Accounting Knowledge practice questions

The accounting equation, account types & normal balances

9 practice questions on the accounting equation, account types & normal balances, each with the answer and why it is right. From Questiva Learning' QuickBooks® Online skills test.

1. Under accrual accounting, a payment for work you haven't done yet is recorded as:

   1. Income, since the money is in the bank.
   2. Accounts Receivable.
   3. Unearned Revenue, a liability.
   4. Owner's Equity.

   Answer: C) Unearned Revenue, a liability.. You still owe the customer the work, so the payment is a liability. It moves to income as you earn it.

2. Money a sole proprietor takes for personal bills is recorded as:

   1. Debit Owner's Draws, credit Checking.
   2. Debit Salaries Expense, credit Checking.
   3. Debit Checking, credit Owner's Draws.
   4. An expense, if it pays a bill like rent.

   Answer: A) Debit Owner's Draws, credit Checking.. Money taken for personal use is a draw. It lowers equity and never reaches the Profit and Loss.

3. When you record a loan payment, which part is an expense?

   1. None of it. The whole payment comes off the loan balance.
   2. The interest.
   3. The whole payment.
   4. The principal.

   Answer: B) The interest.. The principal pays back what you borrowed, so it lowers the loan balance. Only the interest is a cost of borrowing, so only the interest goes on the Profit and Loss.

4. Which account normally has a credit balance?

   1. Accounts Receivable
   2. Prepaid Insurance
   3. Cost of Goods Sold
   4. Accumulated Depreciation

   Answer: D) Accumulated Depreciation. Accumulated Depreciation is a contra asset, so it carries a credit balance that reduces the cost of the fixed assets. The other three normally have debit balances.

5. A bakery's flour and its cleaning supplies are categorized as:

   1. Cost of Goods Sold.
   2. Flour to Cost of Goods Sold, cleaning supplies to operating expenses.
   3. Operating expenses.
   4. Flour to operating expenses, and cleaning supplies to Cost of Goods Sold.

   Answer: B) Flour to Cost of Goods Sold, cleaning supplies to operating expenses.. Cost of Goods Sold is what goes into the product you sell, like the flour in a cake. Cleaning supplies keep the kitchen running, so they're an operating expense.

6. Sales tax you collect from customers is recorded as:

   1. Part of sales income.
   2. Sales Tax Expense.
   3. Income now, and an expense when you pay the state.
   4. Sales Tax Payable, a liability.

   Answer: D) Sales Tax Payable, a liability.. The tax belongs to the state. You only hold it until you pay it over, so it's a liability.

7. Which is true about supplies bought on the business credit card?

   1. Nothing is recorded until you pay the card.
   2. The expense is recorded now, and the card balance goes up.
   3. Checking goes down on the day you buy them.
   4. They're an asset until the card is paid, and then an expense.

   Answer: B) The expense is recorded now, and the card balance goes up.. The charge records the expense and adds to what you owe on the card, which is a liability. Cash moves only when you pay the card.

8. Which leaves total assets the same?

   1. Paying cash for equipment.
   2. Paying a bill already entered.
   3. Buying equipment on account.
   4. A month's depreciation.

   Answer: A) Paying cash for equipment.. Checking goes down and Equipment goes up by the same amount, so total assets don't change.

9. The owner paid a business expense personally and won't be repaid. It's recorded as:

   1. An expense and an owner contribution.
   2. Nothing. No business money was spent.
   3. An expense paid from Checking.
   4. An expense and a loan from the owner.

   Answer: A) An expense and an owner contribution.. The business still has the expense. The owner's money went in for good, so it counts as a contribution to equity.