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Quizzes > Business & Finance

Online Financial Accounting Quiz for Business Studies

Quick, free accounting principles quiz. Instant results.

Editorial: Review CompletedCreated By: Brandon EarlesUpdated Aug 25, 2025
Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
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This financial accounting quiz helps you practice recording transactions, tracking assets, and reading statements so you can spot gaps before a test or interview. For more practice, try an accounting practice test, build skills with a basic accounting quiz online, or explore a broader finance and accounting quiz.

What is the primary accounting equation?
Assets = Liabilities + Equity
Liabilities = Assets + Equity
Assets + Liabilities = Equity
Equity = Assets + Liabilities
The primary accounting equation states that assets are financed by liabilities and equity, forming the foundation of double-entry accounting. It ensures that the balance sheet always balances and accurately reflects a company's financial position. This relationship underpins financial statement preparation and analysis.
What type of account is 'Accounts Payable'?
Liability
Revenue
Equity
Asset
Accounts Payable represents amounts a company owes to suppliers and creditors, making it a liability account. It records obligations to pay for goods or services received on credit. Proper classification ensures accurate representation of short-term obligations.
Under accrual accounting, when are expenses recognized?
When billed
When incurred
When cash is paid
At year-end
Accrual accounting records expenses when they are incurred, regardless of cash flow timing. This approach matches expenses to the period in which they help generate revenues. It provides a more accurate view of financial performance.
FIFO in inventory management stands for which phrase?
First Internal, First External
First Indexed, First Out
First In, Fifteenth Out
First In, First Out
FIFO stands for First In, First Out, meaning the oldest inventory items are sold first. This method aligns with the physical flow of many goods and can affect cost of goods sold. It is commonly used in times of rising prices to reflect lower cost inventory first.
What is the normal balance of an asset account?
Debit
Neither
Both credit and debit
Credit
Asset accounts normally carry a debit balance because debits increase assets and credits decrease them. This convention is fundamental to double-entry accounting. Recognizing the normal balance helps ensure accurate ledger recording.
Which financial statement reports a company's financial position at a single point in time?
Income Statement
Balance Sheet
Statement of Retained Earnings
Statement of Cash Flows
The balance sheet presents assets, liabilities, and equity at a specific date, showing a company's financial position at that moment. It differs from the income statement and cash flow statement, which cover periods of time. Users rely on it for solvency and liquidity analysis.
Property, Plant, and Equipment are classified as which type of asset?
Equity
Current assets
Non-current assets
Intangible assets
Property, Plant, and Equipment (PP&E) are tangible long-term assets used in operations, and thus are classified as non-current assets. They are depreciated over their useful lives. Proper classification distinguishes them from current assets.
Depreciation expense is used to:
Allocate the cost of an asset over its useful life
Determine market value
Eliminate salvage value
Increase the asset's book value
Depreciation allocates the historical cost of a long-lived asset over its useful life. It matches expense recognition with the periods benefiting from asset use. This method does not adjust market value or increase book value.
In business planning, a SWOT analysis examines:
Strategy, Workflow, Objectives, Tactics
Sales, Work, Operations, Transactions
Systems, Workforce, Output, Timing
Strengths, Weaknesses, Opportunities, Threats
A SWOT analysis evaluates internal Strengths and Weaknesses and external Opportunities and Threats. It helps organizations develop strategic plans and make informed decisions. This tool is widely used in business studies and strategic management.
What is the journal entry to record the purchase of equipment paid for in cash?
Debit Accounts Payable, Credit Cash
Debit Equipment, Credit Cash
Debit Equipment, Credit Accounts Payable
Debit Cash, Credit Equipment
When equipment is purchased with cash, the Equipment account (an asset) is debited to increase it, and Cash is credited to decrease cash. This follows the double-entry principle. Recording correct entries ensures accurate financial statements.
How is straight-line depreciation calculated?
Cost / Salvage Value
(Cost - Salvage Value) / Useful Life
(Cost + Salvage Value) / Useful Life
(Cost - Salvage Value) × Useful Life
Straight-line depreciation spreads an asset's cost minus its salvage value evenly over its useful life. The formula is (Cost - Salvage Value) ÷ Useful Life. It's the simplest and most commonly used depreciation method.
The break-even point in units is calculated as:
Fixed Costs ÷ Contribution Margin per Unit
Total Costs ÷ Sales Price
Fixed Costs × Contribution Margin per Unit
Variable Costs ÷ Sales Price
The break-even point in units is found by dividing total fixed costs by the contribution margin per unit (sales price minus variable cost per unit). This shows how many units must be sold to cover all fixed and variable costs. It's vital for pricing and planning.
The current ratio is defined as:
Current Assets ÷ Current Liabilities
Net Income ÷ Total Assets
Total Assets ÷ Total Liabilities
Current Liabilities ÷ Current Assets
The current ratio measures liquidity by dividing current assets by current liabilities. A ratio above 1 indicates the company can cover its short-term obligations. It's a key indicator of financial health.
Goodwill on an acquisition arises when:
Liabilities exceed assets
Payment is made in cash only
Assets are sold at a profit
Purchase price is greater than fair value of net assets acquired
Goodwill represents the premium paid over the fair value of identifiable net assets in a business acquisition. It reflects intangible factors like brand value and customer relationships. Goodwill is tested for impairment, not amortized.
Working capital is calculated as:
Total Liabilities ? Total Assets
Current Assets ? Current Liabilities
Total Assets ? Total Liabilities
Current Liabilities ? Current Assets
Working capital measures short-term liquidity by subtracting current liabilities from current assets. Positive working capital indicates the ability to fund day-to-day operations. It's crucial for assessing operational efficiency.
A credit entry will increase which type of account?
Liability
Dividend
Expense
Asset
In double-entry accounting, credits increase liability, equity, and revenue accounts while decreasing assets and expenses. A credit to a liability account raises its balance. Understanding this ensures accurate ledger postings.
Gross profit is calculated as:
Sales Revenue ? Cost of Goods Sold
Assets ? Liabilities
Operating Expenses ? Revenue
Net Income ? Expenses
Gross profit equals sales revenue minus cost of goods sold, reflecting the profit from core operations before operating expenses. It indicates production efficiency. Analysts use gross profit to compare performance across periods and companies.
The matching principle in accounting requires:
Matching expenses to the period in which they are incurred to generate revenue
Matching inventory to sales
Matching revenues to cash received
Matching assets to liabilities
The matching principle directs that expenses be recognized in the same period as the revenues they help generate. This principle ensures that income statements reflect accurate profitability. It's fundamental to accrual accounting.
The acid-test ratio (quick ratio) excludes which item from current assets?
Prepaid Expenses
Cash
Inventory
Receivables
The acid-test ratio measures liquidity by excluding inventory from current assets, since inventory may not be quickly convertible to cash. It uses cash, receivables, and short-term investments only. This provides a stricter test of solvency.
In an inflationary environment, which inventory method yields the highest ending inventory value?
Weighted-Average
FIFO
Specific Identification
LIFO
Under FIFO, the oldest (lower-cost) items are expensed first, leaving higher-cost recent purchases in ending inventory during inflation. This results in a higher ending inventory valuation compared to LIFO or average-cost methods. Companies choose FIFO for higher asset balances.
Using the allowance method for bad debts, which journal entry records estimated uncollectible accounts?
Debit Bad Debt Expense, Credit Cash
Debit Allowance for Doubtful Accounts, Credit Bad Debt Expense
Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts
Debit Cash, Credit Bad Debt Expense
The allowance method records uncollectible accounts by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts (a contra-asset). This matches bad debt expense to the period of related sales. It avoids misstating receivables.
Capital budgeting primarily involves decisions about:
Dividend policy
Long-term investment projects
Day-to-day cash management
Working capital financing
Capital budgeting evaluates potential long-term investments, such as new equipment, plants, or products. Techniques like NPV and IRR assess project profitability. Proper capital budgeting aligns investments with strategic goals.
Net Present Value (NPV) is defined as:
Present value of cash inflows minus present value of cash outflows
Future value of cash inflows
Present value of cash inflows minus initial investment ignoring discount
Sum of undiscounted cash flows
NPV calculates the difference between discounted cash inflows and discounted cash outflows over a project's life. A positive NPV indicates the project should add value to the firm. It's a key criterion in capital budgeting.
Weighted Average Cost of Capital (WACC) represents:
Average cost of debt and equity weighted by market values
Cost of debt only
Unweighted average cost of capital
Cost of equity only
WACC combines the costs of debt and equity financing, weighted by their proportions in the company's capital structure. It reflects the minimum return required by investors. Companies use WACC as a discount rate in NPV calculations.
When shares are issued above par value, the excess amount is credited to which account?
Share Capital
Additional Paid-in Capital
Treasury Stock
Retained Earnings
Any proceeds above the par value of shares issued are recorded in Additional Paid-in Capital (or Share Premium). Par value is credited to Share Capital, with the excess to APIC. This distinguishes legal capital from contributed surplus.
What is the primary difference between debt and equity financing?
Debt does not need to be repaid; equity must be repaid
Debt must be repaid with interest; equity has no obligatory repayment
Equity carries mandatory interest; debt does not
Equity holders have priority in liquidation; debt holders do not
Debt financing involves borrowing that must be repaid with interest, while equity financing represents ownership without mandatory repayment. Equity holders bear more risk but can benefit from residual profits. Companies balance both to optimize capital structure.
Operating cash flow is derived from net income by:
Subtracting increase in current liabilities
Adding dividends
Adding back depreciation
Subtracting depreciation
In the indirect method, operating cash flow starts with net income and adds back non-cash expenses like depreciation. Changes in working capital items are also adjusted. This converts accrual profit into cash flow from operations.
Mark-to-market accounting requires which valuation method for assets?
Depreciated cost
Replacement cost
Fair market value each reporting period
Historic cost
Mark-to-market accounting values assets at current fair market values on each reporting date, reflecting real-time changes. It enhances transparency but can introduce volatility. This method is common for financial instruments.
The Economic Order Quantity (EOQ) formula is:
D×S/H
(2DS)/H
?(2DS/H)
?(D/H)
EOQ = ?(2DS/H), where D is annual demand, S is order cost, and H is holding cost per unit. It identifies the optimal order quantity minimizing total inventory costs. EOQ is a foundational concept in inventory management.
In consolidated financial statements, intercompany transactions are:
Deferred until liquidation
Eliminated
Reported as profit
Recognized twice
Intercompany transactions between parent and subsidiaries are eliminated in consolidation to avoid double counting. This ensures only external revenues, expenses, assets, and liabilities are reported. Proper elimination yields accurate group financials.
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Study Outcomes

  1. Understand Core Statements -

    Understand the structure and purpose of the balance sheet and income statement, gaining clarity on how each reflects a company's financial health.

  2. Analyze Asset Management -

    Analyze real-world asset acquisition and valuation scenarios to strengthen decision-making skills in managing resources.

  3. Apply Recording Techniques -

    Apply double-entry bookkeeping methods to record transactions accurately, reinforcing knowledge from the financial accounting quiz.

  4. Evaluate Transaction Impact -

    Evaluate how different business transactions affect financial position and performance using fundamental accounting principles.

  5. Interpret Key Ratios -

    Interpret essential financial ratios to assess liquidity, solvency, and profitability for effective business analysis.

  6. Develop Exam Readiness -

    Develop confidence by tackling basic accounting questions and business studies test items, preparing for academic or professional assessments.

Cheat Sheet

  1. Master the Fundamental Accounting Equation -

    The cornerstone of any accounting and business studies quiz is understanding that Assets = Liabilities + Equity. This simple formula ensures your balance sheet always balances - try a mental mnemonic like "A = L + E" as "All Liabilities Earn" to recall quickly. From IFRS guidelines to basic accounting questions, this equation underpins every transaction you'll encounter.

  2. Practice Double-Entry Accounting: Debits vs Credits -

    Every transaction in your accounting quiz online demands a debit and corresponding credit to keep the ledger balanced. Remember the mnemonic DEAD CLIC: Debits increase Expenses, Assets, Drawings; Credits increase Liabilities, Income, Capital. Harvard Business School materials highlight practicing real entries - like recording a cash sale: Debit Cash, Credit Sales Revenue - to build your muscle memory.

  3. Decode the Balance Sheet Structure -

    The balance sheet groups assets and liabilities into current (due within one year) and non-current categories to measure liquidity and financial stability. The current ratio formula (Current Assets ÷ Current Liabilities) is a staple in business studies tests for assessing short-term solvency. University of Cambridge resources recommend tabulating entries in order of liquidity to streamline your review for any financial accounting quiz.

  4. Navigate the Income Statement: Revenue to Net Income -

    In a business studies test, you'll often calculate gross profit and net profit by subtracting cost of goods sold and operating expenses from revenues. Use the formula: Gross Profit = Sales - COGS; Net Income = Gross Profit - Expenses, and try the mnemonic "Sales Count, Expenses Exit" to keep steps clear. The Financial Accounting Standards Board (FASB) emphasizes dissecting multi-step income statements for deeper insights into operating versus non-operating items.

  5. Interpret Cash Flows: Operating, Investing, Financing -

    Understanding the cash flow statement helps you track how cash moves through a business and is often tested in a financial accounting quiz. Classify activities as Operating (day-to-day), Investing (long-term assets), or Financing (debt and equity) - remember OIF to recall the sections in order. MIT OpenCourseWare recommends practicing statement reconciliations by linking net income to operating cash flow using the indirect method.

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