35 Basic Accounting Test Questions

1. Which of the following is not a core financial statement?

1. The Income Statement
2. Statement of Cash Flows
3. The Trial Balance
4. The Balance Sheet
2. The income statement, which presents the results of operations, can
be prepared in many forms including:
1. Single Step Income Statement
2. Condensed Income Statement
3. Common Sized Income Statement
4. All of the above
3. Which of the following account types increase by debits in
double-entry accounting?
1. Assets, Expenses, Losses
2. Assets, Revenue, Gains
3. Expenses, Liabilities, Losses
4. Gains, Expenses, Liabilities
4. Which of the following is true?
1. Accounts receivable are found in the current asset section of a
balance sheet.
2. Accounts receivable increase by credits.
3. Accounts receivable are generated when a customer makes
payments.
4. Accounts receivable become more valuable over time.
5. A company that uses the cash basis of accounting will:
1. Record revenue when it is collected.
2. Record revenue when it is earned.
3. Record revenue at the same time as accounts receivable.
4. Record bad debt expense on the income statement.
6. What are the main sections on a balance sheet?
1. Assets, liabilities, income
2. Assets, liabilities, equity
3. Assets, liabilities, expenses
4. Assets, gains, revenue
7. How are a company’s financial statements used?
1. For internal analysis
2. For external negotiation
3. For compliance
4. All of the above
8. Which of the following scenarios increases accounts payable?
1. A customer fails to pay an invoice.
2. A supplier delivers raw materials on credit.
3. Office supplies are purchased with cash.
4. None of the above
9. Which of the following must a certified public accountant (CPA) have
in-depth knowledge of to pass the CPA licensing exam? (Check all
that apply.)
1. Accounting software packages
2. Auditing
3. Derivatives
4. International banking laws
10. What is the result of the following transaction for Company A?
Company A’s customer is unable to pay for a previous credit sale in
accordance with Company A’s 90-day payment terms. The customer
makes a promissory note to Company A that extends payment over a
24-month term including 5% interest.
1. No result because the customer didn’t pay.
2. Accounts receivable increases because of the interest.
3. A note receivable is recorded in non-current assets.
4. Company A records the loan as a liability.
11.When are liabilities recorded under the accrual basis of accounting?
1. When incurred
2. When paid
3. At the end of the fiscal year
4. When bank accounts are reconciled
12. Which is true about time in accounting?
1. Current liabilities are debts payable within 2 years.
2. Balance sheets reflect a company’s financial position at a
certain point in time.
3. The time value of money is a finance concept, not relevant in
accounting.
4. Accounts receivable are more easily collected as time passes.
13. When a company purchases property, plant, and equipment, how
is it reflected on the statement of cash flows?
1. As a source of cash in the "cash from investing activities"
section
2. As a source of cash in the "cash from financing activities"
section.
3. As a use of cash in the "cash from investing activities" section.
4. As a use of cash in the "cash from operating activities" section.
14. What would the journal entry be for a company that takes out a
five-year, $100,000 business loan?
1. Debit $100,000 non-current asset, Credit $100,000 non-current
liabilities
2. Debit $100,000 current asset, Credit $100,000 non-current
liabilities
3. Debit $100,000 non-current liabilities, Credit $100,000
non-current assets
4. Debit $100,000 current liabilities, Credit $100,000 current
assets
15. Which accounts are associated with cost of goods sold?
1. Accrued interest
2. Depreciation
3. Dividends
4. Inventory
16. Which organizations are involved in development of US Generally
Accepted Accounting Principles (GAAP)? (Check all that apply.)
1. Financial Accounting Standards Board (FASB)
2. Government Accounting Standards Board (GASB)
3. Securities and Exchange Commission (SEC)
4. Federal Accounting Standards Advisory Board (FASAB)
17. Which inventory valuation method reflects the most current market
value for inventory on hand?
1. Last-in-First-Out (LIFO)
2. Average Costs
3. First-in-First-Out (FIFO)
4. Specific Identification
18. Which of the following statements is not true about intercompany
accounting?
1. Intercompany transactions are between two units within the
same legal entity.
 2. Intercompany transactions are eliminated in consolidated
parent financial statements.
3. They can significantly impact taxes.
4. Intercompany transactions are between different legal entities
under the same parent control.
19. Which is the method of depreciation used for US tax returns that is
not GAAP-compliant?
1. Straight-line method
2. Modified accelerated cost recovery systems
3. Double-declining balance method
4. Units of production method
20. What is the most-used method to amortize intangible assets on a
company’s financial statements?
1. Straight-line method
2. Sum of the years’ digits method
3. Double-declining balance method
4. Units of production method
21. Which financial statement is a report of a company’s revenues
and expenses during a certain time period?
1. Statement of Changes in Equity
2. Income Statement
3. Statement Of Cash Flows
22. After making a sale of $3,000, where $1,200 is paid in cash and
$1,800 is sold on credit, how would a company go about updating its
balance sheet?
1. $1,800 debit in accounts receivable; $3,000 credit in retained
earnings; $1,200 debit in cash
2. $3,000 debit in retained earnings; $1,200 credit in cash; $1,800
credit in accounts receivable
3. $1,800 debit in accounts payable; $1,200 debit in cash; $3,000
credit in retained earnings
4. $1,200 credit in cash; $1,800 credit in accounts payable;
$3,000 debit in retained earnings
23. Which is not an example of financing cash flow?
1. Paying off a debt of $25,000
2. Investing in equipment worth $90,000
3. Paying $12,000 worth of dividends to shareholders
4. Issuing $42,000 worth of shares
24. Which side of the ledger account are debits recorded on?
 1. Left
2. Right
3. Depends on the debit
25. Are assets on the balance sheet recorded at their estimated fair
market value?
1. Yes
2. No
3. Sometimes; it’s situational
26. Increasing an asset involves crediting the account.
1. True
2. False
27. Unearned revenues are recorded on a company’s balance sheet
under which kind of account?
1. Current asset
2. Owners’ or stockholders’ equity
3. Non-current asset
4. Liability
28. What is the minimum number of accounts that accounting entries
can have?
1. One
2. Four
3. Five
4. Two
29. The listing of all the financial accounts within a company’s general
ledger is called the _____.
1. Chart of accounts
2. Journal entry
3. Balance sheet
4. P&L statement
30. Which is not classified as a current asset?
1. Cash
2. Product inventory
3. Liquid assets
4. Prepaid liabilities
5. Property
31. Which formula is used to calculate operating income?
1. Revenue + Direct Operating Cost = Operating Income
2. Indirect Operating Cost - Revenue = Operating Income
3. Gross Income - Operating Expenses = Operating Income
 4. Gross Profit - Indirect Operating Cost = Operating Income
32. Which of these statements about accrual accounting is true?
1. Revenue is recorded only when payments are received, while
expenses are recognized when they're incurred.
2. All revenue from prepayments should be recognized when the
payment is received, while expenses accrue over the life of the
obligation.
3. If the business has provided the goods or services and can
reasonably expect to receive cash, it can recognize the
revenue in that period.
4. The matching principle dictates that expenses should be
recognized when they are incurred, regardless of when
revenue is recognized.
33. In a journal entry, a debit decreases which of the following
accounts?
1. Cash
2. Accounts Payable
3. Supplies Expense
4. Both a and c
34. Which describes the double-declining balance depreciation
method?
1. Estimated salvage value is greater at the end of the assets’
useful life than with straight-line depreciation.
2. It yields reports of higher income in the early years and lower
income later on.
3. This method decreases the useful life of the asset and disposal
costs by half.
4. The depreciation expense is larger in the first few years and
gets smaller as time goes on.
35. Which one of these WILL NOT yield earnings before interest and
taxes (EBIT)?
1. Revenue - Cost of goods sold - Operating expenses
2. Net income + Tax expense + Interest expense
3. Sales + Taxes + Interest
4. Gross profit - Operating expenses