CPB / BookKeeping Bookkeeping 2 — Questions and Answers
Question 1: Which inventory costing method assumes the most recently purchased items are sold first?
- FIFO
- LIFO (Correct answer)
- Weighted Average
- Specific Identification
Correct answer: LIFO
LIFO (Last-In, First-Out) assumes the last items purchased are the first items sold.
Question 2: A company issues a $5,000 credit memo to a customer for returned goods. Which account is debited?
- Accounts Receivable
- Sales Returns and Allowances (Correct answer)
- Cash
- Inventory
Correct answer: Sales Returns and Allowances
Sales Returns and Allowances is debited to record the reduction in revenue from returned goods.
Question 3: What is the normal balance of the Unearned Revenue account?
- Debit
- Credit (Correct answer)
- Zero
- Either debit or credit
Correct answer: Credit
Unearned Revenue is a liability account with a normal credit balance since the company owes services or goods to the customer.
Question 4: Under the accrual basis, when should revenue be recognized for services rendered on credit?
- When cash is collected
- When the invoice is mailed
- When services are performed (Correct answer)
- When the contract is signed
Correct answer: When services are performed
Under accrual accounting, revenue is recognized when services are performed, regardless of when cash is received.
Question 5: Which of the following is NOT a component of the accounting equation?
- Assets
- Liabilities
- Revenue (Correct answer)
- Owner's Equity
Correct answer: Revenue
The accounting equation is Assets = Liabilities + Owner's Equity; Revenue is a component of equity but not a separate element in the equation.
Question 6: A petty cash fund is established for $300. After reimbursement expenses total $245, the journal entry to replenish includes a credit to:
- Petty Cash
- Cash (Correct answer)
- Accounts Payable
- Office Expense
Correct answer: Cash
Replenishing petty cash credits Cash (the main checking account) for the amount spent ($245).
Question 7: Which depreciation method applies a constant rate to the declining book value of an asset?
- Straight-line
- Units of production
- Double-declining balance (Correct answer)
- Sum-of-the-years'-digits
Correct answer: Double-declining balance
Double-declining balance applies a fixed percentage to the asset's remaining book value each period, resulting in accelerated depreciation.
CPB / BookKeeping Bookkeeping 2
Which inventory costing method assumes the most recently purchased items are sold first?