Multiple Choice Questions – Accounting Cycle
1. The accounting cycle refers to:
A. The process of buying and selling goods
B. The sequence of steps in recording and reporting financial data
C. The preparation of financial ratios
D. The issuance of stocks
2. The first step in the accounting cycle is:
A. Posting to the ledger
B. Recording adjusting entries
C. Analyzing transactions
D. Preparing financial statements
3. Which document serves as the basis for recording business transactions?
A. Ledger
B. Source document
C. Trial balance
D. Worksheet
4. The chronological record of business transactions is kept in the:
A. Ledger
B. Journal
C. Balance sheet
D. Cash flow statement
5. The process of transferring journal entries to ledger accounts is called:
A. Posting
B. Adjusting
C. Balancing
D. Closing
6. A trial balance is prepared to:
A. Show company profits
B. Prove equality of debits and credits
C. Replace financial statements
D. Eliminate errors
7. Which of the following is an adjusting entry?
A. Recording cash sales
B. Recording depreciation expense
C. Recording payment to suppliers
D. Issuing shares
8. Adjusting entries are made:
A. Before preparing financial statements
B. After closing the books
C. Only for cash transactions
D. At the beginning of the accounting cycle
9. Which financial statement shows the financial position of a business at a specific date?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Trial Balance
10. The statement of financial performance is also called:
A. Income Statement
B. Balance Sheet
C. Ledger
D. Trial Balance
11. The purpose of closing entries is to:
A. Update asset accounts
B. Zero out temporary accounts
C. Record expenses
D. Post adjusting entries
12. Which of the following accounts is closed at the end of the accounting period?
A. Accounts Payable
B. Service Revenue
C. Cash
D. Equipment
13. Post-closing trial balance includes:
A. Only permanent accounts
B. All accounts
C. Only temporary accounts
D. Expenses and revenues
14. The step after preparing financial statements in the accounting cycle is:
A. Analyzing transactions
B. Closing entries
C. Posting
D. Adjusting entries
15. Which step is performed last in the accounting cycle?
A. Preparing trial balance
B. Recording transactions
C. Preparing reversing entries
D. Closing the books
16. A worksheet in accounting is primarily used for:
A. External reporting
B. Internal preparation of adjusting entries and financial statements
C. Posting to the ledger
D. Cash recording
17. Which account is not affected by adjusting entries?
A. Accrued Expense
B. Unearned Revenue
C. Cash
D. Depreciation
18. Which is an example of a temporary account?
A. Salaries Expense
B. Accounts Receivable
C. Notes Payable
D. Retained Earnings
19. The matching principle is applied through:
A. Trial balance
B. Adjusting entries
C. Posting
D. Closing entries
20. Unearned revenue is initially recorded as:
A. Liability
B. Asset
C. Expense
D. Equity
21. Depreciation is recorded as:
A. Asset and liability
B. Expense and contra-asset
C. Revenue and liability
D. Expense and equity
22. Which step comes immediately after posting?
A. Preparing trial balance
B. Recording adjusting entries
C. Preparing financial statements
D. Closing entries
23. Reversing entries are optional and are prepared:
A. Before adjusting entries
B. At the beginning of the next period
C. After closing entries
D. Only in cash basis accounting
24. The adjusted trial balance is used to:
A. Prove equality after adjusting entries
B. Record transactions
C. Post ledger balances
D. Issue source documents
25. Which account is considered permanent?
A. Rent Expense
B. Accounts Payable
C. Service Revenue
D. Interest Income
26. Prepaid expenses appear in the Balance Sheet as:
A. Asset
B. Liability
C. Equity
D. Expense
27. The trial balance prepared after all closing entries is called:
A. Pre-closing Trial Balance
B. Post-closing Trial Balance
C. Adjusted Trial Balance
D. Reversing Trial Balance
28. In which step are errors most likely detected early?
A. Preparing trial balance
B. Closing entries
C. Adjusting entries
D. Posting
29. Which of the following accounts normally requires adjustment at the end of the period?
A. Salaries Payable
B. Accounts Payable
C. Notes Payable
D. Owner’s Capital
30. The accounting cycle is repeated:
A. Monthly or annually depending on reporting period
B. Once every five years
C. Only when errors occur
D. Only at the start of the business
Answer Key
1-B
2-C
3-B
4-B
5-A
6-B
7-B
8-A
9-C
10-A
11-B
12-B
13-A
14-B
15-D
16-B
17-C
18-A
19-B
20-A
21-B
22-A
23-B
24-A
25-B
26-A
27-B
28-A
29-A
30-A
