Master the Accounting Cycle: A Comprehensive Guide for BSc Students

Question 1

In the accounting cycle, what step directly follows the recording of transactions in the journal?

Accepted Answer

Posting to the ledger

Answer

Preparing the trial balance

Answer

Preparing the financial statements

Answer

Recording transactions in the journal

Question 2

What is the primary purpose of a trial balance?

Accepted Answer

To summarize account balances for review

Answer

To identify errors in transaction recording

Answer

To generate financial statements

Answer

To close temporary accounts

Question 3

Which journal entry type is used to document the purchase of inventory on account?

Accepted Answer

Purchases

Answer

Sales

Answer

Cash receipts

Answer

Cash payments

Question 4

What is the fundamental distinction between a debit and a credit?

Accepted Answer

Debits increase assets and expenses, while credits increase liabilities and revenue

Answer

Credits increase assets and expenses, while debits increase liabilities and revenue

Answer

Debits and credits both increase assets and expenses

Answer

Debits and credits both increase liabilities and revenue

Question 5

What is the primary objective of closing entries?

Accepted Answer

To transfer revenue and expense account balances to retained earnings

Answer

To adjust account balances for the current period

Answer

To rectify errors in previous accounting periods

Answer

To prepare the trial balance

Question 6

The primary purpose of a journal is to:

Accepted Answer

Record transactions in chronological order

Answer

Classify transactions into categories

Answer

Summarize transactions for reporting purposes

Answer

Prepare financial reports

Question 7

Which of the following is the initial step in the accounting cycle?

Accepted Answer

Journalizing transactions

Answer

Preparing a trial balance

Answer

Posting to the ledger

Answer

Preparing financial statements

Question 8

What document serves as the primary source for recording business transactions?

Accepted Answer

Journal

Answer

Ledger

Answer

Trial balance

Answer

Financial statements

Question 9

Which of the following is a component of the income statement?

Accepted Answer

Revenues

Answer

Assets

Answer

Liabilities

Answer

Capital

Question 10

Which financial statement reports changes in owner's equity?

Accepted Answer

Statement of changes in equity

Answer

Income statement

Answer

Statement of financial position

Answer

Statement of cash flows

Question 11

Which financial statement provides a snapshot of a company's financial position at a specific point in time?

Accepted Answer

Statement of financial position

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of retained earnings

Question 12

What is the main reason for making adjusting entries in the accounting cycle?

Accepted Answer

To adjust account balances to their actual amounts at the end of the accounting period

Answer

To correct errors in recording transactions

Answer

To prepare financial statements for the next accounting period

Answer

To close temporary accounts and transfer their balances to permanent accounts

Question 13

The initial step in the accounting cycle involves:

Accepted Answer

Recording transactions in the journal

Answer

Posting transactions to the ledger

Answer

Preparing the trial balance

Answer

Adjusting the accounts

Question 14

An adjusting entry is not used to:

Accepted Answer

Record cash receipts

Answer

Record accrued expenses

Answer

Record prepaid expenses

Answer

Record depreciation

Question 15

Accrual accounting emphasizes:

Accepted Answer

Recording transactions when revenue is earned or expenses are incurred

Answer

Recording transactions when cash is received or paid

Answer

Valuing assets at their historical cost

Answer

Valuing liabilities at their current market value

Question 16

What's the first step in the accounting cycle?

Accepted Answer

Recording transactions in a journal

Answer

Posting transactions to the general ledger

Answer

Preparing a trial balance

Answer

Adjusting entries

Question 17

In the accounting cycle, which step is NOT involved?

Accepted Answer

Distributing dividends to shareholders

Answer

Recording transactions in the journal

Answer

Posting transactions to the ledger

Answer

Preparing a trial balance

Question 18

Which type of account increases when debited?

Accepted Answer

Asset

Answer

Liability

Answer

Equity

Answer

Revenue

Question 19

What is the primary purpose of a trial balance?

Accepted Answer

To check the equality of total debits and total credits

Answer

To summarize account balances at a specific point in time

Answer

To record all financial transactions

Answer

To generate financial statements

Question 20

Which of the following is NOT an example of an adjusting entry?

Accepted Answer

Recording a sale

Answer

Recording accrued expenses

Answer

Depreciating a building

Answer

Adjusting prepaid insurance

Question 21

What is the main purpose of closing entries?

Accepted Answer

To transfer balances from temporary to permanent accounts

Answer

To prepare the trial balance

Answer

To issue financial statements

Answer

To record adjusting entries

Question 22

A key characteristic of accrual accounting is that:

Accepted Answer

Transactions are recorded when they occur

Answer

Transactions are recorded when cash is received or paid

Answer

Only cash transactions are recorded

Answer

Expenses are only recognized when paid

Question 23

The matching principle in accounting refers to the concept that:

Accepted Answer

Revenues and expenses should be matched in the same accounting period

Answer

Assets should be valued at their fair market value

Answer

Liabilities should be recorded at their present value

Answer

Financial statements should be prepared on a consistent basis

Question 24

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Analyzing financial statements

Answer

Recording transactions

Answer

Preparing trial balance

Answer

Closing books

Question 25

The purpose of a journal entry in the accounting cycle is to:

Accepted Answer

Record a financial transaction

Answer

Summarize account balances

Answer

Prepare financial statements

Answer

Close revenue and expense accounts

Question 26

Which of the following is a purpose of the trial balance?:

Accepted Answer

Checking the accuracy of journal entries

Answer

Creating the income statement

Answer

Closing the books

Answer

Reporting financial results to external users

Question 27

Which of the following accounts is a temporary account?

Accepted Answer

Accumulated depreciation

Answer

Cash

Answer

Accounts receivable

Answer

Retained earnings

Question 28

Which of the following is **NOT** a step in the accounting cycle?

Accepted Answer

Distribute income to shareholders

Answer

Prepare financial statements

Answer

Prepare trial balance

Answer

Record transactions in a journal

Question 29

Which financial statement provides information about a company's financial performance over a specific period?

Accepted Answer

Income statement

Answer

Statement of changes in equity

Answer

Statement of cash flows

Answer

Balance sheet

Question 30

What is the main purpose of closing entries?

Accepted Answer

To transfer balances from temporary accounts to permanent accounts

Answer

To prepare the trial balance

Answer

To correct errors in accounting records

Question 31

Define the concept of double-entry accounting.

Accepted Answer

Recording each transaction with equal debits and credits

Answer

Recording transactions only once

Answer

Using different accounts for different types of transactions

Question 32

Which of the following is an example of an accrued expense?

Accepted Answer

Unpaid wages

Answer

Accounts receivable

Answer

Cash in bank

Answer

Prepaid insurance

Question 33

What is the primary purpose of making adjusting entries?

Accepted Answer

To update the accounting records to reflect current financial conditions

Answer

To prepare the trial balance

Answer

To correct errors in accounting records

Question 34

What is a key benefit of using an accounting cycle?

Accepted Answer

Ensuring the accuracy and reliability of financial information

Answer

Reducing the time spent on accounting tasks

Answer

Simplifying the tax filing process

Question 35

As the first step of the accounting cycle, what is the initial step to record financial transactions?

Accepted Answer

Journalizing transactions

Answer

Closing the accounting books

Answer

Preparing financial statements

Answer

Preparing the trial balance

Question 36

Which of the following activities is NOT a core step in the accounting cycle?

Accepted Answer

Preparing marketing plans

Answer

Preparing financial statements

Answer

Analyzing transactions

Answer

Journalizing transactions

Question 37

A company buys inventory on credit. In which journal would this transaction be recorded?

Accepted Answer

Purchases journal

Answer

Sales journal

Answer

General journal

Answer

Cash receipts journal

Question 38

What is the primary purpose of a trial balance?

Accepted Answer

To verify that total debits equal total credits

Answer

To summarize all assets and liabilities

Answer

To prepare the income statement

Answer

To record all business transactions

Question 39

Which of the following accounts is classified as an asset?

Accepted Answer

Accounts receivable

Answer

Dividends payable

Answer

Sales revenue

Answer

Unearned revenue

Question 40

A company pays its employees' salaries in cash. In which journal would this transaction be recorded?

Accepted Answer

Cash disbursements journal

Answer

Cash receipts journal

Answer

Sales journal

Answer

Purchases journal

Question 41

What is the main purpose of adjusting entries in the accounting cycle?

Accepted Answer

To ensure that revenues and expenses are recognized in the correct accounting period

Answer

To prepare the balance sheet

Answer

To record all cash transactions

Question 42

Which statement is TRUE about the accounting cycle?

Accepted Answer

It's an ongoing process that repeats for every new accounting period.

Answer

It's only completed at the year's end.

Answer

It's used only for small businesses.

Question 43

A company receives a utility bill but doesn't pay it immediately. How would this transaction be recorded?

Accepted Answer

Debit Utilities Expense, Credit Accounts Payable

Answer

Debit Accounts Payable, Credit Utilities Expense

Answer

Debit Cash, Credit Utilities Expense

Answer

Debit Utilities Expense, Credit Cash

Question 44

Which statement is FALSE about the closing process?

Accepted Answer

It records all transactions for the next accounting period

Answer

It sets temporary accounts back to zero balances

Answer

It transfers net income or loss to retained earnings