Take this short quiz to assess your knowledge of basic accounting. The 20 questions include many topics covered in a typical Accounting 101 class. Answers with explanations are at the end of the test. Award yourself five points for each correct answer to calculate a grade out of 100% (and if you really needed me to explain that math, reconsider accounting as a career). For each incorrect answer, consider hitting the books.

20 Basic Accounting Test Questions

  1. Which of the following is not a core financial statement?

    1. The Income Statement
    2. Statement of Cash Flows
    3. The Trial Balance
    4. The Balance Sheet
  2. The income statement, which presents the results of operations, can be prepared in many forms including:

    1. The Income Statement
    2. Statement of Cash Flows
    3. The Trial Balance
    4. The Balance Sheet
  3. Which of the following account types increase by debits in double-entry accounting?

    1. Assets, Expenses, Losses
    2. Assets, Revenue, Gains
    3. Expenses, Liabilities, Losses
    4. Gains, Expenses, Liabilities
  4. Which of the following is true?

    1. Accounts receivable are found in the current asset section of a balance sheet.
    2. Accounts receivable increase by credits.
    3. Accounts receivable are generated when a customer makes payments.
    4. Accounts receivable become more valuable over time.
  5. A company that uses the cash basis of accounting will:

    1. Record revenue when it is collected.
    2. Record revenue when it is earned.
    3. Record revenue at the same time as accounts receivable.
    4. Record bad debt expense on the income statement.
  6. What are the main sections on a balance sheet?

    1. Assets, liabilities, income
    2. Assets, liabilities, equity
    3. Assets, liabilities, expenses
    4. Assets, gains, revenue
  7. How are a company's financial statements used?

    1. For internal analysis
    2. For external negotiation
    3. For compliance
    4. All of the above
  8. Which of the following scenarios increases accounts payable?

    1. A customer fails to pay an invoice.
    2. A supplier delivers raw materials on credit.
    3. Office supplies are purchased with cash.
    4. None of the above
  9. Which of the following must a certified public accountant (CPA) have in-depth knowledge of to pass the CPA licensing exam? (Check all that apply.)

    1. Accounting software packages
    2. Auditing
    3. Derivatives
    4. International banking laws
  10. What is the result of the following transaction for Company A? Company A's customer is unable to pay for a previous credit sale in accordance with Company A's 90-day payment terms. The customer makes a promissory note to Company A that extends payment over a 24-month term including 5% interest.

    1. No result because the customer didn't pay.
    2. Accounts receivable increases because of the interest.
    3. A note receivable is recorded in non-current assets.
    4. Company A records the loan as a liability.
  11. When are liabilities recorded under the accrual basis of accounting?

    1. When incurred
    2. When paid
    3. At the end of the fiscal year
    4. When bank accounts are reconciled
  12. Which is true about time in accounting?

    1. Current liabilities are debts payable within 2 years.
    2. Balance sheets reflect a company's financial position at a certain point in time.
    3. The time value of money is a finance concept, not relevant in accounting.
    4. Accounts receivable are more easily collected as time passes.
  13. When a company purchases property, plant, and equipment, how is it reflected on the statement of cash flows?

    1. As a source of cash in the "cash from investing activities" section
    2. As a source of cash in the "cash from financing activities" section.
    3. As a use of cash in the "cash from investing activities" section.
    4. As a use of cash in the "cash from operating activities" section.
  14. What would the journal entry be for a company that takes out a five-year, $100,000 business loan?

    1. Debit $100,000 non-current asset, Credit $100,000 non-current liabilities
    2. Debit $100,000 current asset, Credit $100,000 non-current liabilities
    3. Debit $100,000 non-current liabilities, Credit $100,000 non-current assets
    4. Debit $100,000 current liabilities, Credit $100,000 current assets
  15. Which accounts are associated with cost of goods sold?

    1. Accrued interest
    2. Depreciation
    3. Dividends
    4. Inventory
  16. Which organizations are involved in development of US Generally Accepted Accounting Principles (GAAP)? (Check all that apply.)

    1. Financial Accounting Standards Board (FASB)
    2. Government Accounting Standards Board (GASB)
    3. Securities and Exchange Commission (SEC)
    4. Federal Accounting Standards Advisory Board (FASAB)
  17. Which inventory valuation method reflects the most current market value for inventory on hand?

    1. Last-in-First-Out (LIFO)
    2. Average Costs
    3. First-in-First-Out (FIFO)
    4. Specific Identification
  18. Which of the following statements is not true about intercompany accounting?

    1. Intercompany transactions are between two units within the same legal entity.
    2. Intercompany transactions are eliminated in consolidated parent financial statements.
    3. They can significantly impact taxes.
    4. Intercompany transactions are between different legal entities under the same parent control.
  19. Which is the method of depreciation used for US tax returns that is not GAAP-compliant?

    1. Straight-line method
    2. Modified accelerated cost recovery systems
    3. Double-declining balance method
    4. Units of production method
  20. What is the most-used method to amortize intangible assets on a company's financial statements?

    1. Straight-line method
    2. Sum of the years' digits method
    3. Double-declining balance method
    4. Units of production method

Answer Key With Explanations

  1. C — Running a trial balance is an intermediary step in the financial close, not a core financial statement. Core financial statements are: the income statement, the balance sheet, statement of cash flows, statement of retained earnings and the notes to the financial statements.

  2. D — All are correct. A single step income statement has a section for revenue and expenses and only requires one subtraction to arrive at net income/loss. A condensed income statement only includes summary totals. Common sized income statements add a column to show the calculation of each line item as a percentage of revenue.

  3. A — Assets, expenses and losses increase with debits. Revenue, liabilities and gains increase with credits.

  4. A — Accounts receivable is a short-term asset included in the current asset section of a balance sheet and increases by debits. They come about when customer sales are made on credit, not cash. Accounts receivable become harder to collect, and therefore less valuable, as they age.

  5. A — Cash basis accounting records revenue when paid. Accrual accounting reflects revenue when it is earned. Accounts receivable and its related bad debt are part of accrual accounting only.

  6. B — Assets, liabilities and equity are found on the balance sheet. Revenue (or sales), expenses, gains, losses and net income (or earnings) are income statement accounts.

  7. D — All are correct. Financial statements are used for internal analysis, like trending and calculating key performance indicators. External negotiations, such as applying for loans and credit cards, require financials statements. Compliance agencies, such as the Securities & Exchange Commission (SEC), require financial statements from public companies.

  8. B — When a supplier delivers raw material a liability is incurred. Customer payments relate to accounts receivable, not accounts payable. Expenses paid with cash do not generate accounts payable because the payment is made concurrent with incurring the liability.

  9. B — The four sections of the CPA exam are Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation. While knowledge of accounting software, derivative financial instruments and international banking law are helpful, they are not mandatory for licensure.

  10. C — Company A records a note receivable from its customer. It is a non-current asset because the term is greater than 12 months. A non-paying customer would cause accounts receivable to be written off. Interest payments are not recorded in accounts receivable. Company A is the payee of the promissory note, not the debtor, and has no liability.

  11. A — Under the accrual basis of accounting, liabilities are recorded in the fiscal period that they are incurred or committed, regardless of when paid.

  12. B — Balance sheets are prepared "as of" a specified date. Current liabilities are due within the next 12 months. Time value of money, or net present value, is often used by accountants such as for lease accounting. Accounts receivable become less likely to be paid as they age.

  13. C — Acquisitions of property, plant and equipment are uses of cash/cash equivalents and categorized as an investing activity. The operating activities section of the statement of cash flows captures the inflow/outflows from business operations, such as sales or labor expenses, rather than investments.

  14. B — The transaction increases cash, a current asset, via a debit. It also increases loans payable, which is a non-current liability because it is due in five years, via a credit.

  15. D — Cost of goods sold is an interim step on the income statement and is calculated as: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold.

  16. A, B, C & D — All of the organizations listed are involved in development of financial accounting standards.

  17. C — The FIFO method assumes that the oldest inventory is sold first, and inventory on hand at the end of a period is the newest. The newest purchases reflect the most current market values.

  18. C — The FIFO method assumes that the oldest inventory is sold first, and inventory on hand at the end of a period is the newest. The newest purchases reflect the most current market values.

  19. B — The IRS requires the MACRS method for most fixed assets. MACRS is not GAAP-compliant because salvage values are ignored and because it relies on an IRS-determined table of useful lives that is inconsistent with GAAP principles.

  20. A — The straight-line method is the only GAAP-compliant method for amortizing intangible assets.

Conclusion

Accounting is a challenging field that requires years of initial education, experience and continuing professional education. Specialties within the field include managerial accounting, cost accounting, project accounting, forensic accounting, nonprofit accounting, tax accounting and financial accounting — which is the type of accounting covered by this test. So, how'd you do?

#1 Cloud
Accounting
Software

Free Product Tour

Accounting Basics FAQ

What are the five basic accounting principles?

There are many principles of accounting that guide the way accountants record transactions. Four accounting principles are considered basic: historical cost, revenue recognition, matching and full disclosure. When referring to "5 basic accounting principles," the fifth is objectivity.

What are basic accounting questions?

Basic accounting questions focus on topics concerning the financial statements and how transactions are recorded.

What are the basics of accounting?

Accounting basics include how to value business transactions, how to record activity in a company's books and how to report business results using financial statements.

What is an accounting assessment test?

An accounting assessment test gauges an individual's knowledge of basic accounting information, often used to screen potential candidates for bookkeeping and lower-level accounting jobs.