Accounting Cycle MCQ Quiz With Answers

1. According to the rules of debit and credit for balance sheet accounts:

Increases in asset, liability, and owners' equity accounts are recorded by debits
Decreases in asset and liability accounts are recorded by credits
Increases in asset and owners' equity accounts are recorded by debits
Decreases in liability and owners' equity accounts are recorded by debits

2. Sunset Tours has a $3,500 account receivable from the Del Mar Rotary. On 20 January, the Rotary makes a partial payment of $2,100 to Sunset Tours. The journal entry made on 20 January by Sunset Tours to record this transaction includes:

A debit to the cash received account of $2,100
A credit to the accounts receivable account of $2,100
A debit to the cash account of $1,400
A debit to the accounts receivable account of $1,400

3. Tick all of the following statements that correctly describe net income. Net income:

Is equal to revenue minus the sum of expenses and dividends
Is equal to revenue minus the sum of expenses and dividends
Increases owners' equity
Is reported by a company for a specific period of time

4. Which of the following is provided by a trial balance where total debits are equal to total credits?

Proof that no transaction was completely omitted from the ledger during the posting process
Proof that the correct debit or credit balance has been computed for each account
Proof that the ledger is in balance
Proof that transactions have been correctly analyzed and recorded in the proper accounts

5. Which of the following explains the debit and credit rules relating to the recording of revenue and expenses?

Expenses appear on the left side of the balance sheet and are recorded by debits; revenue appears on the right side of the balance sheet and is recorded by credits
Expenses appear on the left side of the income statement and are recorded by debits; revenue appears on the right of the income statement and is recorded by credits
The effect of revenue and expenses on owners' equity
The realization principle and the matching principle

6. Which of the following is not considered an analytical aspect of the accounting profession?

Evaluating an organization's operational efficiency
Forecasting the probable results of future operations
Designing systems that provide information to decision-makers
Journalizing and posting business transactions

7. Tick all of the correct answers. In the accounting cycle:

Transactions are posted before they are journalized
A trial balance is prepared after journal entries have been posted
The retained earnings account is not shown as an up-to-date figure in the trial balance
Journal entries are posted to the appropriate ledger accounts

8. Tick all of the correct answers. Dividends:

Decrease owners' equity
Decrease net income
Are recorded by debting the dividend account
Are a business expense

9. The purpose of adjusting entries is to:

Adjust the retained earnings account for the revenue, expense, and dividends recorded during the accounting period.
Adjust the balances in asset, liability, revenue, and expense accounts on a daily basis for the effects of business transactions.
Apply the realization principle and the matching principle to transactions that affect two or more accounting periods.
Prepare revenue and expense accounts to record transactions for the next accounting period.

10. Before month-end adjustments are made, the trial balance of Rover Excursions on 31 January shows a revenue of $27,900 and expenses of $17,340. Adjustments are necessary for the following items:

Portion of prepaid rent applicable to January	$2,700
Depreciation for January	$1,440
Portion of fees collected in advance earned in January	$3,300
Fees earned in January not yet billed to customers	$1,950

What is the firm\'s net income for January?

$10,560
$17,070
$7,770
Some other amount $11,670 ($27,900 - $17,340 - $2,700 - $1,440 + $3,300 + $1,950)

11. A CPA firm auditing Mason Street Recording Studios has found that the total stockholders' equity was understated and liabilities were overstated. Which of the following errors could have been the cause?

Marking the adjusting entry for the depreciation expense twice
Failure to record interest accrued on notes payable
Failure to make the adjusting entry to record revenue that had been earned but not yet billed to clients
Failure to record the earned portion of fees received in advance

12. Suppose that Fisher Corporation usually earns taxable income but sustains a loss in the current period. In the following, indicate all of the correct answers. The entry to record income tax expenses in the current period will most likely be:

Increase the amount of that loss
Include a credit to the income taxes expense account
Be an adjusting entry rather than an entry to record a transaction completed during the period
Include a credit to income taxes payable

13. Highlight all of the following that apply. The concept of materiality:

Requires that financial statements be accurate to the nearest dollar, but need not show cents
Is based upon what financial statement users are thought to consider important
Allows accountants to ignore generally accepted accounting priciples in certain situations
Allows accountants to use the easiest and most convenient means of accounting for immaterial events

14. For a publicly-owned company, indicate which of the following accounting activities are likely to occur at or shortly after year-end. (More than one answer may be correct)

Preparation of income tax returns
Adjusting and closing accounts
Drafting disclosures to accompany financial statements
An audit of the financial statements by a firm of CPAs

15. Which of the following financial statements is generally prepared first?

Income statement
Balance sheet
Statement of retained earnings
Statement of cash flows

16. Which of the following accounts would never be reported in the income statement as an expense?

Depreciation expense
Income tax expense
Interest expense
Dividend expense

17. Which of the following accounts would never appear in the after-closing trial balance? (More than one answer may be correct)

Unearned revenue
Dividends
Accumulated depreciation
Income tax expense

18. Which of the following journal entries is required to close the income summary account of a profitable company?

Debit income summary, credit retained earnings
Credit income summary, debit retained earnings
Debit income summary, credit capital stock
Credit income summary, debit capital stock

19. Select any correct items for which generally accepted accounting principles require disclosure in notes accompanying the financial statements.

A target lawsuit was filed against the company two days after the balance sheet date
The depreciation method in use, given that several different methods are acceptable under generally accepted accounting principles
Whether small but long-lived items, such as electric pencil sharpeners and handheld calculators, are charged to asset or expense accounts
As of year-end, the chief executive officer had been hospitalized due to chest pains

20. Ski West adjusts its accounts at the end of each month but closes them only at the end of the calendar year on 31 December. The ending balances in the equipment rental revenue account and the cash account in February and March appear below.

	Feb. 28	Mar. 31
Cash	$14,200	$26,500
Equipment Rental Revenue	$12,100	$18,400

Ski West prepares financial statements showing separately the operating results of each month. In the financial statements prepared for the month ended 31 March, the equipment rental revenue and cash should appear as follows:

Equipment Rental Revenue $18,400, Cash $26,500
Equipment Rental Revenue $18,400, Cash, $12,300
Equipment Rental Revenue $6,300, Cash $26,500
Equipment Rental Revenue $6,300, Cash $12,300

21. Which of the following accounts is not closed to the income summary account at the end of the accounting period? (More than one answer may be correct)