Double-Entry Bookkeeping: Master the Basics of Accounting

Question 1

The fundamental principle of double-entry bookkeeping is:

Accepted Answer

For every transaction, there are two equal and opposite effects.

Answer

Assets always equal Liabilities plus Equity.

Answer

Debit the receiver, credit the giver.

Answer

The accounting period must be exactly one year.

Question 2

Which of the following is NOT a type of account in double-entry bookkeeping?

Accepted Answer

Memorandum

Answer

Asset

Answer

Liability

Answer

Expense

Question 3

The main purpose of a trial balance is to:

Accepted Answer

Check the mathematical accuracy of the ledger accounts.

Answer

Create the balance sheet.

Answer

Close the accounting period.

Answer

Record adjusting entries.

Question 4

An example of an adjusting entry is:

Accepted Answer

Depreciation of equipment.

Answer

Recording a sale of goods.

Answer

Payment of salaries.

Answer

Receipt of cash from a customer.

Question 5

What is the fundamental principle of double-entry bookkeeping?

Accepted Answer

Each transaction is recorded twice, with equal debits and credits.

Answer

Debit equals credit

Answer

Assets equal liabilities

Answer

Revenue equals expenses

Question 6

What is the purpose of a general ledger in double-entry bookkeeping?

Accepted Answer

To summarize transactions by account

Answer

To record individual transactions in chronological order

Answer

To prepare financial statements

Answer

To track cash flow

Question 7

What is the purpose of a trial balance?

Accepted Answer

To ensure the equality of debits and credits

Answer

To prepare the income statement

Answer

To calculate profit or loss

Answer

To record adjusting entries

Question 8

Which of the following is a closing entry?

Accepted Answer

Transfer revenue to retained earnings

Answer

Record a sale of goods

Answer

Pay an invoice

Answer

Receive cash for services

Question 9

Which of the following is NOT a type of adjusting entry?

Accepted Answer

Recording a purchase of office supplies

Answer

Accrued revenue

Answer

Depreciation

Answer

Prepaid expenses

Question 10

How does double-entry bookkeeping ensure the accuracy of financial records?

Accepted Answer

It requires every transaction to affect two accounts with equal and opposite amounts.

Answer

It uses different journals to record different types of transactions.

Answer

It mandates recording all transactions in chronological order.

Question 11

What is the primary purpose of a trial balance?

Accepted Answer

To check that the sum of debits equals the sum of credits.

Answer

To list all accounts and their current balances.

Answer

To prepare a balance sheet and an income statement.

Answer

To record transactions chronologically in the journal.

Question 12

What is the formula to calculate net income?

Accepted Answer

Revenue minus expenses.

Answer

Revenue plus profit.

Answer

Profit minus loss.

Answer

Assets minus liabilities.

Question 13

What is the primary purpose of closing entries?

Accepted Answer

To transfer balances from temporary accounts to permanent accounts.

Answer

To prepare financial statements.

Answer

To adjust accounts for the end of the accounting period.

Answer

To record transactions chronologically.

Question 14

What is the primary purpose of a journal entry?

Accepted Answer

To record a transaction in chronological order.

Answer

To summarize transactions by account.

Answer

To prepare financial statements.

Answer

To adjust accounts at the end of the accounting period.

Question 15

Which of the following accounts is classified as a contra-asset?

Accepted Answer

Accumulated depreciation

Answer

Cash

Answer

Accounts payable

Answer

Retained earnings

Question 16

What is the primary purpose of preparing a trial balance?

Accepted Answer

To verify debits equal credits, ensuring accounting accuracy.

Answer

To identify and correct errors in recorded transactions.

Answer

To summarize the balances of all accounts at a specific point in time.

Answer

To create the financial statements of a business.

Question 17

Which of the following transactions would require an adjusting entry?

Accepted Answer

Recognizing depreciation on fixed assets over time

Answer

Recording the sale of inventory

Answer

Issuing new shares to shareholders

Answer

Paying dividends to shareholders

Question 18

What is the main purpose of a balance sheet?

Accepted Answer

To provide a snapshot of a business's financial health at a specific date.

Answer

To show how much profit a business made over a period of time.

Answer

To track the flow of cash within a business

Answer

To evaluate the efficiency and effectiveness of a business's operations.

Question 19

What is the main purpose of an audit in the context of financial reporting?

Accepted Answer

To provide an independent assessment of the fairness and accuracy of financial statements.

Answer

To detect and prevent fraud or errors in financial records.

Answer

To prepare financial statements for a business or organization.

Answer

To analyze and evaluate the financial performance of a business.

Question 20

Which fundamental principle governs double-entry bookkeeping?

Accepted Answer

Every transaction impacts at least two accounts.

Answer

Transactions are recorded only once.

Answer

The accounting equation should always be in balance.

Answer

Assets equal liabilities plus owner's equity.

Question 21

What is the purpose of depreciation?

Accepted Answer

To spread the cost of an asset over its useful life.

Answer

To increase the reported value of an asset.

Answer

To reduce the tax liability of a business.

Answer

To create a fund for future asset replacement.

Question 22

What is the first step in recording a transaction in double-entry bookkeeping?

Accepted Answer

Identify the accounts affected.

Answer

Determine the amounts to be recorded.

Answer

Prepare a journal entry.

Answer

Post the entry to the ledger.

Question 23

Which account records the initial investment of owners in a business?

Accepted Answer

Capital

Answer

Drawings

Answer

Revenue

Answer

Expenses

Question 24

What characteristic is exclusive to double-entry bookkeeping?

Accepted Answer

Recording every transaction with both a debit and a credit

Answer

Maintaining a balanced accounting equation

Answer

Recording transactions chronologically

Answer

Using a single account for each transaction type

Question 25

How does double-entry bookkeeping ensure the accounting equation remains balanced?

Accepted Answer

By requiring that for every debit, there is an equal and opposite credit

Answer

By recording all transactions in a single chronological journal

Answer

By using a trial balance to verify the equality of debits and credits

Question 26

In double-entry bookkeeping, which of these is NOT an adjusting entry type?

Accepted Answer

Reversing entries

Answer

Accrued revenue

Answer

Depreciation

Answer

Deferred expense

Question 27

How does the accounting equation (Assets = Liabilities + Owner's Equity) ensure the accuracy of financial records?

Accepted Answer

It creates a balanced relationship between accounts, ensuring the accuracy of transactions.

Answer

It tracks the flow of cash transactions only, ensuring the accuracy of cash flow statements.

Answer

It requires each transaction to be recorded multiple times, minimizing the risk of errors.

Answer

It directly calculates profit or loss, ensuring the accuracy of financial performance.

Question 28

In double-entry bookkeeping, what's the key difference between a real account and a nominal account?

Accepted Answer

Real accounts track physical assets, while nominal accounts record income and expenses.

Answer

Real accounts are used for financial statements, while nominal accounts record transactions.

Answer

Real accounts have credit balances, while nominal accounts have debit balances.

Question 29

Which of the following accurately describes the fundamental principle of double-entry bookkeeping?

Accepted Answer

Every transaction affects at least two accounts, with equal and opposite effects

Answer

Debits must always be greater than credits

Answer

The total assets of a business are always equal to its liabilities

Question 30

Which of the following is an example of a nominal account?

Accepted Answer

Profit and Loss Account

Answer

Cash Account

Answer

Inventory Account

Answer

Property, Plant, and Equipment Account

Question 31

What is the primary purpose of a trial balance?

Accepted Answer

To verify the accuracy of the accounting records by ensuring debits equal credits

Answer

To calculate the profit or loss for a period

Answer

To prepare financial statements

Answer

To close the accounting records

Question 32

What is the overarching purpose of financial statements?

Accepted Answer

To provide relevant financial information about a business's performance and financial position

Answer

To calculate taxes owed by the business

Answer

To comply with legal requirements only

Question 33

Which of the following is a key component of the balance sheet?

Accepted Answer

Assets

Answer

Net income

Answer

Revenue

Answer

Expenses

Question 34

What is the primary purpose of a closing entry?

Accepted Answer

To transfer temporary account balances to permanent accounts, closing out the temporary accounts

Answer

To correct errors in accounting records

Answer

To prepare financial statements

Question 35

Which of the following is a primary advantage of using a computerized accounting system?

Accepted Answer

Increased accuracy and efficiency in recording and processing transactions

Answer

Lower overall accounting costs

Answer

More time available for manual tasks

Answer

Reduced need for professional accountants

Question 36

Describe the primary role of an accountant within a business organization.

Accepted Answer

To provide financial information and analysis to support decision-making

Answer

To market the business's products or services

Answer

To manage the day-to-day operations of the business

Question 37

Which of the following is a fundamental principle of double-entry bookkeeping?

Accepted Answer

Every transaction affects at least two accounts

Answer

Assets = Liabilities - Equity

Answer

The accounting equation is static and never changes

Answer

The Trial Balance must always balance

Question 38

Which of the following transactions would result in a credit to the Accounts Payable account?

Accepted Answer

Purchased inventory on credit

Answer

Received payment from a customer

Answer

Paid rent expense

Question 39

Which of the following is an advantage of using double-entry bookkeeping?

Accepted Answer

It helps to reduce the risk of errors and fraud

Answer

It can only be used for profit-making organizations

Answer

It is easy to learn and understand

Answer

It is not widely accepted as a standard accounting practice

Question 40

Which of the following is a limitation of using double-entry bookkeeping?

Accepted Answer

It can be time-consuming and labor-intensive

Answer

It is only suitable for certain types of organizations

Answer

It is difficult to audit

Question 41

Which of the following is a type of adjusting journal entry?

Accepted Answer

Accrued Expense

Answer

Reversing Entry

Answer

Opening Entry

Answer

Closing Entry

Question 42

Which of the following is NOT an example of a contra account?

Accepted Answer

Cash

Answer

Accumulated Depreciation

Answer

Allowance for Uncollectible Accounts

Answer

Prepaid Insurance

Question 43

Which of the following closing entries is used to close the Income Summary account?

Accepted Answer

Debit Income Summary, Credit Retained Earnings

Answer

Debit Dividends, Credit Retained Earnings

Answer

Debit Sales Revenue, Credit Accounts Receivable

Question 44

What is the primary purpose of a Trial Balance?

Accepted Answer

To check the mathematical equality of debits and credits in the ledger

Answer

To determine the net income or loss for a period

Answer

To prepare the financial statements

Question 45

Which of the following is NOT a fundamental principle of double-entry bookkeeping?

Accepted Answer

Transactions are recognized only upon receipt of cash.

Answer

Every transaction affects at least two accounts.

Answer

Debit and credit sides of accounts must balance.

Question 46

When recording a transaction in double-entry bookkeeping, the entry must include which of the following?

Accepted Answer

Date, accounts affected, amounts, and a brief description.

Answer

Account balances before and after the transaction.

Answer

Type of business entity.

Question 47

Identify the revenue account from the following:

Accepted Answer

Sales

Answer

Accounts Payable

Answer

Cash

Answer

Bank Loan

Question 48

The primary purpose of a Trial Balance is to:

Accepted Answer

Verify the equality of total debits and credits in the ledger.

Answer

Generate financial statements.

Answer

Detect all errors in accounting records.

Question 49

Which financial statement is NOT derived from the Trial Balance?

Accepted Answer

Statement of Cash Flows

Answer

Balance Sheet

Answer

Income Statement

Answer

Statement of Changes in Equity

Question 50

In the preparation of an Income Statement, expenses are:

Accepted Answer

Deducted from revenues.

Answer

Divided by revenues.

Answer

Added to revenues.

Answer

Multiplied by revenues.

Question 51

The reliability of double-entry bookkeeping stems from its ability to:

Accepted Answer

Ensure accurate and consistent recording of transactions.

Answer

Simplify bookkeeping processes.

Answer

Prevent fraud and errors entirely.

Question 52

Double-entry bookkeeping is prevalent in:

Accepted Answer

Businesses of various sizes and industries.

Answer

Non-profit organizations solely.

Answer

Large corporations exclusively.

Answer

Small businesses only.