Basic Bookkeeping and Accounting Concepts
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1. The Income Statement measures the
net worth of a businessprofitability of a business
liquidity of a businessdebt paying ability of a business

2. Which of the following does not appear in a Balance Sheet ?
CashAccounts Payable
EquipmentDepreciation Expense

3. The matching principle or rule is based on
the cash basis of accountingthe accrual basis of accounting
the double entry bookkeeping methodthe balance sheet accounting method

4. Nominal accounts
are permanent balance sheet accountsare temporary income statement and capital accounts
are not used in bookkeepingnone of the listed answers is correct

5. The accrual basis of accounting that records revenue when earned and expenses when incurred is considered better than the cash basis because
it more accurately reflects net incomeit's easier to use
it's required by GAAP -Generally Accepted Accounting Principlesnone of the listed answers is correct

6. A contra account's balance is
always a debit balancealways a credit balance
the opposite of the normal balance of its related accountthe same as the normal balance of its related account

7. Adjusting entries are used to
close the bookscorrect errors
record accrualsall of the listed answers are correct

8. Economic resources that are expected to produce future benefits are called

9. The terms Net Assets and Net Worth, the difference between assets and liabilities, are also referred to as
Net RevenueGross Profit
Excess LiabilitiesOwner's Equity

10. Net Income or Profit results from
revenues exceeding expensesexpenses exceeding revenues
assets exceeding liabilitiesliabilities exceeding assets

11. Assets are normally recorded at
costmarket value
appraised valuemanagement's estimated value

12. Which financial report measures results for a period of time ?
Balance SheetTrial Balance
Income Statementall of the listed answers are correct

13. Using the double entry system, every business transaction
affects two or more accountsaffects only one account
affects only asset accountsaffects only income statement accounts

14. The mathematical expression Assets = Liabilities + Owner's Equity is
called the Balance Sheet Equationcalled the Accounting Equation
called the Income Statement Equationreferred to as both the Accounting Equation and Balance Sheet Equation

15. A debt incurred by buying goods or services from a supplier on credit is called
propertyan expense
accounts payableaccounts receivable

16. A debt incurred by selling goods or services to a customer on credit is called
revenuean expense
accounts payableaccounts receivable

17. The accounting rule that assumes a business will continuing operating instead of being sold or closed is called the
cost concept or principlebusiness entity concept or principle
realization concept or principlegoing concern concept or principle

18. Distributions of assets to the owners of a corporation are called

19. An organization made up of owners called shareholders is called a
sole proprietorshiplimited liability company

20. The type of organization with the greatest risk and exposure of an individual's personal assets is a
regular corporationsubchaper S corporation
limited liability companysole proprietorship

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