CPB / BookKeeping Bookkeeping 4 — Questions and Answers
Question 1: What type of account is 'Accumulated Depreciation'?
- Asset
- Contra asset (Correct answer)
- Expense
- Contra liability
Correct answer: Contra asset
Accumulated Depreciation is a contra asset account that offsets the cost of a fixed asset to show its net book value.
Question 2: Which of the following transactions increases both an asset and a liability?
- Owner invests cash
- Purchase supplies on account (Correct answer)
- Pay accounts payable
- Receive cash for services
Correct answer: Purchase supplies on account
Purchasing supplies on account increases Supplies (asset) and increases Accounts Payable (liability).
Question 3: The principle that expenses should be recognized in the same period as the revenues they help generate is called the:
- Revenue recognition principle
- Cost principle
- Matching principle (Correct answer)
- Full disclosure principle
Correct answer: Matching principle
The matching principle requires that expenses be recorded in the same accounting period as the revenues they helped produce.
Question 4: A check written by the company for $540 was mistakenly recorded in the cash payments journal as $450. This is a:
- Transposition error (Correct answer)
- Slide error
- Error of omission
- Compensating error
Correct answer: Transposition error
A transposition error occurs when digits are reversed (540 recorded as 450), and the difference is always divisible by 9.
Question 5: Which financial ratio measures a company's ability to meet short-term obligations using only its most liquid assets?
- Current ratio
- Quick (acid-test) ratio (Correct answer)
- Debt-to-equity ratio
- Gross profit margin
Correct answer: Quick (acid-test) ratio
The quick ratio excludes inventory and prepaid expenses, focusing on cash, marketable securities, and net receivables versus current liabilities.
Question 6: When goods are shipped FOB shipping point, who bears the freight cost and risk of loss in transit?
- The seller
- The buyer (Correct answer)
- The carrier
- Both buyer and seller equally
Correct answer: The buyer
FOB shipping point means ownership transfers to the buyer at the seller's dock, so the buyer bears freight costs and risk of loss during transit.
Question 7: Which account is credited when a company declares a cash dividend?
- Cash
- Retained Earnings
- Dividends Payable (Correct answer)
- Common Stock
Correct answer: Dividends Payable
When a cash dividend is declared, Dividends Payable (liability) is credited because the company now owes the dividend to shareholders.
CPB / BookKeeping Bookkeeping 4
What type of account is 'Accumulated Depreciation'?