Mastering the Accounting Cycle: A Comprehensive Guide for Business Professionals

Question 1

In the closing process, which account type remains open and carries its balance to the next period?

Accepted Answer

Capital account

Answer

Revenue account

Answer

Expense account

Answer

Drawing account

Question 2

Which temporary account is closed at the end of the accounting period to transfer its balance to the income summary account?

Accepted Answer

Revenue

Answer

Cash

Answer

Equipment

Answer

Share capital

Question 3

Within the accounting cycle, which account type retains its balance from period to period?

Accepted Answer

Retained Earnings

Answer

Supplies Expense

Answer

Sales Revenue

Answer

Cash

Question 4

The primary objective of the accounting cycle is to provide accurate financial information. Which statement below best describes this objective?

Accepted Answer

Provide accurate and reliable financial information to decision-makers

Answer

Ensure accurate recording of transactions in their respective accounting periods

Answer

Minimize time and effort spent on accounting tasks

Answer

Prevent fraud and errors in financial reporting

Question 5

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

Accepted Answer

Budgeting

Answer

Journalizing transactions

Answer

Posting to the general ledger

Answer

Preparing financial statements

Question 6

When are adjusting entries typically recorded?

Accepted Answer

At the end of the accounting period

Answer

At the beginning of the accounting period

Answer

Throughout the accounting period

Answer

Never

Question 7

In the accounting cycle, which step is followed by the preparation of financial statements?

Accepted Answer

Closing the accounts

Answer

Recording transactions in a journal

Answer

Posting entries to the general ledger

Answer

Adjusting the accounts

Question 8

During the closing process at the end of an accounting period, which account is temporary and is closed to zero?

Accepted Answer

Income Summary

Answer

Cash

Answer

Inventory

Answer

Retained Earnings

Question 9

Which financial statement provides a snapshot of a company's financial health at a specific point in time, showing its assets, liabilities, and equity?

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of retained earnings

Question 10

Which of the following is NOT a primary purpose of the worksheet in the accounting cycle?

Accepted Answer

Evaluating the financial performance of the organization.

Answer

Summarizing account balances before preparing financial statements.

Answer

Identifying and correcting errors in the trial balance.

Answer

Providing a basis for closing entries that transfer balances from temporary to permanent accounts.

Question 11

Which section of an income statement reports the total costs and expenses incurred by a company over a specific accounting period?

Accepted Answer

Expenses

Answer

Revenue

Answer

Net Income

Question 12

In the trial balance, which account is used to consolidate the debit and credit balances of all income statement accounts before they are closed to retained earnings?

Accepted Answer

Income Summary

Answer

Assets

Answer

Liabilities

Question 13

What is the primary purpose of adjusting entries in the accounting cycle?

Accepted Answer

To match revenues and expenses with their respective periods

Answer

To correct errors in transaction recording

Answer

To record unrecorded transactions

Answer

To adjust permanent account balances

Question 14

What is the main reason for preparing a trial balance before recording closing entries?

Accepted Answer

To verify that the total debits equal the total credits in the accounts.

Answer

To close all temporary accounts to the capital account.

Answer

To create the financial statements.

Answer

To record adjusting entries.

Question 15

Under accrual accounting, which transaction does NOT require an adjusting entry at the end of an accounting period?

Accepted Answer

Updating inventory records based on physical count

Answer

Accruing salaries payable

Answer

Recording depreciation expense

Answer

Adjusting the allowance for uncollectible accounts

Question 16

Which step is NOT part of the essential sequence of the accounting cycle?

Accepted Answer

Closing the accounting records

Answer

Recording transactions in the accounting system

Answer

Adjusting accounts for unrecorded financial activity

Answer

Preparing financial statements (balance sheet and income statement)

Question 17

What's the main purpose of closing entries in accounting?

Accepted Answer

Move balances from temporary to permanent accounts, zeroing out temporary accounts

Answer

Create financial statements

Answer

Adjust account balances for inflation

Answer

Close the accounting books for the period

Question 18

What's the main reason for making closing entries at the end of an accounting period?

Accepted Answer

Move balances from temporary to permanent accounts, getting the accounting system ready for the next period.

Answer

Reduce the number of active accounts in the ledger.

Answer

Create the trial balance for the accounting period.

Question 19

How has the adoption of International Financial Reporting Standards (IFRS) impacted the comparability and transparency of financial statements across different countries?

Accepted Answer

IFRS adoption has significantly enhanced the comparability of financial statements, leading to increased transparency and accountability.

Answer

IFRS adoption has hindered the comparability of financial statements due to varying interpretations and applications.

Answer

IFRS adoption has had no significant impact on the comparability of financial statements across countries.

Answer

IFRS adoption has improved the transparency of financial statements but has not affected their comparability.

Question 20

Which of the following accounts is considered temporary?

Accepted Answer

Revenue

Answer

Cash

Answer

Accounts Receivable

Answer

Prepaid Insurance

Question 21

What is the formula for Return on Assets (ROA)?

Accepted Answer

Net income / Average total assets

Answer

Gross income / Average total assets

Answer

Net income / Average current assets

Answer

Gross income / Average current assets

Question 22

Which of the following is a qualitative factor considered in financial statement analysis?

Accepted Answer

Accounting policies

Answer

Earnings per share

Answer

Return on investment

Answer

Gross profit margin

Question 23

How has the adoption of FinTech tools enhanced the efficiency of the accounting cycle?

Accepted Answer

Reduced time spent on manual data entry and calculations

Answer

Eliminated the need for reconciliations

Answer

Increased the risk of errors

Question 24

What's the main reason for recording reversing entries at the start of a new accounting period?

Accepted Answer

To clear temporary account balances and prepare for new transactions.

Answer

To adjust permanent accounts for changes in account balances.

Answer

To correct errors made during the previous accounting period.

Question 25

How do adjusting entries contribute to the accurate matching of revenues and expenses to their respective periods?

Accepted Answer

Adjusting entries allocate revenues and expenses to the periods in which the underlying economic events occurred.

Answer

Adjusting entries correct errors made during the initial recording of transactions.

Answer

Adjusting entries are only required for cash basis accounting systems.

Answer

Adjusting entries are only recorded at the end of the fiscal year.

Question 26

How do closing entries facilitate the preparation of accounting records for the start of a new accounting period?

Accepted Answer

Transfer balances from temporary accounts to permanent accounts, resetting temporary accounts to zero.

Answer

Adjust the trial balance to correct errors or omissions.

Answer

Record transactions that occur after the accounting period ends.

Answer

Generate financial statements directly without additional steps.

Question 27

Accountants have ethical obligations during the closing process. Explain how adhering to these principles ensures the accuracy and integrity of financial reporting.

Accepted Answer

Objectivity and avoiding conflicts of interest to ensure unbiased reporting

Answer

Prioritizing efficiency over accuracy to minimize time spent on closing tasks

Answer

Lack of ethical responsibility to disclose financial irregularities discovered during the closing process

Answer

Sole reliance on internal documentation without seeking external verification during the closing process

Question 28

Which type of account is used to record the profit or loss for the accounting period?

Accepted Answer

Owners' equity account

Answer

Asset account

Answer

Liability account

Answer

Revenue account

Question 29

What is the journal entry to record depreciation expense for the period?

Accepted Answer

Debit Depreciation Expense, Credit Accumulated Depreciation

Answer

Debit Accumulated Depreciation, Credit Depreciation Expense

Answer

Debit Depreciation Expense, Credit Cash

Answer

Debit Cash, Credit Depreciation Expense

Question 30

Which principle requires that financial statements be prepared at regular intervals?

Accepted Answer

Periodicity principle

Answer

Accrual principle

Answer

Going concern principle

Answer

Historical cost principle

Question 31

Within the balance sheet, where are intangible assets typically classified?

Accepted Answer

Non-Current Assets

Answer

Current Assets

Answer

Shareholders' Equity

Answer

Liabilities

Question 32

What is a primary purpose of the income statement?

Accepted Answer

Provides information on a company's expenses and revenues over a specific period.

Answer

Presents changes in a company's assets and liabilities during a period.

Answer

Reports on a company's cash inflows and outflows.

Answer

Discloses a company's ownership structure and equity interests.

Question 33

Which type of transaction leads to an increase in both an asset and a liability?

Accepted Answer

Purchasing inventory on account

Answer

Paying wages to employees

Answer

Receiving cash for services rendered

Answer

Issuing stock for cash

Question 34

What is the primary function of adjusting entries?

Accepted Answer

To allocate expenses and revenues to their proper accounting periods.

Answer

To rectify errors in recorded transactions.

Answer

To record transactions that have occurred but remain unrecorded.

Answer

To prepare financial statements for external reporting.

Question 35

Which account is classified as a contra-asset account?

Accepted Answer

Accumulated Depreciation

Answer

Prepaid Rent

Answer

Accounts Receivable

Answer

Inventory

Question 36

Which of the following financial ratios is commonly used to measure a company's liquidity and ability to meet its short-term obligations?

Accepted Answer

Current Ratio

Answer

Debt-to-Equity Ratio

Answer

Gross Profit Margin

Answer

Return on Assets

Question 37

The adjusted trial balance is primarily used to:

Accepted Answer

Prepare the financial statements

Answer

Close the temporary accounts

Answer

Correct errors

Answer

Adjust the ledger accounts

Question 38

Which of the following is **not** a purpose of financial statements?

Accepted Answer

Make predictions about a company's future

Answer

Provide information about a company's financial performance

Answer

Evaluate a company's financial health

Answer

Comply with regulatory requirements

Question 39

Which of the following is NOT a primary purpose of the worksheet in the accounting cycle?

Accepted Answer

Recording transactions

Answer

Adjusting trial balance

Answer

Creating closing entries

Answer

Preparing financial statements

Question 40

Which of the following is a potential drawback of using technology in the closing process?

Accepted Answer

Increased complexity

Answer

Increased efficiency

Answer

Reduced errors

Answer

Improved consistency

Question 41

Which account type is NOT closed at the end of an accounting period?

Accepted Answer

Accumulated Depreciation

Answer

Prepaid Insurance

Answer

Salaries Expense

Answer

Supplies Expense

Question 42

The financial statement that reports a company's financial position as of a specific date is called the:

Accepted Answer

Balance Sheet

Answer

Income Statement

Answer

Statement of Cash Flows

Answer

Statement of Owner's Equity

Question 43

Which financial ratio measures a company's ability to meet its short-term debt obligations?

Accepted Answer

Current Ratio

Answer

Debt-to-Equity Ratio

Answer

Return on Investment

Answer

Interest Coverage Ratio

Question 44

The process of reversing closing entries at the beginning of a new accounting period is called:

Accepted Answer

Reversing Entries

Answer

Posting Entries

Answer

Adjusting Entries

Answer

Correcting Entries

Question 45

Which of the following is NOT a purpose of financial statements?

Accepted Answer

To provide information solely for investors

Answer

To comply with regulatory requirements

Answer

To provide information for decision-making

Answer

To disclose a company's financial health

Question 46

The Income Summary account is a:

Accepted Answer

Temporary Account

Answer

Permanent Account

Answer

Contra Account

Answer

Accumulating Account

Question 47

Which financial ratio measures a company's profitability relative to its investments?

Accepted Answer

Return on Assets

Answer

Current Ratio

Answer

Net Profit Margin

Answer

Gross Profit Margin

Question 48

The adjusting entry to record rent expense is an example of a(n):

Accepted Answer

Accrual

Answer

Prepayment

Answer

Deferral

Answer

Reversal

Question 49

Which of the following is NOT an objective of closing entries?

Accepted Answer

To present relevant information to external users

Answer

To zero out revenue, expense, and dividend accounts

Answer

To transfer temporary account balances to permanent accounts

Answer

To prepare financial statements

Question 50

Which financial statement presents a summary of the company's assets, liabilities, and equity at a specific point in time?

Accepted Answer

Balance sheet

Answer

Statement of retained earnings

Answer

Income statement

Answer

Statement of cash flows

Question 51

Which financial ratio measures a company's ability to cover its short-term obligations?

Accepted Answer

Current ratio

Answer

Return on assets

Answer

Gross profit margin

Answer

Debt-to-equity ratio

Question 52

The process of adjusting and summarizing accounting information at the end of an accounting period is referred to as the:

Accepted Answer

Accounting cycle

Answer

Auditing

Answer

Financial reporting

Answer

Bookkeeping

Question 53

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

Accepted Answer

Preparing the income statement

Answer

Preparing financial statements

Answer

Journalizing transactions

Answer

Posting to the ledger

Question 54

The financial statement that summarizes a company's revenues, expenses, and net income or loss over a specific period of time is:

Accepted Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of retained earnings

Answer

Balance sheet

Question 55

Which financial ratio measures a company's profitability relative to its total assets?

Accepted Answer

Return on assets

Answer

Current ratio

Answer

Gross profit margin

Answer

Debt-to-equity ratio

Question 56

Which financial statement provides information about changes in a company's cash and cash equivalents over a specific period of time?

Accepted Answer

Statement of cash flows

Answer

Statement of retained earnings

Answer

Balance sheet

Answer

Income statement

Question 57

Which of the following financial statements is prepared first?

Accepted Answer

Income Statement

Answer

Statement of Cash Flows

Answer

Balance Sheet

Answer

Statement of Retained Earnings

Question 58

A company with a current ratio of less than 1 indicates:

Accepted Answer

Potential liquidity issues

Answer

Underutilized assets

Answer

Excessive inventory

Answer

Strong financial health

Question 59

Which of the following is considered a liquidity ratio?

Accepted Answer

Acid-Test Ratio

Answer

Inventory Turnover Ratio

Answer

Debt-to-Equity Ratio

Answer

Gross Profit Margin

Question 60

The purpose of adjusting entries is to:

Accepted Answer

Update account balances to reflect unrecorded transactions and events

Answer

Close temporary accounts

Answer

Prepare financial statements

Question 61

Which of the following is NOT an example of an adjusting entry?

Accepted Answer

Recording a cash receipt

Answer

Adjusting prepaid insurance

Answer

Accruing interest payable

Answer

Recognizing depreciation expense

Question 62

The Trial Balance prepared after adjusting entries is also known as the:

Accepted Answer

Adjusted Trial Balance

Answer

Post-Closing Trial Balance

Answer

Unadjusted Trial Balance

Answer

Closing Trial Balance

Question 63

Which of the following accounts is closed to Retained Earnings?

Accepted Answer

Income Summary

Answer

Inventory

Answer

Cash

Answer

Prepaid Insurance

Question 64

Which account is credited when closing entries are made to transfer revenue from a temporary to a permanent account?

Accepted Answer

Income Summary

Answer

Retained Earnings

Answer

Assets

Answer

Expenses