CPB / BookKeeping Bookkeeping and Accounting 2 — Questions and Answers
Question 1: A company purchases equipment for $12,000 cash. How is this transaction recorded?
- Debit Equipment $12,000; Credit Cash $12,000 (Correct answer)
- Debit Cash $12,000; Credit Equipment $12,000
- Debit Expense $12,000; Credit Cash $12,000
- Debit Equipment $12,000; Credit Revenue $12,000
Correct answer: Debit Equipment $12,000; Credit Cash $12,000
Purchasing equipment increases the asset Equipment (debit) and decreases the asset Cash (credit).
Question 2: Which financial statement shows a company's revenues and expenses over a period of time?
- Balance Sheet
- Statement of Cash Flows
- Income Statement (Correct answer)
- Statement of Retained Earnings
Correct answer: Income Statement
The Income Statement (Profit & Loss) summarizes revenues and expenses for a specific accounting period.
Question 3: Accounts Receivable has a normal balance of:
- Credit
- Debit (Correct answer)
- Either debit or credit
- Neither debit nor credit
Correct answer: Debit
Accounts Receivable is an asset account and all asset accounts have a normal debit balance.
Question 4: What is the purpose of a bank reconciliation?
- To record daily cash receipts
- To match the company's cash book balance with the bank statement balance (Correct answer)
- To prepare the payroll register
- To close temporary accounts at year-end
Correct answer: To match the company's cash book balance with the bank statement balance
A bank reconciliation identifies and explains differences between the company's cash records and the bank statement.
Question 5: Under the accrual basis of accounting, revenue is recognized when:
- Cash is received from the customer
- The invoice is mailed to the customer
- It is earned, regardless of when cash is received (Correct answer)
- The fiscal year ends
Correct answer: It is earned, regardless of when cash is received
Accrual accounting requires revenue to be recognized when earned, not when payment is collected.
Question 6: Which of the following is a liability account?
- Prepaid Insurance
- Accumulated Depreciation
- Unearned Revenue (Correct answer)
- Retained Earnings
Correct answer: Unearned Revenue
Unearned Revenue represents cash received before services are performed, creating an obligation (liability) to the customer.
Question 7: The double-entry bookkeeping system requires that:
- Every transaction is recorded in two separate journals
- Total debits must equal total credits for every transaction (Correct answer)
- All accounts must have both a debit and a credit balance
- Revenues always equal expenses
Correct answer: Total debits must equal total credits for every transaction
The fundamental rule of double-entry bookkeeping is that for every transaction, total debits must equal total credits.
CPB / BookKeeping Bookkeeping and Accounting 2
A company purchases equipment for $12,000 cash.
How is this transaction recorded?