Accounting Fundamentals Challenge | 20 Essential Questions
Accounting Unlock beginner-friendly 20-question multiple-choice quiz covering the accounting equation, debits and credits, statements, accruals, journal entries and more. Each answer includes a clear teaching explanation.
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Quiz Questions & Answers
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Question 1: What is the main purpose of accounting?
To record, summarize, and report financial information
To guarantee business profits
To eliminate all taxes
To set product prices
Question 2: Which accounting equation is correct?
Assets = Revenue + Expenses
Assets = Liabilities + Equity
Equity = Assets + Liabilities
Liabilities = Assets + Equity
Question 3: Which item is an asset?
Accounts payable
Bank loan
Office equipment
Sales revenue
Question 4: Which item is a liability?
Cash
Accounts receivable
Owner's capital
Accounts payable
Question 5: What does equity represent?
Assets minus liabilities
Revenue minus expenses
Cash plus inventory
Total debt owed
Question 6: Which account normally has a debit balance?
Sales revenue
Cash
Accounts payable
Owner's capital
Question 7: Which account normally has a credit balance?
Rent expense
Inventory
Service revenue
Prepaid insurance
Question 8: A business buys equipment for cash. What happens?
Assets increase and liabilities increase
Equity increases
Total assets decrease
One asset increases and another decreases
Question 9: When a business receives cash from a customer for an existing receivable, what changes?
Cash increases; receivables decrease
Revenue increases again
Liabilities increase
Expenses decrease
Question 10: Which statement reports assets, liabilities, and equity at a point in time?
Income statement
Balance sheet
Cash flow statement
Statement of changes in equity
Question 11: Which statement reports revenue and expenses over a period?
Balance sheet
Bank reconciliation
Income statement
Trial balance
Question 12: Under accrual accounting, when is revenue generally recognized?
Only when cash arrives
Whenever an invoice is printed
When inventory is purchased
When earned by satisfying the related performance obligation
Question 13: A company pays 12 months of insurance in advance. What is initially recorded?
Prepaid insurance (asset)
Insurance expense for all 12 months
Accounts payable
Unearned revenue
Question 14: What is depreciation?
The market value increase of equipment
Allocation of a tangible asset's depreciable amount over useful life
Repayment of a loan
Reduction of sales revenue
Question 15: Which transaction increases both assets and liabilities?
Paying rent in cash
Owner withdrawing cash
Buying inventory on credit
Receiving cash from a customer who owes money
Question 16: What is a journal entry?
A list of customers
A product catalog
A financial forecast
A dated record of a transaction's debits and credits
Question 17: What is the purpose of a trial balance?
To check total debits equal total credits
To prove every transaction is error-free
To calculate cash flow directly
To replace financial statements
Question 18: An accrued expense is an expense that has been:
Paid before it was incurred
Incurred but not yet paid
Earned but not collected
Recorded as owner's capital
Question 19: A customer pays in advance for services not yet provided. What is recorded initially?
Service revenue
Accounts receivable
Unearned revenue (liability)
Owner's drawings
Question 20: What is net income?
Assets minus liabilities
Cash receipts minus cash payments
Total sales without deductions
Revenue minus expenses