Master the Accounting Cycle: A Comprehensive Guide for Business Administration Students

Question 1

In the accounting cycle, which step marks the initial capture and documentation of economic events in the accounting system?

Accepted Answer

Recording transactions

Answer

Preparing financial statements

Answer

Posting to accounts

Answer

Closing the books

Question 2

Which step signifies the commencement of the accounting cycle?

Accepted Answer

Recording transactions in a journal

Answer

Preparing a trial balance

Answer

Adjusting entries to update account balances

Question 3

What's the first step in the accounting cycle?

Accepted Answer

Recording transactions

Answer

Posting to accounts

Answer

Preparing financial statements

Answer

Closing the books

Question 4

Which of the following is the first step in the accounting cycle?

Accepted Answer

Recording transactions

Answer

Posting to accounts

Answer

Preparing financial statements

Answer

Closing the books

Question 5

Which financial statement presents a comprehensive overview of a company's financial position at a specific point in time?

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of retained earnings

Question 6

Which of the following transactions would result in an increase in both an asset and a liability?

Accepted Answer

Purchasing inventory on account

Answer

Selling inventory for cash

Answer

Paying wages to employees

Answer

Depreciating equipment

Question 7

Explain the fundamental principle of the double-entry accounting system.

Accepted Answer

Each transaction is recorded twice, impacting both a debit and a credit account.

Answer

Only cash transactions are recorded.

Answer

Only credit transactions are recorded.

Answer

Financial statements are prepared only at year-end.

Question 8

Which type of account is used to track revenues and expenses over a specific period?

Accepted Answer

Temporary

Answer

Asset

Answer

Liability

Answer

Permanent

Question 9

What is the primary purpose of a trial balance?

Accepted Answer

To check for mathematical equality of debits and credits

Answer

To prepare financial statements

Answer

To close the books

Answer

To record transactions

Question 10

Which of the following is NOT a key feature of accrual accounting?

Accepted Answer

Financial statements are prepared on a strictly cash basis.

Answer

Transactions are recorded when they occur.

Answer

Expenses are recognized when incurred.

Answer

Income is recognized when earned.

Question 11

What is the primary purpose of an adjusting entry?

Accepted Answer

To record transactions that have occurred but have not yet been recorded in the accounts.

Answer

To close the books

Answer

To prepare financial statements

Answer

To record new transactions

Question 12

Which step in the accounting cycle involves creating a summary of financial transactions?

Accepted Answer

Preparing financial statements

Answer

Recording transactions

Answer

Posting to accounts

Answer

Closing the books

Question 13

The document used to initially record all financial transactions is called the:

Accepted Answer

Journal

Answer

Balance Sheet

Answer

Income Statement

Answer

Ledger

Question 14

The process of transferring journal entries to individual account balances is known as:

Accepted Answer

Posting

Answer

Recording

Answer

Summarizing

Answer

Adjusting

Question 15

The statement of cash flows includes the following sections:

Accepted Answer

Operating, Investing, Financing

Answer

Assets, Liabilities, Equity

Answer

Revenue, Expenses, Net Income

Answer

Income, Dividends, Retained Earnings

Question 16

The purpose of the closing process is to:

Accepted Answer

Move open accounts to temporarily closed accounts

Answer

Move temporarily closed accounts back to open

Answer

Close all accounts on the balance sheet

Answer

Close all accounts on the income statement

Question 17

Which is NOT a purpose of internal controls?

Accepted Answer

To increase expenses

Answer

To safeguard assets

Answer

To promote efficiency

Answer

To detect errors and fraud

Question 18

Identify the first step in the accounting cycle.

Accepted Answer

Recording Transactions

Answer

Posting to Accounts

Answer

Preparing Financial Statements

Answer

Closing the Books

Question 19

What is the primary function of a general journal?

Accepted Answer

Chronological recording of transactions

Answer

Classification of transactions into accounts

Answer

Summarization of transactions into financial statements

Answer

Closing of the books at the end of an accounting period

Question 20

Which financial statement provides insights into the financial health of a company at a specific moment in time?

Accepted Answer

Balance Sheet

Answer

Income Statement

Answer

Statement of Cash Flows

Answer

Statement of Retained Earnings

Question 21

Which characteristic is NOT a fundamental principle of double-entry accounting?

Accepted Answer

Transactions are recorded only when cash is received or paid

Answer

Every transaction affects at least two accounts

Answer

The total debits are always equal to the total credits

Answer

Financial statements are prepared at the end of each accounting period

Question 22

What is the primary purpose of a trial balance?

Accepted Answer

Validating the accuracy of accounting records

Answer

Preparing financial statements

Answer

Closing the books at the end of an accounting period

Answer

Adjusting the accounts for the effects of transactions

Question 23

Which type of adjusting entry is used to record depreciation?

Accepted Answer

Accumulated Depreciation Adjusting Entry

Answer

Prepaid Expenses Adjusting Entry

Answer

Unearned Revenue Adjusting Entry

Answer

Supplies Expense Adjusting Entry

Question 24

What is the defining distinction between an asset and a liability?

Accepted Answer

An asset represents a future economic benefit, while a liability represents a future obligation.

Answer

A liability represents a future economic benefit, while an asset represents a future obligation.

Answer

Assets are reported on the income statement, while liabilities are reported on the balance sheet.

Answer

Liabilities are reported on the income statement, while assets are reported on the balance sheet.

Question 25

Which accounting principle requires that revenues be recorded in the period in which they are earned, even if cash has not yet been received?

Accepted Answer

Accrual

Answer

Going Concern

Answer

Matching

Question 26

Which step in the accounting cycle marks the start of recording and processing financial transactions?

Accepted Answer

Recording Transactions

Answer

Preparing Financial Statements

Answer

Posting to Accounts

Answer

Closing the Books

Question 27

Which of the following is not a step in the accounting cycle?

Accepted Answer

Paying taxes

Answer

Recording transactions

Answer

Preparing financial statements

Answer

Closing the books

Question 28

What is the first step in the accounting cycle where financial transactions are officially recorded?

Accepted Answer

Recording Transactions

Answer

Preparing Financial Statements

Answer

Posting to Accounts

Answer

Closing the Books

Question 29

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Preparing taxes

Answer

Preparing the financial statements

Answer

Closing the books

Answer

Recording transactions

Question 30

The process of transferring data from a journal to ledger accounts is known as:

Accepted Answer

Posting

Answer

Summarizing

Answer

Preparing a trial balance

Answer

Journalizing

Question 31

Which financial statement summarizes the revenues and expenses of a company over a specific period of time?

Accepted Answer

Income Statement

Answer

Statement of Cash Flows

Answer

Statement of Owner's Equity

Answer

Balance Sheet

Question 32

The process of adjusting the balances of accounts at the end of an accounting period to prepare for closing is called:

Accepted Answer

Adjusting entries

Answer

Closing entries

Answer

Post-closing trial balance

Answer

Reversing entries

Question 33

Which of the following is the purpose of a trial balance?

Accepted Answer

To check the equality of debits and credits in the ledger

Answer

To prepare the financial statements

Answer

To identify errors in posting

Question 34

The process of transferring balances from temporary accounts to permanent accounts at the end of an accounting period is known as:

Accepted Answer

Closing entries

Answer

Posting

Answer

Reversing entries

Answer

Adjusting entries

Question 35

Which of the following accounts is a temporary account?

Accepted Answer

Sales Revenue

Answer

Land

Answer

Accounts Payable

Answer

Buildings

Question 36

Which of the following is a source document for recording transactions?

Accepted Answer

Sales invoice

Answer

Closing entries

Answer

Trial balance

Answer

Balance sheet

Question 37

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Preparing a budget

Answer

Analyzing financial statements

Answer

Recording transactions

Answer

Posting to accounts

Question 38

The process of transferring data from the journal to the ledger is known as:

Accepted Answer

Posting

Answer

Journalizing

Answer

Closing

Answer

Summarizing

Question 39

Which financial statement reports the company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Answer

Statement of Cash Flows

Answer

Income Statement

Answer

Statement of Owner's Equity

Question 40

The process of transferring balances from temporary accounts to permanent accounts is referred to as:

Accepted Answer

Closing

Answer

Summarizing

Answer

Reversing

Answer

Adjusting

Question 41

Identify the subtopic that focuses on the recording of financial transactions in the journal:

Accepted Answer

Recording Transactions

Answer

Closing the Books

Answer

Posting to Accounts

Answer

Preparing Financial Statements

Question 42

Which of the following accounts is a permanent account?

Accepted Answer

Accounts Receivable

Answer

Cost of Goods Sold

Answer

Sales Revenue

Question 43

Which of the following is NOT a benefit of using the accrual basis of accounting?

Accepted Answer

Simplicity

Answer

Accuracy

Answer

Conservatism

Answer

Timeliness

Question 44

Identify the concept that refers to the process of summarizing financial data and presenting it in a meaningful way:

Accepted Answer

Financial Statement Preparation

Answer

Posting to Accounts

Answer

Recording Transactions

Answer

Closing the Books

Question 45

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Preparing tax returns

Answer

Closing the books

Answer

Recording transactions

Answer

Preparing financial statements

Question 46

What is the primary purpose of a trial balance?

Accepted Answer

To check the equality of debits and credits

Answer

To close the books

Answer

To summarize all account balances

Answer

To prepare financial statements

Question 47

Which financial statement presents a snapshot of a company's financial health at a specific point in time?

Accepted Answer

Balance sheet

Answer

Statement of retained earnings

Answer

Income statement

Answer

Statement of cash flows

Question 48

What is the adjusting entry for prepaid rent?

Accepted Answer

Debit Rent Expense, Credit Prepaid Rent

Answer

Debit Prepaid Rent, Credit Rent Expense

Answer

Debit Cash, Credit Prepaid Rent

Answer

Debit Rent Expense, Credit Cash

Question 49

Which of the following financial ratios indicates a company's ability to pay its short-term obligations?

Accepted Answer

Current ratio

Answer

Gross profit margin

Answer

Debt-to-equity ratio

Answer

Return on investment

Question 50

What is the primary purpose of footnotes in financial statements?

Accepted Answer

To provide additional information about the financial results

Answer

To summarize the key financial data

Answer

To replace the need for an auditor's report

Answer

To manipulate the financial results