Depreciation and Accruals: Master Accounting Fundamentals

Question 1

Which of the following is NOT a commonly used depreciation method?

Accepted Answer

Sinking fund method

Answer

Straight-line method

Answer

Units-of-production method

Answer

Double-declining balance method

Question 2

Which depreciation method evenly distributes depreciation expense over the asset's useful life?

Accepted Answer

Straight-line method

Answer

Units-of-production method

Answer

Double-declining balance method

Answer

Depletion method

Question 3

Which accrual entry accurately records a delivery expense incurred in December but not recorded until January?

Accepted Answer

Debit Accrued Delivery Expense, Credit Delivery Expense

Answer

Debit Delivery Expense, Credit Accrued Delivery Expense

Answer

Debit Delivery Expense, Credit Prepaid Delivery Expense

Answer

Debit Accrued Delivery Expense, Credit Accounts Payable

Question 4

Which account receives a credit entry to record depreciation expense?

Accepted Answer

Accumulated Depreciation

Answer

Depreciation Expense

Answer

Fixed Assets

Answer

Retained Earnings

Question 5

A machine is purchased for £10,000 on January 1st, 2023, with a 5-year useful life and no salvage value. Calculate the annual depreciation expense using the straight-line method.

Accepted Answer

£2,000

Answer

£2,500

Answer

£5,000

Answer

£10,000

Question 6

Which of the following is NOT a primary purpose of depreciation?

Accepted Answer

Generating cash flow

Answer

Matching expenses with revenues

Answer

Allocating fixed asset costs over their useful life

Answer

Reducing the carrying value of assets on the balance sheet

Question 7

When is accrued revenue recognized in the accounting records?

Accepted Answer

Upon performance of service

Answer

Upon receipt of cash

Answer

Upon issuance of invoice

Answer

Upon signing of contract

Question 8

Which depreciation method results in a higher depreciation expense in the early years of an asset's life?

Accepted Answer

Double-declining balance method

Answer

Straight-line method

Answer

Units-of-production method

Answer

Sum-of-the-years'-digits method

Question 9

Which factor is NOT relevant when estimating the useful life of an asset?

Accepted Answer

Current market value

Answer

Expected usage

Answer

Anticipated physical wear and tear

Answer

Technological advancements

Question 10

Explain the matching principle and its significance in accrual basis accounting.

Accepted Answer

Expenses are recognized when incurred, and revenues are recognized when earned.

Answer

Expenses and revenues are recognized when cash flows occur.

Answer

Depreciation is a method to allocate an asset's cost over its lifespan.

Answer

Accruals adjust financial statements for transactions that have not yet taken place.

Question 11

How do depreciation and accruals affect the balance sheet and income statement?

Accepted Answer

Depreciation reduces asset values on the balance sheet, while accruals increase expenses and liabilities on the income statement.

Answer

Depreciation increases asset values on the balance sheet, while accruals decrease expenses and liabilities on the income statement.

Answer

Both depreciation and accruals have no impact on the balance sheet or income statement.

Question 12

Which of the following factors does NOT affect the calculation of depreciation expense?

Accepted Answer

Current market value of the asset

Answer

Estimated useful life of the asset

Answer

Estimated salvage value of the asset

Answer

Expected usage of the asset

Question 13

Which of the following accounts is used to record depreciation expense under UK GAAP?

Accepted Answer

Depreciation Expense

Answer

Accumulated Depreciation

Answer

Depreciation Clearing Account

Answer

Prepaid Depreciation

Question 14

What are the two primary types of accruals recognized under UK GAAP?

Accepted Answer

Revenue accruals and expense accruals

Answer

Expense accruals and liability accruals

Answer

Revenue accruals and asset accruals

Answer

Liability accruals and equity accruals

Question 15

Which of the following methods is NOT used for calculating depreciation?

Accepted Answer

Sinking fund method

Answer

Straight-line method

Answer

Double-declining balance method

Answer

Amortization

Question 16

What is the primary purpose of recording depreciation?

Accepted Answer

To allocate the cost of tangible assets over their useful lives

Answer

To reduce taxable income

Answer

To provide a fund for future asset replacement

Answer

To enhance financial reporting for investors

Question 17

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

Accepted Answer

Salaries payable

Answer

Inventory

Answer

Prepaid insurance

Answer

Land

Question 18

What is the main difference between depreciation and amortization?

Accepted Answer

Depreciation is for tangible assets, while amortization is for intangible assets

Answer

Depreciation reduces the asset's book value, while amortization reduces the expense balance

Answer

Depreciation is a periodic expense, while amortization is a lump sum expense

Answer

Depreciation is tax-deductible, while amortization is not

Question 19

What is a key benefit of using accrual accounting?

Accepted Answer

Provides a more accurate representation of a company's financial performance

Answer

Simplifies the accounting process

Answer

Reduces the likelihood of fraud

Answer

Increases tax liability

Question 20

Which formula is used to calculate straight-line depreciation?

Accepted Answer

(Cost - Residual Value) / Useful Life

Answer

(Cost + Residual Value) / Useful Life

Answer

(Cost / Useful Life) - Residual Value

Answer

Cost - (Residual Value / Useful Life)

Question 21

Which factor is NOT considered when estimating the useful life of an asset?

Accepted Answer

Current market value

Answer

Expected usage

Answer

Technological advancements

Answer

Maintenance costs

Question 22

What is the accounting entry for an accrued revenue?

Accepted Answer

Debit Accounts Receivable, Credit Revenue

Answer

Credit Accounts Receivable, Debit Revenue

Answer

Debit Revenue, Credit Accounts Payable

Answer

Credit Revenue, Debit Accounts Payable

Question 23

Which of the following is NOT a potential consequence of failing to record accruals?

Accepted Answer

Increased net income

Answer

Overstated assets

Answer

Understated liabilities

Answer

Misleading financial statements

Question 24

Which depreciation method allocates the asset's cost evenly over its useful life?

Accepted Answer

Straight-line method

Answer

Reducing-balance method

Answer

Units-of-production method

Answer

Sum-of-the-years'-digits method

Question 25

What is the process of recording expenses or revenues before they occur?

Accepted Answer

Accrual

Answer

Deferral

Answer

Depreciation

Answer

Amortization

Question 26

Which account type reduces the balance of an asset account?

Accepted Answer

Contra asset account

Answer

Liability account

Answer

Equity account

Answer

Revenue account

Question 27

Which formula calculates depreciation using the reducing-balance method?

Accepted Answer

Depreciation = (Book Value * Depreciation Rate)

Answer

Depreciation = (Cost - Accumulated Depreciation)

Answer

Depreciation = (Acquisition Cost / Useful Life)

Answer

Depreciation = (Cost * Salvage Value / Useful Life)

Question 28

How does depreciation impact the income statement?

Accepted Answer

Increases expenses

Answer

Decreases expenses

Answer

Increases assets

Answer

Decreases assets

Question 29

Which factor is not considered when determining an asset's useful life?

Accepted Answer

Legal compliance

Answer

Physical lifespan

Answer

Technological advancements

Answer

Volume of usage

Question 30

Which accrual account type recognizes revenue earned but not yet received?

Accepted Answer

Accrued revenue

Answer

Unearned revenue

Answer

Deferred revenue

Answer

Prepaid revenue

Question 31

What is the purpose of adjusting entries related to depreciation?

Accepted Answer

To update the depreciation expense for the period

Answer

To reduce the asset's carrying value

Answer

To allocate the asset's cost over its useful life

Answer

To create a contra asset account

Question 32

Which of the following is NOT a commonly used method to calculate depreciation?

Accepted Answer

Present value method

Answer

Straight-line method

Answer

Declining-balance method

Answer

Units-of-production method

Question 33

What is the primary purpose of recording accruals?

Accepted Answer

To recognize transactions that have occurred but have not yet been recorded

Answer

To estimate the value of assets and liabilities not yet realized

Answer

To correct errors in the financial statements

Answer

To reduce taxable income

Question 34

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

Accepted Answer

Salaries payable

Answer

Unearned revenue

Answer

Prepaid insurance

Answer

Accumulated depreciation

Question 35

What is the formula for calculating depreciation using the straight-line method?

Accepted Answer

Depreciation expense = (Cost of asset - Residual value) / Useful life

Answer

Depreciation expense = (Cost of asset - Accumulated depreciation) / Useful life

Answer

Depreciation expense = Cost of asset / Useful life

Answer

Depreciation expense = Residual value / Useful life

Question 36

What is an advantage of using the declining-balance method of depreciation?

Accepted Answer

It results in a higher depreciation expense in the early years of an asset's life

Answer

It simplifies the calculation of depreciation

Answer

It is required by GAAP

Answer

It has no advantages over other methods

Question 37

What is the key difference between a capital expenditure and a revenue expenditure?

Accepted Answer

Capital expenditures benefit the business for more than one year, while revenue expenditures benefit the business for less than one year

Answer

Capital expenditures are expensed immediately, while revenue expenditures are capitalized

Answer

Revenue expenditures are tax-deductible, while capital expenditures are not

Answer

Capital expenditures increase the value of the business, while revenue expenditures do not

Question 38

What is the accounting treatment for a disposal of a fixed asset?

Accepted Answer

Debit the gain or loss account and credit the fixed asset account for the difference between the carrying amount and the disposal proceeds

Answer

Debit the accumulated depreciation account and credit the fixed asset account for the carrying amount

Answer

Debit the fixed asset account and credit the accumulated depreciation account for the carrying amount

Answer

Debit the fixed asset account and credit the gain or loss account for the difference between the carrying amount and the disposal proceeds

Question 39

Which of the following methods distributes depreciation expense evenly over the asset's useful life?

Accepted Answer

Straight-line method

Answer

Units-of-production method

Answer

Declining-balance method

Question 40

What is the primary purpose of recording accruals in accounting?

Accepted Answer

To recognize financial transactions that have occurred but have not yet been recorded in the accounting records.

Answer

To create a reserve for contingent liabilities.

Answer

To adjust the value of inventory.

Question 41

Which of the following would be classified as an expense accrual?

Accepted Answer

Unpaid salaries

Answer

Depreciation

Answer

Prepaid insurance

Answer

Unearned revenue

Question 42

Which of the following factors is typically NOT considered when estimating the useful life of an asset for depreciation purposes?

Accepted Answer

Current market value

Answer

Expected usage

Answer

Physical condition

Answer

Technological advancements

Question 43

What is the result of reversing an accrual on the financial statements?

Accepted Answer

Eliminates both the accrual and its effect on the financial statements.

Answer

Increases the accrual and its effect on the financial statements.

Answer

Decreases the accrual but retains its effect on the financial statements.

Question 44

Which of the following is a limitation of the straight-line method of depreciation?

Accepted Answer

Does not reflect the diminishing value of an asset over its useful life.

Answer

Requires complex calculations.

Answer

Can lead to understating depreciation expense in the early years.

Question 45

What is the primary purpose of a depreciation schedule?

Accepted Answer

To calculate the depreciation expense for an asset over its useful life.

Answer

To determine the salvage value of an asset.

Answer

To track the historical cost of an asset.

Question 46

Which of the following is a key advantage of using accrual accounting?

Accepted Answer

Provides a more accurate representation of a company's financial performance

Answer

Reduces the amount of paperwork required

Answer

Simplifies the accounting process

Question 47

Which depreciation method results in the highest depreciation expense in the early years of an asset's life?

Accepted Answer

Double-declining balance method

Answer

Units-of-production method

Answer

Sum-of-the-years'-digits method

Answer

Straight-line method

Question 48

Which account is used to record the accumulated depreciation of an asset?

Accepted Answer

Accumulated Depreciation

Answer

Retained Earnings

Answer

Depreciation Expense

Answer

Fixed Assets

Question 49

What is the primary purpose of recording depreciation?

Accepted Answer

To allocate the cost of an asset over its useful life

Answer

To increase the value of an asset

Answer

To reduce the amount of taxes paid

Question 50

What is a key difference between accrual accounting and cash basis accounting?

Accepted Answer

Accrual accounting records transactions when they occur, regardless of cash flow, while cash basis accounting records transactions only when cash is received or paid.

Answer

Accrual accounting only records transactions related to cash.

Answer

Both methods record transactions when cash is received or paid.