Question 1

Which of the following best describes the accounting equation, and why is it fundamental to the balance sheet?

Accepted Answer

Assets = Liabilities + Equity; it ensures that the resources owned by a business are always balanced by claims against those resources.

Question 2

A business purchases a new delivery van for $$30,000, paying 5$$,000 in cash and financing the remaining $25,000 with a loan. How does this transaction affect the accounting equation?

Accepted Answer

Assets increase by $$30,000; Liabilities increase by 25$$,000; Assets decrease by $5,000.

Question 3

According to the economic entity assumption, which of the following is the correct way for a business owner to handle personal and business transactions?

Accepted Answer

Separate business transactions from personal transactions to maintain clear financial records.

Question 4

A company receives $1,000 in advance for services to be performed next month. Under accrual accounting, how should this transaction be recorded at the time of receipt?

Accepted Answer

Debit Cash $$1,000; Credit Unearned Revenue 1$$,000

Question 5

Which of the following statements about debits and credits is correct?

Accepted Answer

A debit increases assets and expenses, while a credit increases liabilities, equity, and revenue.

Question 6

A business owner wants to know if they can take an additional draw of $2,000 from their equity. Which financial statements should they consult to make an informed decision?

Accepted Answer

The statement of equity, balance sheet, and statement of cash flows to assess available equity and cash.

Question 7

Which of the following is an example of an adjusting entry that would be made at the end of an accounting period?

Accepted Answer

Recognizing depreciation expense for equipment used during the period.

Question 8

If a business fails to record depreciation on a significant asset, what is a likely consequence?

Accepted Answer

Total assets will be overstated and net income will be overstated.

Question 9

Which accounting principle requires that expenses be recorded in the same period as the revenues they help generate?

Accepted Answer

Matching principle

Question 10

A company using the cash-basis method of accounting receives a bill for $500 in December but pays it in January. When is the expense recognized?

Accepted Answer

In January, when the bill is paid.

Question 11

Which of the following best describes the purpose of the unadjusted trial balance in the accounting cycle?

Accepted Answer

To verify that total debits equal total credits before making adjusting entries.

Question 12

A business owner wants to know why their net income is positive, but their cash balance is negative at the end of the period. Which financial statement would best explain this discrepancy?

Accepted Answer

The statement of cash flows, because it details cash inflows and outflows.

Question 13

Which of the following is NOT a core ethical responsibility of a bookkeeper?

Accepted Answer

Maximizing profits for the business at any cost

Question 14

A company sells $$2,000 of gift cards in June, but only 1$$,200 worth are redeemed by the end of June. How should the remaining $800 be reported on the June 30 balance sheet?

Accepted Answer

As deferred revenue (liability) on the balance sheet

Question 15

Which of the following scenarios best illustrates the application of the materiality principle?

Accepted Answer

A company records a $2 rounding error in cost of goods sold as is, without correction.

Question 16

Which of the following is the correct sequence of steps in the accounting cycle?

Accepted Answer

Collect and analyze transactions, record and post transactions, prepare unadjusted trial balance, prepare adjusting entries, prepare adjusted trial balance, prepare financial statements

Question 17

A bookkeeper is reconciling the bank statement and finds a transaction recorded in the ledger but not on the bank statement. What should the bookkeeper do?

Accepted Answer

Investigate the discrepancy and make necessary adjustments to ensure records match.

Question 18

Which of the following best describes the purpose of the statement of equity?

Accepted Answer

To track changes in the owner's equity, including investments, withdrawals, and retained earnings.

Question 19

Which accounting method is most appropriate for a small consulting business that invoices clients and tracks accounts receivable, but does not maintain inventory?

Accepted Answer

Modified cash-basis accounting

Question 20

A business owner asks you to keep some payments received off the books to avoid showing a bump in income. What is the most ethical response as a bookkeeper?

Accepted Answer

Explain that your ethical responsibility prohibits you from accommodating the request and refuse to do so.

Bookkeeping and Financial Accounting Fundamentals: A Comprehensive Study Guide

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