Accounting Basics Quiz

What are the three basic activities in the accounting process?

• Identifies, Reports, Manages

• Identifies, Records, Communicates

• Reports, Manages, Communicates

Who are considered external users of financial information?

• Managers

• Investors and Creditors

• Employees

What does the Historical Cost Principle dictate?

• Assets should be reported at their fair value

• Assets should be recorded at their original cost

• Only liabilities are recorded at cost

What is the accounting equation?

• Assets = Liabilities + Revenues

• Assets = Liabilities + Owner's Equity

• Assets = Expenses + Owner's Capital

What is a 'T-account'?

• A method for trial balance

• A basic account format consisting of a title, debit, and credit side

• A system for journal entries

In double-entry accounting, what does 'debit' and 'credit' refer to?

• Debit means increase, credit means decrease

• Debit and credit refer to the left and right sides of an account

• Debit is for expenses, credit is for revenues

What is the purpose of the ledger in accounting?

• To prepare financial statements

• To store journal entries

• To maintain a group of accounts for a company

What is the difference between accrual and cash-basis accounting?

• Accrual recognizes revenues when earned; cash-basis recognizes revenues when cash is received

• Cash-basis recognizes expenses when incurred, accrual when paid

• There is no difference

Which of the following is an example of a deferral?

• Interest Payable

• Prepaid Expenses

• Accrued Revenues

What is the adjusting entry for depreciation expense?

• Debit: Depreciation Expense; Credit: Cash

• Debit: Depreciation Expense; Credit: Accumulated Depreciation

• Debit: Equipment; Credit: Depreciation Expense