Q1. Which of the following is the correct accounting equation?

Background

Topic: Basic Accounting Equation

This question tests your understanding of the fundamental relationship between assets, liabilities, and equity in financial accounting.

Key Terms and Formula:

• Assets: Resources owned by a business.

• Liabilities: Obligations owed to outsiders.

• Equity: Owner's interest in the business.

The basic accounting equation is:

Step-by-Step Guidance

1. Review each option and identify which one matches the standard accounting equation.

2. Recall that assets must always equal the sum of liabilities and equity.

3. Eliminate any options that do not follow this structure.

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Q2. Which financial statement reports expenses in decreasing order of their amounts, stating the largest expense first?

Background

Topic: Financial Statements

This question tests your knowledge of the format and purpose of different financial statements, specifically how expenses are presented.

Key Terms:

• Income Statement: Reports revenues and expenses for a period.

• Statement of Owner's Equity: Shows changes in owner's equity.

• Statement of Cash Flows: Reports cash inflows and outflows.

• Balance Sheet: Reports assets, liabilities, and equity at a point in time.

Step-by-Step Guidance

1. Recall which statement lists expenses and revenues for a period.

2. Consider how expenses are typically ordered in that statement.

3. Eliminate statements that do not report expenses.

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Q3. Which financial statement reports that total assets are equal to total liabilities plus total equity?

Background

Topic: Financial Statements

This question tests your understanding of which statement presents the accounting equation.

Key Terms:

• Balance Sheet: Shows assets, liabilities, and equity.

• Accounting Equation:

Step-by-Step Guidance

1. Recall which statement presents the company's financial position at a specific date.

2. Identify which statement shows the equality of assets, liabilities, and equity.

3. Eliminate statements that do not show this relationship.

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Q4. What is the account title used when a business pays rent in advance?

Background

Topic: Prepaid Expenses

This question tests your understanding of how advance payments are recorded in accounting.

Key Terms:

• Prepaid Rent: An asset account representing rent paid in advance.

• Rent Expense: Expense account for rent used.

• Rent Payable: Liability account for rent owed.

Step-by-Step Guidance

1. Consider whether the payment is for a future benefit or a current expense.

2. Recall that advance payments are recorded as assets.

3. Identify the correct account title for rent paid in advance.

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Q5. The $3,100 amount in the cash T-account could represent which of the following?

Background

Topic: T-Accounts and Cash Transactions

This question tests your ability to interpret T-account entries and identify the nature of cash transactions.

Key Terms:

• T-Account: Visual representation of an account's debits and credits.

• Cash Transactions: Inflows and outflows of cash.

Step-by-Step Guidance

1. Review the T-account and identify whether $3,100 is a debit or credit.

2. Recall that debits increase cash and credits decrease cash.

3. Match the $3,100 entry to the possible transaction types listed.

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Q6. Accounts Payable is a(n) ________ account and normally has a ________ balance.

Background

Topic: Account Types and Normal Balances

This question tests your understanding of the classification and normal balance of Accounts Payable.

Key Terms:

• Accounts Payable: Liability account.

• Normal Balance: The side (debit or credit) that increases the account.

Step-by-Step Guidance

1. Recall that liabilities are increased by credits.

2. Identify the classification of Accounts Payable.

3. Determine its normal balance.

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Q7. Which sequence represents the normal flow of accounting data?

Background

Topic: Accounting Cycle

This question tests your knowledge of the order in which accounting information is processed.

Key Terms:

• Source Document: Original record of a transaction.

• Journal: Chronological record of transactions.

• Ledger: Collection of accounts.

Step-by-Step Guidance

1. Recall the steps in the accounting cycle.

2. Identify the starting point (source document).

3. Determine the order in which transactions are recorded and posted.

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Q8. The expected value of a depreciable asset at the end of its useful life is called:

Background

Topic: Depreciation

This question tests your understanding of terminology related to asset depreciation.

Key Terms:

• Residual Value: Expected value at end of useful life.

• Book Value: Asset's value after depreciation.

• Depreciation Expense: Allocation of asset cost.

Step-by-Step Guidance

1. Recall the definition of residual value.

2. Differentiate between book value and residual value.

3. Identify which term refers to the expected value at the end of the asset's life.

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Q9. Adjusting entries are normally recorded:

Background

Topic: Adjusting Entries

This question tests your knowledge of when adjusting entries are made in the accounting cycle.

Key Terms:

• Adjusting Entries: Updates to accounts at period end.

• Accounting Period: Time frame for reporting.

Step-by-Step Guidance

1. Recall the purpose of adjusting entries.

2. Identify when adjustments are needed (end of period).

3. Eliminate options that do not match the timing of adjustments.

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Q10. Which accounting elements does the matching principle help to match?

Background

Topic: Matching Principle

This question tests your understanding of the matching principle in accrual accounting.

Key Terms:

• Matching Principle: Expenses are matched with revenues.

• Accrual Accounting: Recognizes revenues and expenses when earned/incurred.

Step-by-Step Guidance

1. Recall what the matching principle requires.

2. Identify which elements are matched in the income statement.

3. Eliminate options that do not involve both expenses and revenues.

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Q11. A business purchases equipment for $6,800 cash. Which account is debited?

Background

Topic: Journal Entries

This question tests your understanding of how to record asset purchases in the accounting system.

Key Terms:

• Debit: Increases assets.

• Equipment: Asset account.

Step-by-Step Guidance

1. Recall that purchasing equipment increases assets.

2. Identify which account receives the debit.

3. Eliminate accounts that are not assets.

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Q12. If a company uses accrual-basis accounting, revenue is generally recorded:

Background

Topic: Accrual vs. Cash Accounting

This question tests your understanding of when revenue is recognized under accrual accounting.

Key Terms:

• Accrual-Basis Accounting: Recognizes revenue when earned.

• Cash-Basis Accounting: Recognizes revenue when cash is received.

Step-by-Step Guidance

1. Recall the definition of accrual-basis accounting.

2. Identify when revenue is considered earned.

3. Eliminate options that focus only on cash collection.

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Q13. At year-end, $900 of prepaid rent has expired. Which adjusting entry is required?

Background

Topic: Adjusting Entries for Prepaid Expenses

This question tests your ability to record the expiration of prepaid expenses.

Key Terms:

• Prepaid Rent: Asset account.

• Rent Expense: Expense account.

Step-by-Step Guidance

1. Recall that expired prepaid rent becomes an expense.

2. Identify which accounts are affected by the adjustment.

3. Determine the correct debit and credit for the adjusting entry.

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Q14. Which of the following is true about a “credit?”

Background

Topic: Double-Entry Accounting

This question tests your understanding of the meaning and effects of credits in accounting.

Key Terms:

• Credit: Right side of a T-account.

• Double-Entry: Every transaction affects at least two accounts.

Step-by-Step Guidance

1. Recall the effects of credits on assets and liabilities.

2. Identify which statements about credits are correct.

3. Eliminate statements that do not accurately describe credits.

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Q15. A business collects $900 cash on account from a customer that was earned last year. What is the effect on the accounting equation?

Background

Topic: Receivables and the Accounting Equation

This question tests your understanding of how cash collections affect assets and equity.

Key Terms:

• Accounts Receivable: Asset account.

• Cash: Asset account.

Step-by-Step Guidance

1. Recall that collecting cash on account reduces receivables and increases cash.

2. Determine if there is any effect on equity.

3. Identify the net effect on the accounting equation.

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Q16. Which of the following accounts is increased with a debit?

Background

Topic: Account Balances

This question tests your understanding of which accounts are increased by debits.

Key Terms:

• Debit: Increases assets and expenses.

• Prepaid Rent: Asset account.

Step-by-Step Guidance

1. Recall which types of accounts are increased by debits.

2. Identify the account type for each option.

3. Eliminate accounts that are increased by credits.

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Q17. If an accountant fails to record revenue earned but not collected at year-end, which is true?

Background

Topic: Accrual Accounting and Financial Statement Effects

This question tests your understanding of the impact of missing accrual entries.

Key Terms:

• Accrued Revenue: Revenue earned but not yet received.

• Net Income: Revenues minus expenses.

Step-by-Step Guidance

1. Recall the effect of not recording earned revenue.

2. Determine which financial statement elements are affected.

3. Identify which option correctly describes the impact.

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Q18. A company has total liabilities of $18,000 and owner's equity of $82,000. Total assets are:

Background

Topic: Accounting Equation

This question tests your ability to apply the accounting equation to calculate total assets.

Key Formula:

Step-by-Step Guidance

1. Identify the known values: , .

2. Set up the equation: .

3. Perform the addition to find total assets.

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Q19. A company paid $7,200 on November 1 for a 12-month insurance policy beginning that day. After the December 31 adjusting entry, the balance in Prepaid Insurance is:

Background

Topic: Prepaid Expenses and Adjusting Entries

This question tests your ability to calculate the remaining balance in a prepaid expense account after some time has passed.

Key Formula:

Step-by-Step Guidance

1. Calculate the monthly insurance expense.

2. Determine how many months have expired (November and December).

3. Multiply the monthly expense by the number of months expired to find the total expired insurance.

4. Subtract the expired insurance from the original prepaid amount to find the new balance.

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Q20. Supplies had a beginning balance of $5,400. Supplies purchased on account for $4,800. Physical count shows $2,800 of supplies on hand. What is the amount of Supplies Expense for the period?

Background

Topic: Supplies Expense Calculation

This question tests your ability to calculate the expense for supplies used during the period.

Key Formula:

Step-by-Step Guidance

1. Identify the beginning balance, purchases, and ending balance.

2. Set up the formula for supplies expense.

3. Plug in the values: .

4. Perform the calculation to find the supplies expense.

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Q21. Springer had the following transactions in August: Earned $3,500 of revenues on account; collected $5,700 from a customer for services provided last month; incurred $880 of repair expense and paid cash; paid $200 for rent owed from the previous month. What is the net income in August?

Background

Topic: Net Income Calculation

This question tests your ability to calculate net income using accrual accounting principles.

Key Formula:

Step-by-Step Guidance

1. Identify revenues earned in August (not cash collected for prior services).

2. Identify expenses incurred in August (repair expense and rent owed from prior month).

3. Set up the net income formula using these values.

4. Subtract total expenses from total revenues earned to find net income.

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Q22. The beginning balance in an owner's Capital account is $12,000. During the year, net income is $9,000 and the owner withdraws $3,500. What is the ending Capital balance?

Background

Topic: Owner's Equity Calculation

This question tests your ability to calculate the ending balance in the owner's capital account.

Key Formula:

Step-by-Step Guidance

1. Identify the beginning capital, net income, and withdrawals.

2. Set up the formula for ending capital.

3. Plug in the values: .

4. Perform the calculation to find the ending capital balance.

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Q23. Rosewood Company purchased land for $120,000 by making a cash payment of $40,000 and promising to pay the remaining amount later. What is the net effect of this transaction on Rosewood’s accounting equation?

Background

Topic: Asset Purchases and the Accounting Equation

This question tests your understanding of how asset purchases affect assets and liabilities.

Key Terms:

• Assets: Increase by the total land purchased.

• Liabilities: Increase by the amount owed.

• Cash: Decreases by the amount paid.

Step-by-Step Guidance

1. Calculate the increase in assets (land purchased).

2. Calculate the decrease in cash (amount paid).

3. Calculate the increase in liabilities (amount owed).

4. Determine the net effect on the accounting equation.

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Q24. Journalize the following entries for Harbor Light Design Studio for December 2026.

Background

Topic: Journal Entries and Adjusting Entries

This question tests your ability to record regular and adjusting journal entries for various transactions.

Key Terms:

• Journal Entry: Record of a transaction in the accounting system.

• Adjusting Entry: Entry made at period end to update accounts.

Step-by-Step Guidance

1. For each entry, identify the accounts affected and whether they are debited or credited.

2. For regular entries, record cash payments and purchases as appropriate.

3. For adjusting entries, calculate the amount to adjust for expired insurance and supplies used.

4. Set up the journal entry format: Date, Accounts, Debit, Credit.

5. Stop before writing the full journal entry for each transaction; instead, outline the accounts and amounts to be used.

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