ESTUDYR
FUNDAMENTAL ACCOUNTING PRINCIPLES
CHAPTER 1, 2, & 3
Which document records the details of transactions before they enter the accounting system?
A. Adjusting entries
B. Source documents
C. Trial balance
D. Financial statements
Rationale: Source documents—sales tickets, checks, bills—provide the initial evidence and data for
recording transactions.
Accounts receivable represents:
A. Cash collected in advance
B. Promises of payment from customers
C. Money owed to suppliers
D. Owner’s equity contributions
Rationale: AR is the seller’s claim to receive cash in the future for goods/services already delivered.
Prepaid accounts are:
A. Liabilities
B. Revenue accounts
C. Assets representing future expenses
D. Contra-equity accounts
Rationale: Prepaids reflect payments made for future benefits; they convert to expense as used.
Which asset is expensed over time through depreciation?
A. Inventory
B. Cash
C. Equipment
D. Accounts payable
Rationale: Long-lived assets like equipment wear out; their cost is allocated over useful life.
Accounts payable refers to:
A. Notes signed by the company
B. Oral or implied promises to pay suppliers
C. Customer advances
D. Owner withdrawals
Rationale: AP are short-term obligations to suppliers arisen from credit purchases.
A formal promissory note to pay later is called:
A. Unearned revenue
, ESTUDYR
B. Note payable
C. Accounts receivable
D. Owner’s capital
Rationale: Notes payable arise from signed notes promising future payment.
Unearned revenue is classified as a(n):
A. Asset
B. Expense
C. Liability
D. Equity
Rationale: Advance payments for goods/services not yet delivered create a liability until earned.
Owner, capital accounts reflect:
A. Company profits only
B. Owner’s investments in the business
C. Owner’s withdrawals
D. Accumulated expenses
Rationale: Capital increases equity when the owner contributes cash or other assets.
Owner, withdrawals accounts:
A. Increase equity
B. Record revenues
C. Decrease equity
D. Represent liabilities
Rationale: Owner draws reduce equity by withdrawing assets from the business.
Expenses:
A. Increase equity
B. Decrease liabilities
C. Decrease equity
D. Increase assets
Rationale: Outflows or uses of assets to earn revenue reduce net equity.
Revenues:
A. Decrease equity
B. Increase equity
C. Decrease assets
D. Increase liabilities
Rationale: Inflows from sales or services boost net income and owners’ equity.
A debit (DR) is recorded on the:
A. Right side of an account
B. Left side of an account
C. Trial balance only
FUNDAMENTAL ACCOUNTING PRINCIPLES
CHAPTER 1, 2, & 3
Which document records the details of transactions before they enter the accounting system?
A. Adjusting entries
B. Source documents
C. Trial balance
D. Financial statements
Rationale: Source documents—sales tickets, checks, bills—provide the initial evidence and data for
recording transactions.
Accounts receivable represents:
A. Cash collected in advance
B. Promises of payment from customers
C. Money owed to suppliers
D. Owner’s equity contributions
Rationale: AR is the seller’s claim to receive cash in the future for goods/services already delivered.
Prepaid accounts are:
A. Liabilities
B. Revenue accounts
C. Assets representing future expenses
D. Contra-equity accounts
Rationale: Prepaids reflect payments made for future benefits; they convert to expense as used.
Which asset is expensed over time through depreciation?
A. Inventory
B. Cash
C. Equipment
D. Accounts payable
Rationale: Long-lived assets like equipment wear out; their cost is allocated over useful life.
Accounts payable refers to:
A. Notes signed by the company
B. Oral or implied promises to pay suppliers
C. Customer advances
D. Owner withdrawals
Rationale: AP are short-term obligations to suppliers arisen from credit purchases.
A formal promissory note to pay later is called:
A. Unearned revenue
, ESTUDYR
B. Note payable
C. Accounts receivable
D. Owner’s capital
Rationale: Notes payable arise from signed notes promising future payment.
Unearned revenue is classified as a(n):
A. Asset
B. Expense
C. Liability
D. Equity
Rationale: Advance payments for goods/services not yet delivered create a liability until earned.
Owner, capital accounts reflect:
A. Company profits only
B. Owner’s investments in the business
C. Owner’s withdrawals
D. Accumulated expenses
Rationale: Capital increases equity when the owner contributes cash or other assets.
Owner, withdrawals accounts:
A. Increase equity
B. Record revenues
C. Decrease equity
D. Represent liabilities
Rationale: Owner draws reduce equity by withdrawing assets from the business.
Expenses:
A. Increase equity
B. Decrease liabilities
C. Decrease equity
D. Increase assets
Rationale: Outflows or uses of assets to earn revenue reduce net equity.
Revenues:
A. Decrease equity
B. Increase equity
C. Decrease assets
D. Increase liabilities
Rationale: Inflows from sales or services boost net income and owners’ equity.
A debit (DR) is recorded on the:
A. Right side of an account
B. Left side of an account
C. Trial balance only
