Accounting Cycle and Account Titles
Part I: True/False Questions (20)
1. The accounting cycle begins with recording business transactions.
2. Temporary accounts include revenue, expenses, and owner’s drawing accounts.
3. Permanent accounts are closed at the end of each accounting period.
4. The trial balance ensures that total debits equal total credits.
5. Prepaid rent is considered a liability.
6. Depreciation is recorded through adjusting entries.
7. Contra accounts always carry the same normal balance as the accounts they
offset.
8. Accrued expenses are recorded when incurred, even if not yet paid.
9. The journal is also known as the book of original entry.
10. Posting means recording transactions in the journal.
11. Unearned revenue is a liability until the service is provided.
12. The dual aspect concept is the basis of double-entry bookkeeping.
13. Closing entries transfer balances from permanent accounts to temporary
accounts.
14. Sales returns and allowances are examples of contra-revenue accounts.
15. The accounting period concept requires statements to be prepared for
indefinite periods.
16. Accrual accounting records revenue only when cash is received.
17. The ledger is called the book of second entry.
18. Adjusting entries are necessary to follow the matching principle.
19. Owner’s equity increases with expenses.
20. The accounting cycle ends with the preparation of financial statements.
Part II: Multiple Choice Questions (30)
1. Which is the first step in the accounting cycle?
A. Posting
B. Journalizing
C. Preparing financial statements
D. Adjusting entries
2. The document that proves a business transaction occurred is called:
A. Trial balance
B. Source document
C. Ledger
D. Journal
3. Posting means:
A. Recording transactions in journals
B. Transferring journal entries to ledger accounts
C. Preparing financial statements
D. Closing temporary accounts
4. The trial balance is prepared to:
A. Ensure assets equal liabilities
B. Check accuracy of journal entries
C. Verify total debits equal total credits
D. Prepare closing entries
5. Which is prepared immediately after adjusting entries?
A. Post-closing trial balance
B. Adjusted trial balance
C. Income statement
D. Balance sheet
6. Which entry records accrued salary expense?
A. Dr Salary Expense, Cr Cash
B. Dr Salary Payable, Cr Salary Expense
C. Dr Salary Expense, Cr Salary Payable
D. Dr Cash, Cr Salary Expense
7. Closing entries transfer balances of:
A. Assets to liabilities
B. Permanent accounts to temporary accounts
C. Temporary accounts to owner’s equity
D. Liabilities to owner’s equity
8. Which is not part of the accounting cycle?
A. Journalizing
B. Preparing trial balance
C. Auditing
D. Posting
9. The last step in the accounting cycle is:
A. Preparing adjusting entries
B. Preparing financial statements
C. Closing entries
D. Preparing reversing entries
10. Adjusting entries are made to:
A. Correct posting errors
B. Match expenses with revenues
C. Transfer balances to owner’s equity
D. Prepare the trial balance
11. A company records prepaid rent. At the end of the period, the adjusting entry
is:
A. Dr Rent Expense, Cr Prepaid Rent
B. Dr Prepaid Rent, Cr Rent Expense
C. Dr Rent Expense, Cr Cash
D. Dr Cash, Cr Rent Expense
12. Which is NOT a type of adjusting entry?
A. Prepaid expenses
B. Unearned revenues
C. Depreciation
D. Posting
13. Which financial statement shows assets, liabilities, and equity?
A. Income statement
B. Cash flow statement
C. Balance sheet
D. Statement of owner’s equity
14. The accounting cycle is repeated:
A. Only once at business start
B. Monthly or yearly depending on period
C. Every five years
D. Once per transaction
15. Which step comes just before preparing financial statements?
A. Adjusted trial balance
B. Post-closing trial balance
C. Ledger
D. Source document
16. Which account is temporary?
A. Accounts Receivable
B. Salaries Expense
C. Equipment
D. Accounts Payable
17. Which account is permanent?
A. Service Revenue
B. Utilities Expense
C. Capital (Owner’s Equity)
D. Rent Expense
18. Accumulated Depreciation is a:
A. Asset
B. Contra asset
C. Liability
D. Expense
19. Sales Returns and Allowances is classified as:
A. Revenue
B. Contra revenue
C. Liability
D. Asset
20. Which has a normal debit balance?
A. Revenue
B. Accounts Payable
C. Assets
D. Capital
21. Which has a normal credit balance?
A. Expenses
B. Assets
C. Drawings
D. Liabilities
22. Which is NOT an asset?
A. Accounts Receivable
B. Cash
C. Notes Payable
D. Inventory
23. Owner’s Drawing is a:
A. Liability
B. Temporary account
C. Contra equity account
D. Both B and C
24. Income increases:
A. Assets and equity
B. Liabilities and equity
C. Assets and liabilities
D. Expenses and equity
25. Expenses cause:
A. Increase in liabilities
B. Decrease in equity
C. Increase in assets
D. Decrease in liabilities
26. Which is NOT a contra account?
A. Accumulated Depreciation
B. Allowance for Bad Debts
C. Sales Returns
D. Notes Payable
27. Unearned revenue appears on the balance sheet as:
A. Asset
B. Liability
C. Equity
D. Expense
28. Which is an income title?
A. Salaries Expense
B. Rent Revenue
C. Accounts Payable
D. Equipment
29. Which is an example of a liability account?
A. Prepaid Rent
B. Unearned Service Revenue
C. Cash
D. Service Revenue
30. After closing entries, the only accounts left with balances are:
A. Revenue and Expenses
B. Assets, Liabilities, and Equity
C. Temporary accounts
D. Drawing and Income
