Accounting Online Program Accounting Basics 3 — Questions and Answers
Question 1: Under accrual accounting, when is revenue recognized?
- When cash is received
- When the product is ordered
- When earned, regardless of when cash is received (Correct answer)
- When the invoice is sent
Correct answer: When earned, regardless of when cash is received
Accrual accounting recognizes revenue when it is earned and realizable, not necessarily when cash changes hands.
Question 2: Which of the following is an example of a contra asset account?
- Accounts Payable
- Accumulated Depreciation (Correct answer)
- Unearned Revenue
- Common Stock
Correct answer: Accumulated Depreciation
Accumulated Depreciation offsets the related asset account (e.g., Equipment) and carries a normal credit balance.
Question 3: If a company has total assets of $80,000 and total liabilities of $30,000, what is owner's equity?
- $110,000
- $30,000
- $50,000 (Correct answer)
- $80,000
Correct answer: $50,000
Owner's equity = Total Assets − Total Liabilities = $80,000 − $30,000 = $50,000.
Question 4: What type of account is 'Prepaid Insurance'?
- Liability
- Expense
- Asset (Correct answer)
- Revenue
Correct answer: Asset
Prepaid Insurance is a current asset representing insurance coverage paid for but not yet used.
Question 5: Which depreciation method allocates an equal amount of expense each period?
- Double-declining balance
- Units of production
- Straight-line (Correct answer)
- Sum-of-the-years' digits
Correct answer: Straight-line
The straight-line method spreads the depreciable cost evenly over the asset's useful life.
Question 6: An adjusting entry to record accrued salaries would include:
- Debit Salaries Expense, Credit Cash
- Debit Salaries Payable, Credit Salaries Expense
- Debit Salaries Expense, Credit Salaries Payable (Correct answer)
- Debit Cash, Credit Salaries Expense
Correct answer: Debit Salaries Expense, Credit Salaries Payable
Accrued salaries are recorded by debiting Salaries Expense (increasing expense) and crediting Salaries Payable (increasing liability).
Question 7: Which principle states that the personal transactions of an owner should be kept separate from business transactions?
- Monetary unit principle
- Time period principle
- Business entity principle (Correct answer)
- Full disclosure principle
Correct answer: Business entity principle
The business entity principle treats the business as separate from its owner(s) for accounting purposes.
Accounting Online Program Accounting Basics 3
Under accrual accounting, when is revenue recognized?