# Accounting Knowledge: Transactions, journal entries & the accounting cycle Original scenario questions with answers and explanations, from Questiva Consultants' open skills assessments. Version 2, authored 2026-08-23. Take it interactively: https://www.questivaconsultants.com/quickbooks-skills-test ## Transactions, journal entries & the accounting cycle ### Q1. On April 4 a plumbing company finishes a $1,250 repair and gives the customer an invoice due in 30 days. Which entry records the job on April 4? - a) Debit Checking 1,250 / Credit Service Income 1,250 - b) Debit Service Income 1,250 / Credit Accounts Receivable 1,250 - c) No entry — the sale is recorded when the customer pays - **✓ d) Debit Accounts Receivable 1,250 / Credit Service Income 1,250** > Under accrual accounting the income is earned when the work is done, and the customer's promise to pay is a receivable. Debiting Checking pretends cash arrived; waiting for payment is cash basis and leaves April's income understated. When the customer pays, the entry is Debit Checking / Credit Accounts Receivable — the revenue recognition principle. ### Q2. On March 20 an $800 bill from a parts supplier was entered as Debit Parts Expense 800 / Credit Accounts Payable 800. On April 10 the bill is paid by check. What is the April 10 entry? - a) Debit Parts Expense 800 / Credit Checking 800 - **✓ b) Debit Accounts Payable 800 / Credit Checking 800** - c) Debit Checking 800 / Credit Accounts Payable 800 - d) Debit Parts Expense 800 / Credit Accounts Payable 800 > The expense was recognised in March when the bill was recorded; paying it settles the liability. Debiting the expense again would count the $800 cost twice and leave an $800 payable that is no longer owed. The payment only moves cash out and takes the bill off Accounts Payable — the two-step bill-then-pay cycle. ### Q3. A marketing agency does $6,000 of work in December, sends the invoice on December 28, and is paid on January 15. In which month is the $6,000 revenue recognised under accrual accounting, and under the cash basis? - a) December under both, because the invoice was issued in December - b) January under both, because that is when the money actually arrived - **✓ c) December under accrual; January under cash basis** - d) January under accrual; December under cash basis > Accrual accounting records revenue when it is earned — the work was done in December — regardless of when the cash comes. Cash basis records it when the money is received, in January. This is why a cash-basis profit and loss can show a quiet December and a busy January for the same work — the accrual versus cash basis distinction. ### Q4. On September 1 the company paid $3,600 for a 12-month insurance policy and debited Prepaid Insurance. No adjustments have been made since. What adjusting entry is needed at December 31? - **✓ a) Debit Insurance Expense 1,200 / Credit Prepaid Insurance 1,200** - b) Debit Insurance Expense 3,600 / Credit Prepaid Insurance 3,600 - c) Debit Prepaid Insurance 1,200 / Credit Insurance Expense 1,200 - d) Debit Insurance Expense 2,400 / Credit Prepaid Insurance 2,400 > Four months of coverage (September through December) have been used: $3,600 ÷ 12 × 4 = $1,200 becomes expense, and $2,400 stays as an asset for the remaining eight months. Expensing all $3,600 charges next year's coverage to this year; reversing the debit and credit would increase the asset instead of using it up — the matching principle. ### Q5. A gym received $1,200 on November 1 for a six-month membership and credited Unearned Revenue. What adjusting entry is needed at December 31? - a) Debit Checking 400 / Credit Membership Income 400 - **✓ b) Debit Unearned Revenue 400 / Credit Membership Income 400** - c) Debit Unearned Revenue 1,200 / Credit Membership Income 1,200 - d) Debit Membership Income 400 / Credit Unearned Revenue 400 > Two of the six months have been delivered, so $1,200 ÷ 6 × 2 = $400 has been earned and moves from the liability to income; $800 remains owed as service. Recognising all $1,200 claims income for months not yet delivered, and cash is not involved — it was received and recorded in November — the revenue recognition principle. ### Q6. A $24,000 delivery van was bought on January 1. It has a five-year useful life, no salvage value, and is depreciated straight-line. What is the monthly adjusting entry? - a) Debit Depreciation Expense 400 / Credit Vehicles 400 - b) Debit Accumulated Depreciation 400 / Credit Depreciation Expense 400 - **✓ c) Debit Depreciation Expense 400 / Credit Accumulated Depreciation 400** - d) Debit Depreciation Expense 4,800 / Credit Checking 4,800 > $24,000 ÷ 60 months = $400 per month. The expense is debited and the credit goes to Accumulated Depreciation, a contra asset, so the van stays on the books at its original cost with the accumulated amount shown against it. Crediting Vehicles directly destroys the cost record; cash is never part of depreciation — systematic allocation of cost over useful life. ### Q7. A bookkeeping firm finished $900 of work for a client on June 28 but will not send the invoice until July 3, after the June books close. What should be recorded at June 30? - **✓ a) Debit Accounts Receivable 900 / Credit Service Income 900** - b) Nothing — income is recorded when the invoice is issued in July - c) Debit Checking 900 / Credit Service Income 900, dated June 30 - d) Debit Unearned Revenue 900 / Credit Service Income 900, dated June 30 > The work was completed in June, so June earned the income whether or not the invoice has gone out. An accrued-revenue entry records the receivable and the income; when the July invoice is posted, the accrual is reversed so the income is not doubled. No cash has moved, and nothing was received in advance — the revenue recognition principle. ### Q8. The Office Supplies asset account shows: Debits: 1/1 opening balance $300 · 3/15 $700 · 9/2 $500 Credits: none A physical count on December 31 finds $400 of supplies on hand. What is the adjusting entry? - a) Debit Supplies Expense 400 / Credit Office Supplies 400 - b) Debit Office Supplies 1,100 / Credit Supplies Expense 1,100 - c) Debit Supplies Expense 1,500 / Credit Office Supplies 1,500 - **✓ d) Debit Supplies Expense 1,100 / Credit Office Supplies 1,100** > The account holds $1,500 of purchases, but only $400 is left, so $1,100 was used during the year and becomes expense; the asset is written down to what is actually on the shelf. Expensing only the $400 on hand reverses the logic; expensing all $1,500 ignores the count — the supplies-used adjustment. ### Q9. The year-end trial balance balances — total debits equal total credits — and the bookkeeper concludes the ledger is free of errors. Which of these errors could still be in the books? - a) A journal entry where only the debit side was posted to the ledger accounts - **✓ b) A $700 payment posted to Advertising Expense instead of Rent Expense** - c) A $1,000 credit keyed as $100 while its debit was posted correctly - d) A $250 debit that was posted to the credit side of the account > A trial balance only proves that total debits equal total credits. An entry posted to the wrong account in the right amount still balances, so it slips through; it is found by reviewing account detail, not the totals. The other three errors all leave debits and credits unequal and would show up immediately — the limits of the trial balance. ### Q10. A $350 telephone bill was recorded as Debit Office Supplies Expense 350 / Credit Accounts Payable 350. The bill is still unpaid and the error is found before month end. What is the correcting entry? - **✓ a) Debit Telephone Expense 350 / Credit Office Supplies Expense 350** - b) Debit Telephone Expense 350 / Credit Accounts Payable 350 - c) Debit Office Supplies Expense 350 / Credit Telephone Expense 350 - d) Debit Telephone Expense 350 / Credit Checking 350 > Only the expense account was wrong; the payable is right and the bill is still owed. The fix moves the $350 out of Office Supplies and into Telephone with no effect on liabilities or cash. Crediting Accounts Payable again would record the bill twice; touching Checking invents a payment that has not happened — correcting entries fix only the wrong half. ### Q11. At the end of the fiscal year the bookkeeper posts closing entries. Which accounts are closed out so they start the new year at zero? - a) Cash, Accounts Receivable and Inventory, the liquid assets - b) Every account that appears on the balance sheet - **✓ c) Income, expense and owner's draws (or dividends) accounts** - d) Only the expense accounts, so that next year's costs start fresh > Income, expense and draws are temporary accounts that measure one period; closing moves their net result into Retained Earnings or Owner's Capital. Balance sheet accounts are permanent — cash you hold on December 31 is still cash on January 1. Closing only expenses would leave income accounts accumulating year after year — the closing process. ### Q12. A December 31 ledger excerpt, before adjustments: Prepaid Rent — debit balance $6,000 (paid October 1 for six months of rent) Rent Expense — $0 Which statement about the year-to-date profit and loss is true before the adjusting entry is made? - a) Rent expense is understated by $6,000, the full amount that was paid - b) Rent expense is overstated, because the whole payment was recorded on October 1 - c) The profit and loss is correct; rent stays an asset until the lease ends - **✓ d) Rent expense is understated by $3,000 and Prepaid Rent is overstated by $3,000** > Six months of rent at $1,000 a month were paid in advance; October, November and December have been used, so $3,000 should have moved to expense and $3,000 should remain prepaid for January through March. Expensing all $6,000 charges next year's rent to this year; leaving it all as an asset overstates profit — the matching principle. ### Q13. On July 1 the company receives a $20,000 bank loan, deposited into its checking account. How is the deposit recorded? - **✓ a) Debit Checking 20,000 / Credit Notes Payable 20,000** - b) Debit Checking 20,000 / Credit Loan Income 20,000 - c) Debit Notes Payable 20,000 / Credit Checking 20,000 - d) Debit Checking 20,000 / Credit Owner's Capital 20,000 > Borrowed money is an obligation to the bank, so the credit is to a liability; nothing was earned, so it is not income, and the bank is a lender, not an owner. Reversing the entry would show the loan being repaid. Interest, when it accrues, is the only part of a loan that reaches the profit and loss — liabilities versus income. ### Q14. On December 31 the bookkeeper accrued $2,000 of interest: debit Interest Expense 2,000, credit Interest Payable 2,000. A reversing entry is posted January 1, and the $2,000 is paid January 10. What does the reversal accomplish? - a) It cancels the December accrual, so December's profit and loss no longer shows the $2,000 of interest expense - b) It records the January 10 payment itself, so no entry is needed when the $2,000 check is written - c) It moves the $2,000 liability permanently into January's expenses, where the payment is made - **✓ d) It lets the January 10 payment be booked as ordinary Interest Expense without counting the $2,000 twice** > The January 1 entry (debit Interest Payable, credit Interest Expense) clears the payable and leaves a temporary credit in expense. The routine payment entry on January 10 then nets January's interest expense to zero, which is right because December already carried the cost. December's books stay untouched. ### Q15. A gift shop using perpetual inventory sells a lamp for $90 cash. The lamp cost the shop $40. Which entries record the sale? - a) Debit Checking 90 / Credit Sales 90, and nothing else until inventory is counted - b) Debit Checking 90 / Credit Sales 50 / Credit Inventory 40, netting the cost against the sale - **✓ c) Debit Checking 90 / Credit Sales 90; and Debit Cost of Goods Sold 40 / Credit Inventory 40** - d) Debit Checking 90 / Credit Inventory 90, since the lamp left inventory > A sale under perpetual inventory is two entries: the revenue at the selling price, and the cost moving from Inventory (asset) to Cost of Goods Sold (expense) so the $50 gross profit appears on the profit and loss. Netting the cost against sales hides revenue; crediting inventory for $90 removes more than the lamp cost — the perpetual inventory method. ### Q16. A bookkeeper has recorded the month's transactions, posted them to the ledger, and entered the adjusting entries. What is the next step in the accounting cycle? - a) Post the reversing entries for the following month - **✓ b) Prepare the adjusted trial balance and the financial statements** - c) Record the month's transactions in the journal again to check them - d) Close the income and expense accounts to Retained Earnings > Once adjustments are posted, the adjusted trial balance proves the ledger still balances and is the source for the profit and loss and balance sheet. Closing entries come after the statements are prepared, and only at year end; reversing entries belong to the first day of the next period — the order of the accounting cycle. ### Q17. Harbor Signs pays its crew every Friday. The last payday of the year is Friday December 26, which covers work through that day. The crew then works Monday December 29, Tuesday 30 and Wednesday 31 at $700 a day and will be paid on Friday January 2. What is the December 31 adjusting entry? - a) Debit Wages Expense 2,100 / Credit Checking 2,100 - **✓ b) Debit Wages Expense 2,100 / Credit Wages Payable 2,100** - c) No entry — the wages are recorded on January 2 when the crew is paid - d) Debit Wages Payable 2,100 / Credit Wages Expense 2,100 > Three days of work at $700 belong to December even though the check goes out January 2, so the unpaid cost is accrued as a liability. No money has left the bank, so Checking is untouched, and reversing the debit and credit would cancel December's cost. Waiting for payday moves $2,100 of December's labor into January — the matching principle. ### Q18. On August 12 a landscaping company buys an $18,000 mini excavator, paying $4,000 from checking and signing a note with the dealer for the remaining $14,000. Which entry records the purchase? - a) Debit Equipment 4,000 / Credit Checking 4,000, with the $14,000 note recorded as it is paid off - b) Debit Equipment 18,000 / Credit Notes Payable 18,000, treating the $4,000 as the first note payment - **✓ c) Debit Equipment 18,000 / Credit Checking 4,000 / Credit Notes Payable 14,000** - d) Debit Equipment Expense 18,000 / Credit Checking 4,000 / Credit Notes Payable 14,000 > The asset goes on the books at its full $18,000 cost, and the two credits show where the money came from: $4,000 of cash and $14,000 borrowed. One entry may carry several debits or credits as long as the totals agree. Recording only the cash hides the debt, financing the whole price overstates the note, and equipment used for years is capitalised — a compound journal entry. ### Q19. At March 31 the trial balance shows debits of $184,320 and credits of $184,050, so debits exceed credits by $270. Every journal entry was posted to both sides. What explains the difference? - **✓ a) A transposition in posting, with a $1,740 credit entered as $1,470** - b) A $270 credit that was posted to the ledger twice on the same day - c) A $135 debit posted to the credit side of its ledger account - d) A $270 vendor bill that was never entered in the books at all > A difference divisible by 9 points to transposed digits. A $1,740 credit keyed as $1,470 leaves credits $270 short. A credit posted twice or a $135 debit posted as a credit would leave credits too high, and an unrecorded entry keeps both columns equal. ### Q20. A bike shop using perpetual inventory receives 12 helmets costing $35 each from its supplier on May 6, with the bill due in 30 days. None have been sold yet. Which entry records the delivery? - a) Debit Cost of Goods Sold 420 / Credit Accounts Payable 420 - b) Debit Inventory 420 / Credit Checking 420 - c) No entry until the helmets are sold or the bill is paid - **✓ d) Debit Inventory 420 / Credit Accounts Payable 420** > Goods bought for resale are an asset until a customer buys them, and the bill is unpaid, so the credit is to Accounts Payable. Charging Cost of Goods Sold now reports the cost before the sale it belongs to, and crediting Checking pretends the bill was paid on delivery. The $35 moves to Cost of Goods Sold as each helmet sells — the perpetual inventory method. ### Q21. On the last day of the month an owner moves $5,000 from the company's checking account into the company's own savings account so the idle cash earns interest. How should the bookkeeper record the transfer? - a) Debit Checking 5,000 / Credit Savings 5,000 - **✓ b) Debit Savings 5,000 / Credit Checking 5,000** - c) Debit Owner's Draw 5,000 / Credit Checking 5,000 - d) Record a $5,000 expense in checking and a $5,000 deposit in savings > Both accounts belong to the business, so the money only changes place: savings rises and checking falls, and neither total assets nor the profit and loss moves. Reversing the debit and credit drains the account the cash went into; nothing left the business, so it is not a draw; and an expense with a matching deposit would understate profit by $5,000 — a balance sheet transfer. ### Q22. A business reports on the accrual basis and closes its December books on January 10. Which of these items belongs in December's expenses? - **✓ a) A $640 bill for December electricity, received January 6 and paid January 20** - b) A $1,200 insurance premium paid December 28 for coverage running January 1 through June 30 - c) $900 of office chairs ordered December 29, delivered January 5 and invoiced on delivery - d) The January office rent, paid with a check written and mailed on December 30 > The electricity was used in December, so December bears the cost, and the $640 is accrued as a payable. The date the bill arrives does not decide the period. The premium and the rent cover next year, so they sit in prepaid assets. The chairs arrived in January, so December owes nothing. ### Q23. Coastal Supply invoices a customer $4,000 on June 2 with terms 2/10 net 30. The customer pays on June 11, takes the discount, and sends a check for $3,920. How is the payment recorded? - a) Debit Checking 3,920 / Credit Accounts Receivable 3,920, leaving $80 open on the invoice - b) Debit Checking 4,000 / Credit Accounts Receivable 3,920 / Credit Sales Discounts 80 - **✓ c) Debit Checking 3,920 / Debit Sales Discounts 80 / Credit Accounts Receivable 4,000** - d) Debit Checking 3,920 / Debit Bad Debt Expense 80 / Credit Accounts Receivable 4,000 > The customer paid inside the ten-day window, so the $80 discount was earned and the full $4,000 receivable is settled. Sales Discounts is contra revenue, so it takes the debit. Only $3,920 reached the bank; leaving $80 open shows a balance nobody owes; and a discount the terms granted is not an uncollectible account — early payment terms. ### Q24. On November 1 a company signs an $18,000 note payable at 8% annual interest. No interest or principal is due until the note matures next June. What does the December 31 adjusting entry record? - a) $1,440 — Debit Interest Expense 1,440 / Credit Interest Payable 1,440 - b) Nothing — interest is recorded next June, when it is actually paid - c) $240 — Debit Interest Expense 240 / Credit Checking 240 - **✓ d) $240 — Debit Interest Expense 240 / Credit Interest Payable 240** > Two months of interest have accrued: $18,000 × 8% × 2/12 = $240, owed but unpaid, so the credit is a liability. A full year's $1,440 charges ten months the company has not yet borrowed through; waiting until June leaves this year's borrowing cost off this year's profit and loss; and no cash has moved, so Checking is untouched — accrued expense recognition. ### Q25. Draft year-end statements show net income of $52,000 and total assets of $310,000. The accountant then finds no depreciation was recorded on a $30,000 machine bought January 2, with a five-year life and no salvage value. What do the corrected figures show? - a) Net income $46,000 and total assets $310,000, because depreciation never touches the asset side - **✓ b) Net income $46,000 and total assets $304,000, because both fall by the year's depreciation** - c) Net income $52,000 and total assets $304,000, because the write-down is charged against equity - d) Net income $22,000 and total assets $280,000, because the machine's cost belongs in this year > Straight-line depreciation is $30,000 ÷ 5 = $6,000 a year. Net income falls to $46,000, and the credit to Accumulated Depreciation brings assets down to $304,000. Expensing the whole $30,000 would charge four future years to this one. ### Q26. At year end a sole proprietor's Owner's Draws account has an $18,000 debit balance. Income and expenses have already been closed into Owner's Capital. What entry closes the draws account? - **✓ a) Debit Owner's Capital 18,000 / Credit Owner's Draws 18,000** - b) Debit Owner's Draws 18,000 / Credit Owner's Capital 18,000 - c) Debit Wage Expense 18,000 / Credit Owner's Draws 18,000 - d) No entry. Draws is a permanent account and carries forward to next year > Draws is a temporary equity account that tracks one year's withdrawals, so it closes into capital. Debit Capital and credit Draws to bring it to zero. Reversing the entry would raise equity, and an owner's withdrawal is never wages. ### Q27. A new bookkeeper writes a March 8 journal entry for a $600 equipment repair in the general journal and stops there, asking why the entry still has to be posted. What does posting do? - a) It copies the entry into the general journal a second time so the two sides can be compared - b) It sends the entry to the bank so that the $600 payment clears the checking account - **✓ c) It records the debit and the credit in each account's own ledger, changing those balances** - d) It carries the $600 straight onto the profit and loss, which is built from the journal > The journal is the chronological record of what happened; the ledger keeps a running balance for every account. Posting carries each debit and credit from the journal into the accounts it names, and the trial balance and the statements are drawn from those ledger balances, never from the journal itself. Posting moves no money and makes no second copy — journal versus ledger. ### Q28. A bookkeeper is told to use the everyday sales, bill and payment forms wherever they fit, and to reserve manual journal entries for what those forms cannot record. Which task needs a manual journal entry? - a) Billing a customer $1,500 for a completed job, due in 30 days - b) Entering a $340 vendor bill for the month's phone service - c) Applying a customer's $900 check to the two invoices it pays - **✓ d) Recording the month's $1,250 depreciation on the delivery vans** > Depreciation has no vendor, no customer and no cash, so no everyday form produces it: the bookkeeper debits Depreciation Expense and credits Accumulated Depreciation. Invoicing, entering a bill and applying a payment each have a purpose-built form that keeps the customer and vendor detail behind the ledger, and forcing them through a journal entry breaks the aging reports — when a journal entry is the right tool. ### Q29. A new bookkeeper buys $400 of stamps with the company debit card and records a single $400 debit to Postage Expense, with nothing on the credit side. Why will that entry not stand? - a) Nothing is wrong — the bank feed supplies the other half once the charge clears the account - **✓ b) Every entry needs a credit too: the $400 must credit Checking to show where the money came from** - c) The debit belongs in Accounts Payable, because the stamps were bought without a vendor bill - d) The $400 must be entered twice, as a debit and a credit to Postage Expense, so it nets out > Double entry records every transaction in at least two accounts, with debits equal to credits: the stamps cost $400 and the money came out of the bank. A bank feed proposes transactions but never completes a hand-written entry. Nothing is owed to a vendor here, and debiting and crediting the same account leaves the ledger with no record of the purchase — the double-entry rule. ### Q30. A hardware store's perpetual Inventory account shows $46,200 at December 31. The physical count values the goods actually on the shelves at $44,900, and no purchase or sale is unrecorded. What should the bookkeeper do? - **✓ a) Debit Cost of Goods Sold 1,300 / Credit Inventory 1,300 to bring the ledger down to the count** - b) Debit Inventory 1,300 / Credit Cost of Goods Sold 1,300, because the count is the lower figure - c) Leave the ledger at $46,200 — a perpetual system updates itself, so the count is the estimate - d) Debit Shrinkage Expense 1,300 / Credit Accounts Payable 1,300 and claim a credit from the supplier > The count is the evidence of what is really there: $1,300 of goods were broken, taken or mis-shipped, so the cost lands in Cost of Goods Sold and the asset is written down to $44,900. Adjusting upward would inflate an asset the shelves do not support, and no vendor owes anything, so nothing is payable — the physical inventory adjustment.