Bookkeeping Versus Accounting

Questions 1-10: Definitions and Concepts

1. What is the primary focus of bookkeeping?
o A) Analyzing financial statements
o B) Recording daily transactions
o C) Preparing tax returns
o D) Forecasting future financial performance
Answer: B
Rationale: Bookkeeping primarily involves the systematic recording of financial
transactions.
2. Which of the following is considered an accounting function?
o A) Data entry
o B) Journalizing transactions
o C) Preparing financial statements
o D) Reconciling bank statements
Answer: C
Rationale: Preparing financial statements is a key function of accounting, which
encompasses the analysis and reporting of financial data.
3. Which of the following best describes the term "GAAP"?
o A) Government Accounting and Auditing Principles
o B) Generally Accepted Accounting Principles
o C) General Accounting and Auditing Procedures
o D) Guidelines for Accurate Accounting Procedures
Answer: B
Rationale: GAAP stands for Generally Accepted Accounting Principles, which
are the standard framework of guidelines for financial accounting.
4. What role does a bookkeeper primarily play in a business?
o A) Strategic planning
o B) Financial advising
o C) Transaction recording and maintenance
o D) Tax planning and compliance
Answer: C
Rationale: A bookkeeper's main role is to record and maintain accurate records
of all financial transactions.
5. Which of the following is not typically a responsibility of an accountant?
o A) Preparing tax returns
o B) Recording day-to-day transactions
o C) Creating financial forecasts
o D) Analyzing financial data
Answer: B
Rationale: Recording day-to-day transactions is primarily the responsibility of
bookkeepers, while accountants focus on analysis and reporting.
6. What does the accounting equation represent?
o A) Assets = Liabilities + Equity
o B) Revenues = Expenses + Net Income
o C) Cash Flow = Income - Expenses

, o D) Assets + Liabilities = Equity
Answer: A
Rationale: The accounting equation (Assets = Liabilities + Equity) reflects the
relationship between a company's resources and the claims against those
resources.
7. In which financial statement is net income found?
o A) Balance Sheet
o B) Income Statement
o C) Cash Flow Statement
o D) Statement of Retained Earnings
Answer: B
Rationale: Net income is reported in the Income Statement, which summarizes
revenues and expenses.
8. Which of the following best describes "accrual accounting"?
o A) Recognizing revenue when cash is received
o B) Recognizing expenses when they are paid
o C) Recognizing revenue when earned, regardless of cash flow
o D) Recognizing expenses based on cash outflow
Answer: C
Rationale: Accrual accounting recognizes revenues and expenses when they are
incurred, not necessarily when cash is exchanged.
9. Which of the following accounts is typically considered a liability?
o A) Accounts Receivable
o B) Accounts Payable
o C) Common Stock
o D) Retained Earnings
Answer: B
Rationale: Accounts Payable is a liability representing amounts owed to
suppliers.
10. What does a trial balance help to ensure?
o A) That assets are greater than liabilities
o B) That the total debits equal total credits
o C) That all transactions are recorded
o D) That the income statement is correct
Answer: B
Rationale: A trial balance is a tool to verify that total debits equal total credits,
ensuring the ledger accounts are in balance.

Questions 11-20: Principles and Standards

11. What is the main purpose of the balance sheet?
o A) To summarize cash flows
o B) To show financial performance over a period
o C) To present the financial position at a specific date
o D) To calculate tax liabilities
Answer: C