Bookkeeping Basic Test #1 — Questions and Answers
Question 1: Is there usually a debit or credit balance on a contra revenue account?
- Credit
- Debit (Correct answer)
Correct answer: Debit
A contra revenue account, such as Sales Returns and Allowances or Sales Discounts, reduces the total revenue reported. Since revenue accounts normally carry a credit balance, a contra revenue account must have the opposite effect to decrease revenue. Therefore, contra revenue accounts typically have a normal debit balance.
Question 2: What are the uses of a purchase order?
- To place an order for goods with a supplier. (Correct answer)
- By a supplier to invoice for goods supplied
- To record the purchase of goods from you by a customer.
Correct answer: To place an order for goods with a supplier.
A purchase order (PO) is a formal document issued by a buyer to a seller. Its primary use is to officially request goods or services from a supplier, detailing the items, quantities, and agreed prices. It serves as a legally binding agreement once accepted by the supplier, initiating the procurement process.
Question 3: What are accounting source documents?
- Listings of financial transactions.
- Documentary evidence of financial transactions. (Correct answer)
- Pages in the general ledger
Correct answer: Documentary evidence of financial transactions.
Accounting source documents are the original records that provide the initial evidence of a financial transaction. These documents, such as invoices, receipts, and bank statements, are critical for verifying the accuracy of entries made in accounting journals and ledgers. They form the foundational proof for all financial reporting.
Question 4: What is the definition of a contra revenue account?
- An account which analyses a revenue account
- An account which is offset against a revenue account (Correct answer)
- An expense account
Correct answer: An account which is offset against a revenue account
A contra revenue account is specifically designed to reduce the balance of a related revenue account. Examples include Sales Returns and Allowances or Sales Discounts, which are subtracted from gross sales to arrive at net sales. These accounts typically carry a debit balance to offset the credit balance of the main revenue account.
Question 5: What is the use of the petty cash reconciliation form?
- To reconcile the petty cash to the bank statement
- To reconcile the petty cash book to the cash book
- To reconcile petty cash and paid vouchers to the authorized petty cash float. (Correct answer)
Correct answer: To reconcile petty cash and paid vouchers to the authorized petty cash float.
The petty cash reconciliation form is used to ensure accountability for the petty cash fund. It reconciles the physical cash remaining in the petty cash box plus the total value of all paid vouchers (receipts for expenses) against the original authorized petty cash float. This process verifies that all disbursements are properly accounted for and the fund balances correctly.
Question 6: Which of the following is a source document for accounting?
- Sales day book
- Delivery note (Correct answer)
- Cash book
Correct answer: Delivery note
A delivery note serves as a source document because it provides tangible evidence that goods have been delivered to a customer. It confirms the completion of a transaction and the transfer of items, which is essential for accurately recording sales and updating inventory records. Sales day books and cash books are records compiled *from* source documents, not source documents themselves.
Question 7: Which of the following is not included in the double entry accounting system? (Assume that control accounts aren't included in the double entry.)
- Purchase ledger
- Cash book
- Sales returns day book (Correct answer)
Correct answer: Sales returns day book
The sales returns day book is a book of prime entry, where sales returns are initially recorded chronologically. While the *entries* from this book are later posted to the general ledger accounts (which are part of the double-entry system), the day book itself is a preliminary journal, not a ledger account that maintains debit and credit balances. The purchase ledger and cash book are integral components of the double-entry system.
Question 8: When is a sale reported on the cash basis of accounting?
- The sale is made to the customer
- When the cash is received from the customer (Correct answer)
- When the goods are sent to the customer
Correct answer: When the cash is received from the customer
Under the cash basis of accounting, revenue is recognized and recorded only when the cash payment is actually received from the customer. This method focuses solely on the movement of cash, rather than when the sale was earned or goods were delivered. It contrasts with the accrual basis, which recognizes revenue when earned.
Question 9: In the accounting cycle, which of these comes first?
- Trial balance
- Journals
- Transactions (Correct answer)
Correct answer: Transactions
The accounting cycle always begins with identifying and analyzing business transactions. These transactions are the fundamental events that necessitate financial recording. All subsequent steps, such as journaling, posting to ledgers, and preparing financial statements, stem from these initial transactions.
