CPB / BookKeeping Bookkeeping 5 — Questions and Answers
Question 1: Which of the following adjusting entries records revenue that has been earned but not yet received?
- Debit Unearned Revenue, Credit Revenue
- Debit Accounts Receivable, Credit Revenue (Correct answer)
- Debit Cash, Credit Revenue
- Debit Revenue, Credit Accounts Receivable
Correct answer: Debit Accounts Receivable, Credit Revenue
Accrued revenue is recorded by debiting Accounts Receivable and crediting Revenue to recognize income earned but not yet collected.
Question 2: What is the purpose of closing entries at the end of an accounting period?
- To update the general ledger balances
- To transfer temporary account balances to retained earnings (Correct answer)
- To reconcile the bank statement
- To prepare the adjusted trial balance
Correct answer: To transfer temporary account balances to retained earnings
Closing entries zero out temporary accounts (revenues, expenses, dividends) and transfer their net balances to Retained Earnings.
Question 3: A company uses the allowance method for bad debts. When a specific account is written off, the entry is:
- Debit Bad Debt Expense, Credit Accounts Receivable
- Debit Allowance for Doubtful Accounts, Credit Accounts Receivable (Correct answer)
- Debit Accounts Receivable, Credit Allowance for Doubtful Accounts
- Debit Cash, Credit Accounts Receivable
Correct answer: Debit Allowance for Doubtful Accounts, Credit Accounts Receivable
Under the allowance method, writing off a bad debt debits the Allowance and credits Accounts Receivable, with no impact on net income.
Question 4: Which inventory system updates the inventory account continuously after each purchase and sale?
- Periodic inventory system
- Perpetual inventory system (Correct answer)
- FIFO system
- Weighted average system
Correct answer: Perpetual inventory system
The perpetual inventory system maintains a running balance in the Inventory account, updating it with every transaction.
Question 5: If a company has total assets of $180,000 and total liabilities of $75,000, what is owner's equity?
- $255,000
- $75,000
- $105,000 (Correct answer)
- $180,000
Correct answer: $105,000
Owner's Equity = Assets − Liabilities = $180,000 − $75,000 = $105,000.
Question 6: Which of the following is an example of an accrued expense?
- Prepaid insurance
- Depreciation expense
- Wages earned but not yet paid (Correct answer)
- Supplies purchased in advance
Correct answer: Wages earned but not yet paid
Accrued expenses are costs incurred in the current period but not yet paid, such as wages owed to employees at period end.
Question 7: What does a debit balance in the Retained Earnings account indicate?
- The company has accumulated profits
- The company has a deficit (accumulated losses) (Correct answer)
- Dividends have been declared
- The account is in error
Correct answer: The company has a deficit (accumulated losses)
A debit balance in Retained Earnings is called a deficit and means cumulative losses exceed cumulative profits since inception.
CPB / BookKeeping Bookkeeping 5
Which of the following adjusting entries records revenue that has been earned but not yet received?