CPB General Ledger & Chart of Accounts 2 — Questions and Answers
Question 1: What is the purpose of preparing a trial balance?
- To calculate net income for the period
- To verify that total debits equal total credits in the general ledger (Correct answer)
- To list all outstanding customer invoices
- To reconcile the bank statement with cash records
Correct answer: To verify that total debits equal total credits in the general ledger
A trial balance verifies the mathematical accuracy of the ledger by confirming that the sum of all debit balances equals the sum of all credit balances.
Question 2: What is a contra account in the general ledger?
- An account used to record international transactions
- An account paired with another account to reduce its net balance (Correct answer)
- An account that records corrections to prior-period entries
- An account used exclusively during the closing process
Correct answer: An account paired with another account to reduce its net balance
A contra account has a normal balance opposite to its paired account and is used to reduce the net value reported, such as Accumulated Depreciation reducing the book value of assets.
Question 3: When should closing entries be recorded in the general ledger?
- At the beginning of each month
- Whenever a new vendor is added
- At the end of each accounting period to zero out temporary accounts (Correct answer)
- Only when a business changes its fiscal year
Correct answer: At the end of each accounting period to zero out temporary accounts
Closing entries are made at the end of each accounting period to transfer balances from temporary accounts (revenues, expenses, dividends) to retained earnings.
Question 4: Which of the following accounts would be classified as an asset in the chart of accounts?
- Unearned Revenue
- Notes Payable
- Prepaid Insurance (Correct answer)
- Common Stock
Correct answer: Prepaid Insurance
Prepaid Insurance is a current asset because it represents a future economic benefit (insurance coverage) already paid for.
Question 5: What does 'posting' mean in the context of general ledger bookkeeping?
- Mailing financial statements to stakeholders
- Transferring transaction data from journals to the appropriate general ledger accounts (Correct answer)
- Reconciling subsidiary ledgers to the general ledger
- Entering transactions directly into the trial balance
Correct answer: Transferring transaction data from journals to the appropriate general ledger accounts
Posting is the process of transferring debit and credit amounts from journal entries to the respective T-accounts in the general ledger.
Question 6: Which general ledger account classification represents money owed TO the business by its customers?
- Accounts Payable
- Notes Payable
- Accounts Receivable (Correct answer)
- Deferred Revenue
Correct answer: Accounts Receivable
Accounts Receivable is an asset account representing amounts customers owe to the business for goods or services already delivered.
Question 7: In a standard chart of accounts, which numerical range is typically assigned to liability accounts?
- 1000–1999
- 2000–2999 (Correct answer)
- 3000–3999
- 4000–4999
Correct answer: 2000–2999
A standard chart of accounts commonly assigns the 2000-series to liabilities, with assets in the 1000s, equity in the 3000s, revenues in the 4000s, and expenses in the 5000s.
CPB General Ledger & Chart of Accounts 2
What is the purpose of preparing a trial balance?