cash for services to be performed in the future. How should this transaction be recorded?

Accepted Answer

Debit Cash $2,000; Credit Unearned Revenue $2,000

Question 6

Which of the following accounts is increased by a credit entry?

Accepted Answer

Accounts Payable

Question 7

If total assets are $120,000 and total liabilities are $45,000, what is the owner's equity?

Accepted Answer

$75,000

Question 8

Which of the following transactions will increase both assets and owner's equity?

Accepted Answer

Owner invests additional cash into the business.

Question 9

Which of the following best describes the matching principle in accounting?

Accepted Answer

Expenses should be recognized in the same period as the revenues they help to generate.

Question 10

A company pays $800 for utilities in cash. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $800; Owner's equity decreases by $800.

Question 11

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

Accepted Answer

Calculating depreciation expense

Question 12

If a business owner withdraws $1,200 cash for personal use, which of the following is the correct journal entry?

Accepted Answer

Debit Drawings $1,200; Credit Cash $1,200

Question 13

Which of the following best describes the double-entry system?

Accepted Answer

Every transaction affects at least two accounts, with equal debits and credits.

Question 14

A company receives a $5,000 invoice for repair services to be paid next month. What is the correct journal entry?

Accepted Answer

Debit Repairs and Maintenance Expense $5,000; Credit Accounts Payable $5,000

Question 15

Which of the following accounts would be closed at the end of the accounting period?

Accepted Answer

Service revenue

Question 16

If a company has the following balances: Assets $200,000; Liabilities $80,000; Owner's Equity $120,000, which accounting equation is satisfied?

Accepted Answer

$	ext{Assets} = 	ext{Liabilities} + 	ext{Owner's Equity}$

Question 17

Which of the following is an example of an accrued expense?

Accepted Answer

Wages earned by employees but not yet paid at period end.

Question 18

Which of the following transactions would NOT affect the balance sheet?

Accepted Answer

Recording service revenue earned but not yet received.

Question 19

If a company purchases equipment for $10,000 cash, what is the effect on the accounting equation?

Accepted Answer

Increase Equipment (asset) by $10,000; Decrease Cash (asset) by $10,000.

Question 20

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

Accepted Answer

To transfer the balances of temporary accounts to owner's equity.

Study Notes: The Business Environment and Recording Business Transactions

Study Guide - Practice Questions