Free Accounting Basics Question and Answers

Question 1

What amount does an asset typically appear on a balance sheet as?

Accepted Answer

Cost

Answer

According to the historical cost principle in accounting, assets are typically recorded on the balance sheet at their original purchase price or cost. This principle provides objective and verifiable information, ensuring consistency and reliability in financial reporting. It dictates that the initial cost is the basis for valuation, regardless of subsequent market value fluctuations.

Question 2

When which of the following occurs, expenses are reported in the accounting period under the accrual method of accounting.

Accepted Answer

An Expense Matches The Revenues Or Is Up

Answer

Under the accrual method of accounting, expenses are recognized and reported in the period in which they are incurred, regardless of when cash is paid. This is driven by the matching principle, which dictates that expenses should be matched with the revenues they helped generate or recognized when they are used up. This approach accurately reflects a company's profitability for a given period.

Question 3

What often results in an asset account growing?

Accepted Answer

Debit

Answer

In the double-entry accounting system, asset accounts are increased by debits. A debit entry on the left side of a T-account signifies an increase in an asset account. This fundamental rule ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced with every transaction.

Question 4

Which financial statement summarizes the income and outgoings for a given time frame, such as a month or year?

Accepted Answer

Income Statement

Answer

The Income Statement, also known as the Profit and Loss (P&L) statement, summarizes a company's revenues, expenses, gains, and losses over a specific accounting period, such as a month, quarter, or year. It provides crucial insight into the company's financial performance and profitability during that defined period.

Question 5

What kind of account is Unearned Revenues?

Accepted Answer

Liability

Answer

Unearned Revenue is classified as a liability account. It represents money received by a company for goods or services that have not yet been delivered or performed. This means the company has an obligation to provide those goods or services to the customer in the future, making it a liability until the service is rendered or goods are delivered.

Accounting Online Program Practice Test

Accounting Online Program Practice Test

Free Accounting Basics Question and Answers