CAT Accounting Technician Financial Reporting & Bookkeeping 2 — Questions and Answers
Question 1: Under the accrual basis of accounting, revenue is recognized when:
- Cash is received from the customer
- An invoice is mailed to the customer
- It is earned, regardless of when cash is received (Correct answer)
- The accounting period ends
Correct answer: It is earned, regardless of when cash is received
Accrual accounting recognizes revenue when it is earned (goods/services delivered), not when cash changes hands.
Question 2: Which financial statement shows a company's assets, liabilities, and equity at a specific point in time?
- Income statement
- Statement of cash flows
- Balance sheet (Correct answer)
- Statement of retained earnings
Correct answer: Balance sheet
The balance sheet (statement of financial position) presents the accounting equation at a single date.
Question 3: A company purchases office supplies for $500 on credit. Which entry correctly records this transaction?
- Debit Supplies $500; Credit Cash $500
- Debit Accounts Payable $500; Credit Supplies $500
- Debit Supplies $500; Credit Accounts Payable $500 (Correct answer)
- Debit Cash $500; Credit Supplies $500
Correct answer: Debit Supplies $500; Credit Accounts Payable $500
Purchasing supplies on credit increases the Supplies asset (debit) and creates a liability in Accounts Payable (credit).
Question 4: What is the normal balance for an expense account?
- Credit
- Debit (Correct answer)
- Either debit or credit
- Zero
Correct answer: Debit
Expense accounts have a normal debit balance because expenses reduce owner's equity, which has a normal credit balance.
Question 5: The going concern assumption means that:
- The business will liquidate within one year
- Financial statements are prepared assuming the entity will continue operating indefinitely (Correct answer)
- All assets must be reported at market value
- The business has no outstanding liabilities
Correct answer: Financial statements are prepared assuming the entity will continue operating indefinitely
Going concern assumes the entity will remain in operation long enough to fulfill its obligations and business plans.
Question 6: If total assets are $150,000 and total liabilities are $90,000, what is the owner's equity?
- $240,000
- $90,000
- $60,000 (Correct answer)
- $150,000
Correct answer: $60,000
Applying the accounting equation: Equity = Assets − Liabilities = $150,000 − $90,000 = $60,000.
Question 7: Which account would be debited when a business receives cash from a customer for services not yet performed?
- Service Revenue
- Unearned Revenue
- Cash (Correct answer)
- Accounts Receivable
Correct answer: Cash
Cash is debited (increases) when received, while Unearned Revenue (a liability) is credited because the service is still owed.
CAT Accounting Technician Financial Reporting & Bookkeeping 2
Under the accrual basis of accounting, revenue is recognized when: