Grade 12 Accounting Quiz
Annual reports / the accounting cycle
- 1.
Which of the following lists the steps of the accounting cycle in the correct order?
- A.
Journal, ledger, trial balance, adjustments, closing entries, financial statements
- B.
Journal, ledger, adjustments, trial balance, financial statements, closing entries
- C.
Journal, ledger, financial statements, trial balance, adjustments, closing entries
- D.
Journal, ledger, trial balance, adjustments, financial statements, closing entries
Correct Answer
D. Journal, ledger, trial balance, adjustments, financial statements, closing entriesExplanation
The correct order of the accounting cycle is as follows: journal, ledger, trial balance, adjustments, financial statements, closing entries. The journal is used to record all transactions, which are then posted to the ledger. The trial balance is prepared to ensure that debits and credits are equal. Adjustments are made to update accounts for accruals, deferrals, and estimates. Financial statements are then prepared to provide a summary of the company's financial performance. Finally, closing entries are made to transfer temporary account balances to the retained earnings account and reset the temporary accounts for the next accounting period.Rate this question:
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- 2.
What type of account is unearned revenue?
- A.
Asset
- B.
Liability
- C.
Revenue
- D.
Expense
Correct Answer
B. LiabilityExplanation
Unearned revenue is considered a liability because it represents money that has been received by a company in advance for goods or services that have not yet been provided. It is a liability because the company has an obligation to deliver the goods or services in the future. Once the goods or services are provided, the unearned revenue is then recognized as revenue on the company's income statement.Rate this question:
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- 3.
What is the best type of auditor's report a company can earn?
- A.
Clean / unqualified
- B.
Qualified
- C.
Adverse
Correct Answer
A. Clean / unqualifiedExplanation
A clean/unqualified auditor's report is the best type of report a company can earn. This report indicates that the company's financial statements are free from material misstatements and are presented fairly in accordance with the applicable accounting standards. It signifies that the auditor has conducted a thorough examination of the company's financial records and found no significant issues or discrepancies. This report instills confidence in investors and stakeholders as it assures them that the company's financial statements are reliable and accurate.Rate this question:
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- 4.
What is the purpose of the general ledger?
- A.
To provide a chronological record of transactions
- B.
To categorize transactions by account
- C.
To communicate the company's financial position and results of operations
- D.
To update capital for net income and to prepare the accounts for the next fiscal period
Correct Answer
B. To categorize transactions by accountExplanation
The purpose of the general ledger is to categorize transactions by account. This allows for easy organization and tracking of financial activities within a company. By categorizing transactions, the general ledger provides a clear overview of how money is being spent, received, and allocated. This information is essential for financial reporting and decision-making processes within the company.Rate this question:
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- 5.
Which of the following is an adjustment for an accrued revenue?
- A.
Debit salaries expense, credit salaries payable
- B.
Debit insurance expense, credit prepaid insurance
- C.
Debit unearned revenue, credit fees earned
- D.
Debit accounts receivable, credit fees earned
Correct Answer
D. Debit accounts receivable, credit fees earnedExplanation
An accrued revenue is a revenue that has been earned but not yet received. In this case, the adjustment for an accrued revenue would involve recognizing the revenue by debiting the accounts receivable account, which represents the amount owed by customers, and crediting the fees earned account, which represents the revenue earned. This adjustment reflects the increase in the accounts receivable balance and the recognition of the revenue in the fees earned account.Rate this question:
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- 6.
Which of the following is a TRANSACTION, not an ADJUSTMENT?
- A.
Debit interest expense, credit interest payable
- B.
Debit unearned rent, credit fees earned
- C.
Debit prepaid rent, credit cash
- D.
Debit amortization expense, credit accumulated amortization
Correct Answer
C. Debit prepaid rent, credit cashExplanation
The transaction of debiting prepaid rent and crediting cash represents a payment made in advance for rent. This is a typical transaction where a company pays for rent in advance and records it as a prepaid expense on the balance sheet. As time passes, the prepaid expense is gradually recognized as an expense on the income statement through adjusting entries. This transaction does not involve any adjustments or accruals, making it a straightforward transaction rather than an adjustment.Rate this question:
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- 7.
Which of the following lists the sections of an annual report from MOST GENERAL to MOST SPECIFIC
- A.
Notes to financial statements, financial statements, auditor's report, MD&A, letter to shareholders
- B.
MD&A, letter to shareholders, auditor's report, notes to financial statements, financial statements
- C.
Auditor's report, letter to shareholders, financial statements, notes to financial statements, MD&A
- D.
Letter to shareholders, MD&A, auditor's report, financial statements, notes to financial statements
Correct Answer
D. Letter to shareholders, MD&A, auditor's report, financial statements, notes to financial statementsExplanation
The annual report typically starts with a letter to shareholders, which provides a general overview of the company's performance and highlights key achievements. The next section is usually the Management's Discussion and Analysis (MD&A), which provides a more detailed analysis of the financial results and the company's operations. The auditor's report comes next, which is a statement from an independent auditor verifying the accuracy of the financial statements. The financial statements section follows, which includes the balance sheet, income statement, and cash flow statement. Finally, the notes to financial statements provide additional details and explanations related to the financial statements. Therefore, the correct order is letter to shareholders, MD&A, auditor's report, financial statements, notes to financial statements.Rate this question:
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- 8.
What does MD&A stand for?
- A.
Management Debits & Assets
- B.
Management Discussion & Analysis
- C.
Mandated Discussion & Analysis
- D.
None of the above
Correct Answer
B. Management Discussion & AnalysisExplanation
MD&A stands for Management Discussion & Analysis. This refers to a section in a company's annual report where management provides analysis and insights into the company's financial performance, future prospects, and risks. It allows shareholders and investors to gain a better understanding of the company's operations and decision-making processes. The other options provided, Management Debits & Assets and Mandated Discussion & Analysis, do not accurately represent the commonly accepted meaning of MD&A in the business context.Rate this question:
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- 9.
Which of the following best describes an accrued expense?
- A.
An expense that has been paid in advance but hasn't been used yet
- B.
An expense that was paid in advance but has been used up now
- C.
An expense that is owed but hasn't been billed or paid yet
- D.
An expense that has been billed and paid
Correct Answer
C. An expense that is owed but hasn't been billed or paid yetExplanation
An accrued expense refers to an expense that is owed but hasn't been billed or paid yet. This means that the company has received goods or services but has not yet been invoiced for them or made the payment. The expense is recognized in the financial statements even though the payment has not been made, as it represents an obligation that the company has incurred. This is different from an expense that has been paid in advance or an expense that has been billed and paid.Rate this question:
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- 10.
When does ACCRUAL accounting record revenues and expenses?
- A.
Revenue when it is earned; expenses when they help earn revenue
- B.
Revenue when it is received; expenses when they are paid
- C.
Revenue when it is earned; expenses when they are paid
- D.
Revenue when it is received; expenses when they help earn revenue
Correct Answer
A. Revenue when it is earned; expenses when they help earn revenueExplanation
ACCRUAL accounting records revenues when they are earned, meaning when the goods or services have been provided to the customer and the payment is expected. Expenses are recorded when they help earn revenue, which means when they are incurred in the process of generating revenue, regardless of when the payment is made. This method ensures that the financial statements reflect the true financial position of the company by matching revenues and expenses in the period they occur, rather than when the cash is received or paid.Rate this question:
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Nov 04, 2024Quiz Edited by
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Oct 03, 2014Quiz Created by
Jan Morrison
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