Question 1

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

Accepted Answer

Assets = Liabilities + Equity

Question 2

A company purchases office supplies on account for $800. Which of the following journal entries correctly records this transaction?

Accepted Answer

Debit Office Supplies $$800; Credit Accounts Payable 800$$

Question 3

Which of the following accounts normally has a credit balance?

Accepted Answer

Accounts Payable

Question 4

If a business owner withdraws $2,000 cash for personal use, what is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$2,000; Equity decreases by 2$$,000

Question 5

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

Accepted Answer

Debit

Question 6

A company receives $5,000 cash in advance for services to be performed next month. Which accounts are affected and how?

Accepted Answer

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

Question 7

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

Accepted Answer

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

Question 8

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

Accepted Answer

Paying both rent and salaries with a single cash payment

Question 9

What is the primary purpose of preparing an unadjusted trial balance?

Accepted Answer

To verify that total debits equal total credits after posting

Question 10

A company has total assets of $$100,000 and total liabilities of 40$$,000. What is its debt ratio?

Accepted Answer

$$Debt\ Ratio = \frac{40,000}{100,000} = 0.4$$

Question 11

Which of the following best describes the posting process in accounting?

Accepted Answer

Transferring journal entry information to the ledger accounts

Question 12

If a company performs services on account for $2,500, which accounts are affected and how?

Accepted Answer

Debit Accounts Receivable $$2,500; Credit Service Revenue 2$$,500

Question 13

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

Accepted Answer

Calculating the market value of assets

Question 14

A company pays $1,000 cash to settle an account payable. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$1,000; Liabilities decrease by 1$$,000

Question 15

Which of the following best describes the normal balance for the Owner, Capital account?

Accepted Answer

Credit

Question 16

Which of the following is a source document used in accounting?

Accepted Answer

Sales invoice

Question 17

If a company receives a telephone bill for $150 but will pay it next month, which accounts are affected and how?

Accepted Answer

Debit Utilities Expense $$150; Credit Utilities Payable 150$$

Question 18

Which of the following best describes the purpose of a chart of accounts?

Accepted Answer

To organize a company’s accounts for recording and reporting

Question 19

A company purchases a building for $60,000 by signing a note payable. Which of the following journal entries is correct?

Accepted Answer

Debit Building $$60,000; Credit Notes Payable 60$$,000

Question 20

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

Accepted Answer

Every transaction affects at least two accounts

Recording Business Transactions: Financial Accounting Study Notes

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