Basic Accounting – Multiple Choice Questions
1. The main purpose of accounting is to:
A. Keep records for tax purposes
B. Provide financial information for decision-making
C. Prepare only balance sheets
D. Track employee performance
2. Which of the following is considered an asset?
A. Accounts Payable
B. Notes Payable
C. Equipment
D. Service Revenue
3. Liabilities are best defined as:
A. Resources owned by the business
B. Owner’s interest in the business
C. Obligations the business owes to outsiders
D. Income earned during the year
4. The basic accounting equation is:
A. Assets = Liabilities – Equity
B. Assets = Liabilities + Equity
C. Assets = Liabilities ÷ Equity
D. Assets = Equity – Liabilities
5. Which is NOT an example of an expense?
A. Salaries Expense
B. Rent Expense
C. Utilities Expense
D. Accounts Receivable
6. Owner’s equity increases when:
A. The business incurs losses
B. The owner withdraws cash
C. The business earns net income
D. Liabilities increase
7. Which financial statement shows assets, liabilities, and equity?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Owner’s Equity
8. Revenues are recognized when:
A. The customer pays cash
B. Services are performed or goods delivered
C. The owner withdraws profits
D. The balance sheet is prepared
9. An account used to record money owed by customers is:
A. Accounts Payable
B. Accounts Receivable
C. Service Revenue
D. Notes Payable
10. Which of the following accounts has a normal debit balance?
A. Accounts Payable
B. Capital
C. Cash
D. Service Revenue
11. If liabilities are ₱30,000 and equity is ₱20,000, then assets equal:
A. ₱10,000
B. ₱20,000
C. ₱30,000
D. ₱50,000
12. The process of transferring journal entries to the ledger is called:
A. Posting
B. Recording
C. Summarizing
D. Adjusting
13. Which is an example of a liability?
A. Cash
B. Accounts Receivable
C. Notes Payable
D. Equipment
14. What is the main purpose of adjusting entries?
A. To correct trial balance errors
B. To update accounts before financial statements
C. To close the books
D. To post to the general ledger
15. The matching principle states:
A. Expenses should be recorded when paid
B. Revenues should be recorded when received
C. Revenues and related expenses should be recognized in the same period
D. Assets should equal liabilities
16. Which of the following is a temporary account?
A. Cash
B. Supplies
C. Service Revenue
D. Accounts Payable
17. Depreciation expense is recorded to:
A. Spread the cost of an asset over its useful life
B. Record the asset at fair market value
C. Recognize cash payments made
D. Eliminate accumulated expenses
18. A list of all accounts and their balances is called:
A. General Journal
B. Trial Balance
C. Balance Sheet
D. Ledger
19. If the owner invests cash into the business, the effect is:
A. Increase Asset; Increase Equity
B. Increase Liability; Decrease Equity
C. Decrease Asset; Increase Liability
D. Increase Expense; Decrease Asset
20. Which is NOT part of the accounting cycle?
A. Analyzing transactions
B. Posting to ledger
C. Closing entries
D. Hiring employees
21. Which principle states that accountants should record transactions at cost, not market value?
A. Matching Principle
B. Going Concern
C. Cost Principle
D. Revenue Recognition
22. Unearned revenue is classified as:
A. Asset
B. Liability
C. Revenue
D. Equity
23. The financial statement showing a company’s revenues and expenses is:
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Owner’s Equity
24. The double-entry system means:
A. Recording only in cash and credit
B. Recording both sides of a transaction
C. Preparing two financial statements
D. Using two journals
25. Which of the following is a contra-asset account?
A. Accounts Receivable
B. Notes Payable
C. Accumulated Depreciation
D. Owner’s Capital
26. When services are performed on credit, the correct entry is:
A. Debit Cash, Credit Service Revenue
B. Debit Accounts Receivable, Credit Service Revenue
C. Debit Service Revenue, Credit Accounts Receivable
D. Debit Accounts Payable, Credit Service Revenue
27. Which of the following is a permanent account?
A. Rent Expense
B. Cash
C. Service Revenue
D. Withdrawals
28. The accounting cycle ends with:
A. Adjusting entries
B. Posting
C. Preparing financial statements
D. Closing the books
29. Which of the following accounts would appear on the Statement of Owner’s Equity?
A. Cash
B. Owner’s Capital
C. Accounts Payable
D. Service Revenue
30. If assets are ₱100,000 and liabilities are ₱60,000, equity is:
A. ₱40,000
B. ₱60,000
C. ₱100,000
D. ₱160,000
Answer Key
1. B
2. C
3. C
4. B
5. D
6. C
7. B
8. B
9. B
10.C
11.D
12.A
13.C
14.B
15.C
16.C
17.A
18.B
19.A
20.D
21.C
22.B
23.A
24.B
25.C
26.B
27.B
28.D
29.B
30.A
