Master the Accounting Cycle: A Comprehensive Guide for BA Students

Question 1

Which of the following transactions would result in a debit to Cash and a credit to Sales Revenue?

Accepted Answer

Selling goods to customers for cash

Answer

Buying inventory on account

Answer

Paying rent expense

Answer

Receiving a loan from the bank

Question 2

Which of the following documents is primarily used to record transactions chronologically?

Accepted Answer

Journal

Answer

Trial balance

Answer

Balance sheet

Answer

Income statement

Question 3

Which of the following accounts is classified as a temporary account?

Accepted Answer

Sales Revenue

Answer

Cash

Answer

Inventory

Answer

Retained Earnings

Question 4

What is the primary purpose of an adjusting entry?

Accepted Answer

To adjust the balances of accounts to their proper amounts at the end of a period

Answer

To record transactions that have not yet occurred

Answer

To correct errors in the accounting records

Answer

To close temporary accounts

Question 5

In the accounting cycle, which step involves transferring closing balances from nominal accounts to the capital account?

Accepted Answer

Closing the books

Answer

Preparing the trial balance

Answer

Posting to the general ledger

Answer

Preparing financial statements

Question 6

Which of the following is not considered an adjusting entry?

Accepted Answer

Paying dividends

Answer

Recording depreciation expense

Answer

Recognising accrued revenue

Answer

Adjusting prepaid expenses

Question 7

Identify the account type for 'Cash':

Accepted Answer

Real account

Answer

Nominal account

Answer

Personal account

Answer

Contra account

Question 8

Define an asset:

Accepted Answer

An economic resource controlled by an entity

Answer

An obligation owed by an entity

Answer

An expense incurred by an entity

Answer

A revenue earned by an entity

Question 9

Which financial ratio is used to measure a company's liquidity?

Accepted Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Return on equity

Answer

Gross profit margin

Question 10

What is the main purpose of a trial balance?

Accepted Answer

To verify the equality of debits and credits

Answer

To generate the income statement

Answer

To record all transactions for a period

Answer

To close the accounting books

Question 11

Which of the following is NOT considered a financial statement?

Accepted Answer

General ledger

Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Question 12

Express the fundamental accounting equation:

Accepted Answer

Assets = Liabilities + Owner's Equity

Answer

Assets - Liabilities = Owner's Equity

Answer

Liabilities = Owner's Equity - Assets

Answer

Owner's Equity = Assets + Liabilities

Question 13

Which account type is used to reduce the balance of an asset account?

Accepted Answer

Contra-asset account

Answer

Expense account

Answer

Liability account

Answer

Revenue account

Question 14

Which of the following is an example of an adjusting entry?

Accepted Answer

Recording depreciation expense for the period

Answer

Issuing new shares of stock

Answer

Paying salaries to employees

Answer

Purchasing inventory on account

Question 15

Identify the main goal of financial accounting:

Accepted Answer

To provide financial information to external users

Answer

To aid internal management in decision-making

Answer

To ensure compliance with tax regulations

Answer

To generate financial statements

Question 16

The document that initially records financial transactions is the:

Accepted Answer

General journal

Answer

General ledger

Answer

Trial balance

Answer

Balance sheet

Question 17

Which type of account is not closed at the end of an accounting period?

Accepted Answer

Retained earnings

Answer

Cash

Answer

Sales revenue

Answer

Cost of goods sold

Question 18

Which financial statement presents a company's assets, liabilities, and equity?

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of changes in equity

Question 19

The accounting principle that requires expenses to be recognized when incurred, regardless of payment, is known as the:

Accepted Answer

Accrual principle

Answer

Matching principle

Answer

Going concern principle

Answer

Consistency principle

Question 20

Which of the following financial ratios is used to measure a company's financial leverage?

Accepted Answer

Debt-to-equity ratio

Answer

Gross profit margin

Answer

Return on assets

Answer

Quick ratio

Question 21

The International Financial Reporting Standards (IFRS) are a set of accounting standards developed by:

Accepted Answer

The International Accounting Standards Board (IASB)

Answer

The Financial Accounting Standards Board (FASB)

Answer

The European Union (EU)

Answer

The United States Securities and Exchange Commission (SEC)

Question 22

The initial stage of the accounting cycle involves recording transactions in which document?

Accepted Answer

General Journal

Answer

General Ledger

Answer

Trial Balance

Answer

Financial Statements

Question 23

Which of the following accounts captures income generated from a company's core operations?

Accepted Answer

Sales Revenue

Answer

Accounts Receivable

Answer

Supplies Expense

Answer

Accrued Wages

Question 24

What is the primary purpose of preparing a trial balance?

Accepted Answer

To verify that the total debits equal the total credits in the accounting records.

Answer

To generate financial statements

Answer

To chronologically record transactions

Answer

To adjust for accruals and deferrals

Question 25

Which of the following transactions is considered an adjusting entry?

Accepted Answer

Recording depreciation expense for a period

Answer

Receiving cash from a customer

Answer

Paying rent for the current month

Answer

Purchasing inventory on account

Question 26

What is the main objective of closing entries?

Accepted Answer

To transfer balances from temporary accounts to permanent accounts

Answer

To adjust for accruals and deferrals

Answer

To prepare financial statements

Answer

To record transactions in the journal

Question 27

The fundamental accounting equation can be expressed as:

Accepted Answer

Assets = Liabilities + Equity

Answer

Assets = Liabilities - Equity

Answer

Liabilities = Assets + Equity

Answer

Equity = Assets - Liabilities

Question 28

Which of the following is a key principle of accrual accounting?

Accepted Answer

Revenue is recognized when it is earned, regardless of cash receipt.

Answer

Transactions are recorded only when cash is exchanged.

Answer

Expenses are recognized when they are paid.

Answer

Assets are recorded at their market value.

Question 29

What is a primary purpose of implementing internal controls?

Accepted Answer

To prevent fraud and ensure accuracy in financial reporting

Answer

To maximize profits and minimize expenses

Answer

To meet legal and regulatory requirements

Answer

To enhance customer satisfaction

Question 30

A key assumption of the going concern concept is that:

Accepted Answer

The business will continue to operate indefinitely.

Answer

The business's assets are worth more than its liabilities.

Answer

The business is currently profitable.

Answer

The business has a large and loyal customer base.

Question 31

Identify the initial step in the accounting cycle:

Accepted Answer

Record business transactions

Answer

Closing the books

Answer

Prepare financial statements

Question 32

What is the primary purpose of a trial balance?

Accepted Answer

Check for the equality of debits and credits

Answer

Generate the income statement

Answer

Record adjusting entries

Answer

Close the accounting period

Question 33

What is the primary objective of making adjusting entries?

Accepted Answer

Update account balances to reflect the most accurate information

Answer

Close the accounting period

Answer

Correct errors from previous entries

Question 34

Which financial statement provides a snapshot of a company's assets, liabilities, and equity at a specific point in time?

Accepted Answer

Balance sheet

Answer

Statement of cash flows

Answer

Income statement

Answer

Statement of retained earnings

Question 35

What is the purpose of the closing process in accounting?

Accepted Answer

Transfer balances from temporary accounts to permanent accounts

Answer

Record adjusting entries

Answer

Prepare the financial statements

Question 36

When classifying business transactions, which factor is NOT taken into consideration?

Accepted Answer

Immateriality

Answer

Frequency

Answer

Impact

Answer

Nature

Question 37

State the fundamental accounting equation:

Accepted Answer

Assets = Liabilities + Owner's Equity

Answer

Income - Expenses = Retained Earnings

Answer

Assets + Liabilities = Equity

Answer

Revenue = Expenses + Net Income

Question 38

Identify the primary purpose of financial accounting:

Accepted Answer

Provide financial information to external users

Answer

Guide day-to-day operations

Answer

Monitor internal controls