QCM : Fundamentals of Financial Accounting — 9 questions

Question 1

1. What does the term 'normal account balance' refer to in accounting?

The side (debit or credit) where decreases in an account are recorded

The amount by which an account exceeds its opposite side

The balance that is always zero in an account

The side (debit or credit) where increases in an account are recorded

Explication

The normal account balance is the side (debit or credit) on which increases to an account are recorded. Assets and expenses have a debit normal balance, while liabilities, equity, and revenues have a credit normal balance. This concept helps in correctly recording transactions.

Answer

The side (debit or credit) where increases in an account are recorded

Question 2

2. What is the normal balance of an asset account?

Debit

Credit

Neither debit nor credit

Both debit and credit equally

Explication

Asset accounts normally have a debit balance, meaning increases are recorded on the debit side, which reflects their nature of increasing assets.

Answer

To determine which accounts normally have credit balances and guide correct recording

Answer

Revenues earned

Answer

Retained Earnings

Answer

Overdrawn account or negative balance

Answer

Debit equipment, credit accounts payable

Answer

It totals debits and credits to check for equality

Answer

Supplies are recorded as an asset until used

Question 3

3. What is the primary role of credit balance criteria in accounting?

To determine which accounts normally have credit balances and guide correct recording

To specify the maximum allowable balance for each account

To decide which accounts are debited or credited in each transaction

To identify accounts that should always have zero balances

Explication

The credit balance criteria specify which accounts normally carry credit balances, such as liabilities, equity, and revenues, guiding correct recording and interpretation of account balances.

Question 4

4. In the expanded accounting equation, which of the following increases Retained Earnings?

Dividends paid

Expenses incurred

Revenues earned

Issuance of stock

Explication

Revenues increase Retained Earnings as they contribute to the company’s earnings, while dividends and expenses decrease it.

Question 5

5. In the expanded accounting equation, which of the following accounts is explicitly included to reflect the company's accumulated net income and distributions?

Retained Earnings

Common Stock

Accounts Payable

Supplies

Explication

Retained Earnings are explicitly included in the expanded accounting equation because they represent the accumulated net income minus dividends, reflecting the company's retained profits and distributions, thus impacting overall equity.

Question 6

6. What does a credit balance in a bank account typically indicate?

A positive cash balance

Overdrawn account or negative balance

A balanced account with no activity

An account in error

Explication

A credit balance in a bank account usually indicates that the account is overdrawn or has a negative balance, reflecting withdrawals exceeding deposits.

Question 7

7. According to journal entry rules, when equipment is purchased on credit, how is it recorded?

Debit equipment, credit accounts payable

Credit equipment, debit accounts payable

Debit cash, credit equipment

Credit cash, debit accounts payable

Explication

Purchasing equipment on credit involves debiting the Equipment account and crediting Accounts Payable, reflecting an increase in assets and liabilities respectively.

Question 8

8. Which of the following is true about a trial balance?

It lists only credit balances

It totals debits and credits to check for equality

It records transactions during the accounting period

It is prepared after the financial statements

Explication

A trial balance lists all debit and credit balances to ensure that total debits equal total credits, helping verify the accuracy of ledger postings.

Question 9

9. In managing supplies as an asset, which of the following is correct?

Supplies are expensed immediately upon purchase

Supplies are recorded as an asset until used

Supplies are a liability until paid for

Supplies do not affect the accounting equation

Explication

Supplies are initially recorded as an asset and expensed as they are used, reflecting their role in ongoing operations.

QCM : Fundamentals of Financial Accounting — 9 questions

Questions et réponses du QCM

1. What does the term 'normal account balance' refer to in accounting?

2. What is the normal balance of an asset account?

3. What is the primary role of credit balance criteria in accounting?

4. In the expanded accounting equation, which of the following increases Retained Earnings?

5. In the expanded accounting equation, which of the following accounts is explicitly included to reflect the company's accumulated net income and distributions?

6. What does a credit balance in a bank account typically indicate?

7. According to journal entry rules, when equipment is purchased on credit, how is it recorded?

8. Which of the following is true about a trial balance?

9. In managing supplies as an asset, which of the following is correct?

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