BookKeeping Practice Test
1. Accounts Payable is categorized as a/an ___________ in the _____________.
Correct answer: Current liability; Balance Sheet
Accounts payable is a temporary obligation. As a result, it is recorded as a current liability on the Balance Sheet.
2. What does the term "accounts receivable" mean?
Correct answer: Amounts owed to a business by its debtors
Accounts receivable are funds owed to a company by its debtors. When a company sells goods on credit, it creates a current asset called accounts receivable and records the revenue. The asset is reversed when the cash is received.
3. Which of the choices is a working capital item?
Correct answer: Accounts receivable
Working capital is made up of both current assets and current liabilities.
4. Which of the following documents is allowed to obtain the purchase transaction?
Correct answer: Purchase order
Purchase order is a document created by the buyer that authorizes the purchase transaction. When the seller accepts the terms and conditions specified in the purchase order, it becomes a binding agreement between the seller and the buyer.
5. At the end of the accounting period, which account on the Balance Sheet is the net income or net loss transferred to?
Correct answer: Cash
Net income or loss is transferred to Retained Earnings, which is an equity account.
6. New Glory Corp. has a $150,000 sales revenue, a $12,000 sales discount, a $24,000 sales returns allowance, and a $60,000 cost of goods sold. What is New Glory Corp.'s net sales revenue?
Correct answer: $114,000
Net sales revenue is the amount that remains after deducting sales discounts, returns, and allowances from gross sales revenue. Gross profit is calculated by subtracting the cost of goods sold from the net sales revenue.
Gross Sales Revenue – Sales Discounts – Sales Returns and Allowances
$150,000 – $12,000 – $24,000 = $114,000.
7. What is the name of the process of transferring information from the General Journal to the General Ledger?
Correct answer: Posting
We journalize an entry from the source and post it to the ledger.
8. What is the average balance of an expense account?
Correct answer: Debit
Expenses decrease the capital.
9. What type of balance sheet differentiates between current and capital assets?
Correct answer: Classified
A balance sheet with classifications such as current assets, property plant and equipment, current liabilities, long term liabilities, etc.
10. In what ways do you calculate the Current Ratio?
Correct answer: subtract current assets from current liabilities
The Current Ratio indicates how well your company is able to cover its current debts (the ones payable in the next twelve months). It is widely assumed that if your company has a Current Ratio of two or more, it is doing well.
11. What kind of job do we mean when we say accounting?
Correct answer: Bookkeeping, auditing, consulting, etc.
Bookkeeping is only a minor component of the accounting process.
12. Which type of accounting requires transactions to be recorded in the period in which they occur?
Correct answer: Accrual basis of accounting
Other type of accounting is the cash basis, in which revenue is recorded only when cash is received and expenses are recorded only when cash is paid.
13. What section of the G.A.A.P. is the assumption that economic events can be identified with a specific unit of accountability?
Correct answer: Economic entity assumption
The economic entity assumption states that a corporation exists independently of its owner(s) or shareholders.
14. What language do the abbreviations for debit and credit (Dr. and Cr.) come from and what do they mean?
Correct answer: Latin, debere and credere
Accounting has existed for a long time.
15. When you have not yet billed a customer for services rendered and have not received payment in the same fiscal period in which the service was performed, the transaction is recorded as a(n) (assume accrual basis of accounting)?
Correct answer: accrued revenue
The transaction would not be recorded in the cash basis of accounting until the next period, when the cash is received.
16. Which of the following can be considered a current asset?
Correct answer: Accounts Receivable
Current assets are items that the company owns that are liquid (can be turned into ready cash within one year).
17. Which of the following is considered a long-term liability?
Correct answer: Capital Lease Obligation
Long-term liabilities are debts that have a life of more than a year, such as bank loans, capital lease obligations, and money owed to related parties.
18. A few years ago, your van cost $28,000. The total depreciation is currently $11,200. You got $19,500 for the van. What is the gain or loss?
Correct answer: $2700 gain
Van sale $19,500 - (cost of van $28,000 - accumulated depreciation $11,200) = $2,700 gain.
19. For an owner's draw, what is the normal entry?
Correct answer: Debit
To the owner's equity, it's a contra account.
20. What is the usual balance in wages payable?
Correct answer: Credit
Wages Payable are an ongoing liability for your employees.
21. GST collected but not yet remitted to the CRA is classified as a current asset.
Correct answer: False
Because you hold the money in trust for the Canada Revenue Agency, GST collected is a payable.
22. Contra asset accounts and bank overdrafts typically have a debit balance.
Correct answer: False
A typical bank balance is a debit. Your bank account has a credit balance when it is overdrawn.
23. In a general journal entry, the debits and credits should balance.
Correct answer: Yes
To keep your accounts in balance, debits and credits should always equal each other.
24. What is an asset?
Correct answer: Refers to items that are owned
Assets are resources that a company owns and that have future economic value.
25. When a revenue account is increased, it is ___________.
Correct answer: Credited
Revenues increase the owner's equity. Revenues must be recorded as a credit because the normal balance for owner's equity is a credit balance.
