1. True or False: Assets are resources owned by a company that have future economic value.
Correct Answer: True. Assets are items like cash, inventory, and equipment that a business owns.
2. True or False: Liabilities represent the owner's claim on the business's assets.
Correct Answer: False. Liabilities represent the *creditors'* (external parties') claims on assets (i.e., debts). Owner's Equity represents the owner's claim.
3. True or False: Revenue accounts are increased by credits.
Correct Answer: True. Revenues increase equity, and equity accounts are increased with a credit. Therefore, revenue accounts have a normal credit balance.
4. True or False: Expense accounts normally have a credit balance.
Correct Answer: False. Expenses decrease equity. Since equity is decreased by a debit, expense accounts are increased with a debit and thus have a normal *debit* balance.
5. True or False: Double-entry bookkeeping means every transaction is recorded in at least two accounts.
Correct Answer: True. This is the fundamental principle of double-entry, where one account is debited and another account is credited.
6. True or False: In double-entry bookkeeping, the total amount of debits must always equal the total amount of credits for every transaction.
Correct Answer: True. This rule ensures that the accounting equation always remains in balance.
7. True or False: The basic accounting equation is Assets = Liabilities - Equity.
Correct Answer: False. The basic accounting equation is Assets = Liabilities + Equity.
8. True or False: The accounting equation must remain in balance after every single transaction.
Correct Answer: True. Every transaction has equal debit and credit entries, which keeps the equation (Assets = Liabilities + Equity) balanced.
9. True or False: If a company buys equipment on credit, its assets increase and its equity increases.
Correct Answer: False. Assets (Equipment) increase, but Liabilities (Accounts Payable) also increase. Equity is not affected by this transaction.
10. True or False: Owner's Equity is the residual interest in the assets of an entity after deducting liabilities.
Correct Answer: True. This is the definition of equity, as shown by rearranging the accounting equation: Equity = Assets - Liabilities.
11. True or False: Paying an employee's salary is not considered a business transaction.
Correct Answer: False. It is a transaction because it's a measurable event (cash decreases, and salary expense increases) that affects the company's financial position.
12. True or False: When the owner withdraws cash for personal use, it is called a "drawing" and it decreases equity.
Correct Answer: True. Owner's drawings (or withdrawals) reduce the owner's investment in the company, thereby decreasing equity.
13. True or False: A debit is always an increase to an account.
Correct Answer: False. A debit increases Asset and Expense accounts, but it *decreases* Liability, Equity, and Revenue accounts.
14. True or False: A credit is always a decrease to an account.
Correct Answer: False. A credit increases Liability, Equity, and Revenue accounts, but it *decreases* Asset and Expense accounts.
15. True or False: Asset accounts are increased with a debit.
Correct Answer: True. Asset accounts, like Cash or Equipment, have a normal debit balance and are increased by debits.
16. True or False: Liability accounts are increased with a credit.
Correct Answer: True. Liability accounts, like Accounts Payable or Loans, have a normal credit balance and are increased by credits.
17. True or False: The "Accounts Payable" account is an asset.
Correct Answer: False. Accounts Payable represents money the company *owes* to others, making it a liability.
18. True or False: Transactions are first recorded in the general ledger.
Correct Answer: False. Transactions are first recorded chronologically in a *journal* (the book of original entry).
19. True or False: The general journal is often called the "book of original entry."
Correct Answer: True. This is because it's the first place a transaction is formally recorded in the accounting system.
20. True or False: Posting is the process of transferring entries from the ledger to the journal.
Correct Answer: False. Posting is the process of transferring entries from the *journal* to the *ledger*.
21. True or False: A general ledger contains a chronological list of all transactions.
Correct Answer: False. The *journal* contains a chronological list. The *ledger* groups transactions by account.
22. True or False: The Balance Sheet shows a company's financial position over a specific period of time.
Correct Answer: False. The Balance Sheet is a snapshot of a company's financial position at a specific *point* in time (e.g., "as of December 31").
23. True or False: The Income Statement reports a company's revenues and expenses for a period of time.
Correct Answer: True. It summarizes performance (profitability) over a period, such as a month, quarter, or year.
24. True or False: Net Income from the Income Statement is used to update the Balance Sheet.
Correct Answer: True. Net Income flows into Retained Earnings, which is a component of Owner's Equity on the Balance Sheet.
25. True or False: The Statement of Cash Flows is optional for most businesses.
Correct Answer: False. Along with the Balance Sheet and Income Statement, it is a core financial statement required by accounting standards.
26. True or False: The accrual basis of accounting records revenue when it is earned, regardless of when cash is received.
Correct Answer: True. This is the matching principle, where revenue is recognized when the service is performed or goods are delivered, not when cash changes hands.
27. True or False: The cash basis of accounting records expenses when they are incurred, even if not yet paid.
Correct Answer: False. The cash basis records expenses only when cash is *paid*. The *accrual* basis records expenses when incurred.
28. True or False: A T-account is a simplified visual representation of a general ledger account.
Correct Answer: True. It uses a T-shape to show the debit (left) and credit (right) sides of an account.
29. True or False: A trial balance lists all accounts and their balances to verify that debits equal credits.
Correct Answer: True. It's an internal report used to check the mathematical accuracy of the ledger before preparing financial statements.
30. True or False: Depreciation is the process of allocating the cost of a long-term asset over its useful life.
Correct Answer: True. It is an expense recorded to match the asset's cost to the periods it helps generate revenue.