$$\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$$

Question 1

Which of the following best describes the accounting equation and its components?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Shareholders' Equity}$$

Question 2

Tara Inc. purchases land for $40,000 cash. What is the impact on the accounting equation?

Accepted Answer

Decrease in cash (asset) and increase in land (asset); total assets remain unchanged.

Question 3

Which account is NOT classified as an asset?

Accepted Answer

Accounts Payable

Question 4

If Tara Inc. earns $3,000 on account, which accounts are affected and how?

Accepted Answer

Increase in Accounts Receivable (asset) and increase in Service Revenue (shareholders' equity)

Question 5

Which of the following transactions would NOT be recorded in Tara Inc.'s accounting records?

Accepted Answer

The owner pays $30,000 for remodeling his personal home.

Question 6

What is the effect of declaring and paying a $2,100 dividend on Tara Inc.'s accounting equation?

Accepted Answer

Decrease in assets (cash) and decrease in shareholders' equity (dividends)

Question 7

Which of the following accounts normally has a debit balance?

Accepted Answer

Dividends

Question 8

A company receives $50,000 cash from investors and issues common shares. What is the correct journal entry?

Accepted Answer

Debit Cash $$50,000; Credit Common Shares 50$$,000

Question 9

Which statement about the double-entry accounting system is correct?

Accepted Answer

Every transaction affects at least two accounts and debits must equal credits.

Question 10

Tara Inc. pays $$2,700 for expenses: office rent 1$$,100, salary $$1,200, and utilities 400. $$What is the total impact on retained earnings?

Accepted Answer

Decrease by $2,700

Question 11

Which of the following is NOT a step in recording a business transaction in the journal?

Accepted Answer

Prepare a trial balance

Question 12

After posting all transactions, Tara Inc.'s trial balance shows total debits equal total credits. What does this indicate?

Accepted Answer

The ledger is in balance and ready for financial statement preparation.

Question 13

Which account is increased by a credit entry?

Accepted Answer

Service Revenue

Question 14

If Tara Inc. sells land for $22,000 cash (the land's cost), what is the effect on the accounting equation?

Accepted Answer

Increase in cash (asset), decrease in land (asset); total assets remain unchanged.

Question 15

Which of the following is a real-world application of machine learning in accounting?

Accepted Answer

Reducing processing errors in financial transactions

Question 16

Which type of machine learning is used for spam filters and advertisement placements?

Accepted Answer

Supervised machine learning

Question 17

What is the formula for calculating ending retained earnings?

Accepted Answer

$$	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$$

Question 18

Which of the following best describes a T-account?

Accepted Answer

A visual representation of an account showing debits on the left and credits on the right.

Question 19

Which account is NOT part of shareholders' equity?

Accepted Answer

Accounts Payable

Question 20

If Tara Inc. collects $1,000 from a customer on account, what is the effect on the accounts?

Accepted Answer

Increase in cash (asset), decrease in accounts receivable (asset)

Recording Business Transactions: The Accounting Cycle and Financial Statements

Study Guide - Practice Questions