Accounting Online Program Accounting Basics 4 — Questions and Answers
Question 1: What is the accounting equation?
- Assets = Liabilities + Owner's Equity (Correct answer)
- Assets + Liabilities = Owner's Equity
- Assets = Revenue − Expenses
- Liabilities = Assets + Owner's Equity
Correct answer: Assets = Liabilities + Owner's Equity
The fundamental accounting equation states that Assets = Liabilities + Owner's Equity, which must always remain in balance.
Question 2: Which of the following best describes 'accounts payable'?
- Money owed to the business by customers
- Money the business owes to suppliers (Correct answer)
- Cash held in the business bank account
- Prepaid expenses not yet used
Correct answer: Money the business owes to suppliers
Accounts Payable represents short-term obligations owed to suppliers or vendors for goods and services purchased on credit.
Question 3: When a business records depreciation, which account is debited?
- Equipment
- Accumulated Depreciation
- Depreciation Expense (Correct answer)
- Cash
Correct answer: Depreciation Expense
Depreciation Expense is debited to recognize the cost allocation, and Accumulated Depreciation is credited.
Question 4: Which inventory costing method assigns the cost of the most recently purchased goods to cost of goods sold?
- FIFO
- LIFO (Correct answer)
- Weighted average
- Specific identification
Correct answer: LIFO
LIFO (Last-In, First-Out) assumes the most recently purchased inventory is sold first, affecting COGS and ending inventory values.
Question 5: A bank reconciliation is used to:
- Prepare payroll for employees
- Reconcile differences between the cash ledger balance and the bank statement balance (Correct answer)
- Record depreciation adjustments
- Close temporary accounts at year-end
Correct answer: Reconcile differences between the cash ledger balance and the bank statement balance
A bank reconciliation identifies and explains differences between the company's cash records and the bank's records.
Question 6: Which of the following is a real (permanent) account?
- Service Revenue
- Rent Expense
- Dividends
- Accounts Receivable (Correct answer)
Correct answer: Accounts Receivable
Accounts Receivable is a balance sheet account that carries its balance forward each period; revenue and expense accounts are temporary.
Question 7: What is net income?
- Total revenues minus total liabilities
- Total assets minus total liabilities
- Total revenues minus total expenses (Correct answer)
- Total cash receipts minus total cash payments
Correct answer: Total revenues minus total expenses
Net income equals total revenues minus total expenses for a given accounting period.
Accounting Online Program Accounting Basics 4
What is the accounting equation?