Bookkeeping Basics Questions and
Answers Graded A+
What is a subsidiary ledger?
✔✔ A subsidiary ledger provides detailed information about specific types of transactions that
are summarized in the general ledger, such as accounts receivable or accounts payable.
What is meant by " accrual accounting"?
✔✔ Accrual accounting recognizes revenues and expenses when they occur, rather than when
cash is received or paid.
What does a trial balance reveal about a company's financial records?
✔✔ A trial balance reveals whether the total debits and credits in the financial records are equal,
helping to ensure that the books are balanced.
How is a financial journal different from a ledger?
✔✔ A financial journal records transactions in chronological order, while a ledger organizes
these transactions by account.
1
,What is the role of the bookkeeper in preparing financial reports?
✔✔ The bookkeeper prepares and organizes the financial data necessary for financial reports,
ensuring that all transactions are accurately recorded and categorized.
What is an adjusting entry?
✔✔ An adjusting entry is a journal entry made at the end of an accounting period to update
account balances before preparing financial statements.
How does one handle an overstatement of inventory?
✔✔ An overstatement of inventory can be corrected by adjusting the inventory account to reflect
the actual amount on hand, which may involve writing down the inventory or correcting
purchase records.
What is the purpose of a cash basis accounting method?
✔✔ The cash basis accounting method records transactions only when cash changes hands,
providing a straightforward view of cash flow.
What does it mean to "write off" an account?
2
,✔✔ Writing off an account means removing it from the books when it is determined to be
uncollectible or no longer relevant.
How does one track and manage depreciation?
✔✔ Depreciation is tracked by recording the expense periodically, reflecting the gradual
reduction in an asset's value over time due to usage or wear.
What is the purpose of a journal in bookkeeping?
✔✔ The journal is used to record all financial transactions in chronological order before they are
posted to the ledger.
How do you track inventory in bookkeeping?
✔✔ Inventory is tracked by recording the purchase, sale, and adjustments of inventory items in
the inventory account to manage stock levels and cost.
What does reconciling accounts mean?
✔✔ Reconciling accounts means comparing and matching the company's financial records with
external records, such as bank statements, to ensure accuracy and consistency.
3
, What is an accounts payable ledger?
✔✔ An accounts payable ledger tracks the amounts a company owes to its suppliers and vendors
for purchases made on credit.
What is an accounts receivable ledger?
✔✔ An accounts receivable ledger tracks the amounts customers owe the company for sales
made on credit.
What is the purpose of financial statements?
✔✔ Financial statements provide a summary of a company's financial performance and position,
helping stakeholders make informed decisions.
How is a cash flow statement useful in bookkeeping?
✔✔ A cash flow statement shows the movement of cash in and out of a business, helping to
assess its liquidity and financial health.
What is the difference between fixed and current assets?
✔✔ Fixed assets are long-term resources used in operations, like equipment and buildings, while
current assets are short-term assets, such as cash and accounts receivable.
4
Answers Graded A+
What is a subsidiary ledger?
✔✔ A subsidiary ledger provides detailed information about specific types of transactions that
are summarized in the general ledger, such as accounts receivable or accounts payable.
What is meant by " accrual accounting"?
✔✔ Accrual accounting recognizes revenues and expenses when they occur, rather than when
cash is received or paid.
What does a trial balance reveal about a company's financial records?
✔✔ A trial balance reveals whether the total debits and credits in the financial records are equal,
helping to ensure that the books are balanced.
How is a financial journal different from a ledger?
✔✔ A financial journal records transactions in chronological order, while a ledger organizes
these transactions by account.
1
,What is the role of the bookkeeper in preparing financial reports?
✔✔ The bookkeeper prepares and organizes the financial data necessary for financial reports,
ensuring that all transactions are accurately recorded and categorized.
What is an adjusting entry?
✔✔ An adjusting entry is a journal entry made at the end of an accounting period to update
account balances before preparing financial statements.
How does one handle an overstatement of inventory?
✔✔ An overstatement of inventory can be corrected by adjusting the inventory account to reflect
the actual amount on hand, which may involve writing down the inventory or correcting
purchase records.
What is the purpose of a cash basis accounting method?
✔✔ The cash basis accounting method records transactions only when cash changes hands,
providing a straightforward view of cash flow.
What does it mean to "write off" an account?
2
,✔✔ Writing off an account means removing it from the books when it is determined to be
uncollectible or no longer relevant.
How does one track and manage depreciation?
✔✔ Depreciation is tracked by recording the expense periodically, reflecting the gradual
reduction in an asset's value over time due to usage or wear.
What is the purpose of a journal in bookkeeping?
✔✔ The journal is used to record all financial transactions in chronological order before they are
posted to the ledger.
How do you track inventory in bookkeeping?
✔✔ Inventory is tracked by recording the purchase, sale, and adjustments of inventory items in
the inventory account to manage stock levels and cost.
What does reconciling accounts mean?
✔✔ Reconciling accounts means comparing and matching the company's financial records with
external records, such as bank statements, to ensure accuracy and consistency.
3
, What is an accounts payable ledger?
✔✔ An accounts payable ledger tracks the amounts a company owes to its suppliers and vendors
for purchases made on credit.
What is an accounts receivable ledger?
✔✔ An accounts receivable ledger tracks the amounts customers owe the company for sales
made on credit.
What is the purpose of financial statements?
✔✔ Financial statements provide a summary of a company's financial performance and position,
helping stakeholders make informed decisions.
How is a cash flow statement useful in bookkeeping?
✔✔ A cash flow statement shows the movement of cash in and out of a business, helping to
assess its liquidity and financial health.
What is the difference between fixed and current assets?
✔✔ Fixed assets are long-term resources used in operations, like equipment and buildings, while
current assets are short-term assets, such as cash and accounts receivable.
4
