CAT Accounting Technician Financial Reporting & Bookkeeping 3 — Questions and Answers
Question 1: Which of the following best describes a contra asset account?
- An account with a credit balance that offsets a related asset (Correct answer)
- An account used to record increases in assets
- A liability account paired with an asset
- An account that tracks owner withdrawals
Correct answer: An account with a credit balance that offsets a related asset
Contra asset accounts, like Accumulated Depreciation, carry a credit balance and reduce the gross value of the associated asset on the balance sheet.
Question 2: Depreciation expense is recorded on an asset to:
- Increase the asset's market value
- Allocate the cost of a long-term asset over its useful life (Correct answer)
- Write off an asset that is damaged beyond repair
- Record a cash payment for asset maintenance
Correct answer: Allocate the cost of a long-term asset over its useful life
Depreciation systematically allocates an asset's cost to expense periods that benefit from its use.
Question 3: A trial balance that is in balance guarantees that:
- No errors were made in the accounting records
- Total debits equal total credits in the ledger (Correct answer)
- All transactions have been recorded
- Financial statements are accurate
Correct answer: Total debits equal total credits in the ledger
A balanced trial balance only confirms that total debits equal total credits; it does not detect all types of errors.
Question 4: Which inventory costing method assumes the oldest units are sold first?
- LIFO
- FIFO (Correct answer)
- Weighted average
- Specific identification
Correct answer: FIFO
FIFO (First-In, First-Out) assumes the earliest purchased inventory is the first sold.
Question 5: An adjusting entry for accrued salaries expense would include:
- Debit Salaries Payable; Credit Salaries Expense
- Debit Salaries Expense; Credit Salaries Payable (Correct answer)
- Debit Cash; Credit Salaries Expense
- Debit Salaries Expense; Credit Cash
Correct answer: Debit Salaries Expense; Credit Salaries Payable
Accrued salaries increase the expense (debit) and create a liability (credit to Salaries Payable) for amounts earned but not yet paid.
Question 6: Which of the following would be classified as a current liability on the balance sheet?
- Mortgage payable due in 15 years
- Accounts payable due in 30 days (Correct answer)
- Long-term bonds payable
- Equipment loan due in 5 years
Correct answer: Accounts payable due in 30 days
Current liabilities are obligations due within one year, and accounts payable due in 30 days clearly qualifies.
Question 7: What is the purpose of a bank reconciliation?
- To close temporary accounts at year-end
- To adjust the general ledger for depreciation
- To identify and resolve differences between the company's cash records and the bank statement (Correct answer)
- To prepare the income statement
Correct answer: To identify and resolve differences between the company's cash records and the bank statement
A bank reconciliation compares the company's book balance with the bank statement balance and adjusts for outstanding items and errors.
CAT Accounting Technician Financial Reporting & Bookkeeping 3
Which of the following best describes a contra asset account?