Accounting Online Program Accounting Basics 2 — Questions and Answers
Question 1: Which accounting principle requires expenses to be recorded in the same period as the revenues they helped generate?
- Cost principle
- Matching principle (Correct answer)
- Revenue recognition principle
- Consistency principle
Correct answer: Matching principle
The matching principle ensures expenses are recognized in the same period as the related revenues, providing an accurate picture of profitability.
Question 2: What is the normal balance of a liability account?
- Debit
- Credit (Correct answer)
- Either debit or credit
- Zero
Correct answer: Credit
Liability accounts carry a normal credit balance because liabilities represent amounts owed that increase with credits.
Question 3: A company purchases office supplies for $500 cash. Which entry correctly records this transaction?
- Debit Cash $500, Credit Supplies $500
- Debit Supplies $500, Credit Cash $500 (Correct answer)
- Debit Supplies Expense $500, Credit Cash $500
- Debit Cash $500, Credit Supplies Expense $500
Correct answer: Debit Supplies $500, Credit Cash $500
Purchasing supplies increases the Supplies asset (debit) and decreases Cash (credit).
Question 4: Which financial statement shows a company's revenues and expenses over a period of time?
- Balance sheet
- Statement of cash flows
- Income statement (Correct answer)
- Statement of retained earnings
Correct answer: Income statement
The income statement reports revenues, expenses, and net income or loss for a specific accounting period.
Question 5: What does the term 'going concern' assume about a business?
- It will liquidate within one year
- It will continue operating indefinitely (Correct answer)
- It has no outstanding debts
- Its assets equal its liabilities
Correct answer: It will continue operating indefinitely
The going concern assumption presumes a business will continue operating long enough to fulfill its obligations and objectives.
Question 6: Which account would be credited when a business earns service revenue on account?
- Cash
- Accounts Receivable
- Service Revenue (Correct answer)
- Unearned Revenue
Correct answer: Service Revenue
Earning service revenue on account debits Accounts Receivable and credits Service Revenue.
Question 7: What is the purpose of a trial balance?
- To prepare the income statement
- To verify that total debits equal total credits (Correct answer)
- To calculate net income
- To list all cash transactions
Correct answer: To verify that total debits equal total credits
A trial balance checks the mathematical accuracy of the ledger by confirming that total debits equal total credits.
Accounting Online Program Accounting Basics 2
Which accounting principle requires expenses to be recorded in the same period as the revenues they helped generate?