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Quizzes > Business & Finance > Finance & Economics

Accounting Practice Exam Quiz: Test Your Skills

Sharpen Your Ledger Balance & Profit Calculation Skills - Start the Practice Accounting Test!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
Paper art illustration of calculators, ledgers, coins, pencil on teal background for free accounting practice exam quiz

Use these accounting practice exam questions to check your skills with ledger balances, profit calculations, and quick bookkeeping math. You can time yourself, review what you miss, and spot gaps before the exam; if you want more reps, try this extra practice set to build speed and accuracy.

What is the fundamental accounting equation?
Liabilities = Equity - Assets
Assets = Liabilities + Equity
Assets = Revenue + Expenses
Assets + Liabilities = Equity
The fundamental accounting equation is Assets = Liabilities + Equity, which shows that what a company owns is financed by creditors or owners. It forms the basis of the balance sheet and ensures it balances. Every transaction affects this relationship.
What does double-entry bookkeeping require?
Only cash transactions are recorded
Entries affect only one account
Every transaction has equal debits and credits
Revenues always exceed expenses
Double-entry bookkeeping requires that every financial transaction be recorded as both a debit and a credit of equal amount, ensuring the accounting equation remains balanced. This reduces errors and provides full visibility of financial activities.
Which financial statement shows a company's financial position at a point in time?
Statement of cash flows
Statement of retained earnings
Income statement
Balance sheet
The balance sheet reports assets, liabilities, and equity at a specific date, showing the company's financial position. It differs from the income statement, which covers a period of time. Stakeholders use it to assess liquidity and solvency.
Under accrual accounting, when are revenues recognized?
When the invoice is mailed
At year-end only
When cash is received
When earned, regardless of cash received
Under the accrual basis, revenue is recognized when it is earned and realizable, even if cash has not yet been received. This matches revenue with the expenses incurred to generate it. GAAP requires this approach for accuracy.
What is the normal balance of an expense account?
Zero
Debit
Contra balance
Credit
Expense accounts normally carry debit balances because they decrease equity. Recording expenses as debits reflects a reduction in net assets. This aligns with the dual?entry system.
What is a trial balance used for?
To reconcile bank statements
To calculate net income
To check that total debits equal total credits
To prepare tax returns
A trial balance lists all ledger account balances to verify that debits equal credits after posting. It helps identify posting errors before preparing financial statements. However, it won't catch all error types.
Which statement reports cash inflows and outflows?
Balance sheet
Statement of shareholders' equity
Statement of cash flows
Income statement
The statement of cash flows categorizes cash movements into operating, investing, and financing activities. It provides insight into liquidity and cash management. Investors often analyze it alongside other statements.
What is depreciation?
Increase in an asset's value
Immediate write-off of an asset
Payment for asset maintenance
Allocation of an asset's cost over its useful life
Depreciation spreads the cost of a tangible asset over its useful life, matching expense recognition to revenue generation. It reflects wear and tear or obsolescence. Depreciation methods vary by policy.
What defines a current asset?
Never used in operations
Expected to be converted into cash within one year
Intangible in nature
Held longer than one year
Current assets are resources expected to be converted into cash or used within the business's operating cycle or one year. Examples include cash, receivables, and inventory. They are key for liquidity analysis.
Which principle matches revenues with expenses?
Cost principle
Full disclosure
Matching principle
Revenue recognition
The matching principle dictates that expenses should be recognized in the same period as the revenues they help generate. This ensures accurate measurement of profit. It is foundational in accrual accounting.
What does GAAP stand for?
General Association of Accountants and Professionals
Generally Accepted Accounting Principles
Global Accounting and Auditing Practices
Governmental Accounting Action Plan
GAAP stands for Generally Accepted Accounting Principles, a set of rules and standards for financial reporting in the U.S. It ensures consistency and comparability of financial statements across entities.
What is the normal balance of a liability account?
Debit
Credit
Zero
Contra balance
Liability accounts normally carry credit balances because they represent obligations to creditors, increasing equity when decreased. Recording liabilities as credits aligns with double?entry rules. A debit decreases the liability.
What is recorded in the general journal?
Chronological list of all transactions
Summarized account balances
Trial balance totals
Final financial statements
The general journal provides a chronological record of all transactions before posting to individual ledger accounts. It captures debits and credits for each entry. Errors are often detected here.
What does liquidity refer to?
Ability to convert assets into cash quickly
Long-term profitability
Operational efficiency
Market share growth
Liquidity measures how quickly and easily an asset can be converted into cash without significant loss of value. Current ratio and quick ratio help assess a company's liquidity position. High liquidity indicates strong short-term financial health.
What is owner's equity?
Total revenue minus expenses
Total assets plus liabilities
Residual interest after liabilities are subtracted from assets
Cash available for dividends
Owner's equity equals assets minus liabilities, representing the owner's claim on the company's net assets. It includes contributed capital and retained earnings. Positive equity shows solvency.
What does the income statement report?
Owner contributions
Assets and liabilities at a date
Cash balances
Revenues and expenses over a period
The income statement shows a company's financial performance by reporting revenues, expenses, and net profit or loss over a specific period. It helps assess operational efficiency. Investors use it to evaluate profitability.
Calculate the gross profit if sales are $200,000 and cost of goods sold is $120,000.
$120,000
$200,000
$80,000
$320,000
Gross profit is sales minus cost of goods sold. Here, $200,000 - $120,000 = $80,000. It represents profit before operating expenses.
Using straight-line depreciation, what is the annual expense for an asset costing $50,000 with a $5,000 salvage value and a 9-year life?
$4,444
$10,000
$6,111
$5,000
Straight-line depreciation equals (Cost - Salvage) ÷ Useful life. So ($50,000 - $5,000) ÷ 9 = $5,000 per year. It spreads cost evenly.
What adjusting entry records one month of expired prepaid insurance of $1,200?
No entry needed until year-end
Debit Insurance Expense $1,200; Credit Prepaid Insurance $1,200
Debit Prepaid Insurance $100; Credit Insurance Expense $100
Debit Insurance Expense $100; Credit Prepaid Insurance $100
Monthly expense is $1,200 ÷ 12 = $100. You debit Insurance Expense and credit Prepaid Insurance to reflect one month used. This aligns expense with period.
If current assets are $80,000 and current liabilities are $50,000, what is the current ratio?
1.0
1.6
0.6
2.5
Current ratio = Current Assets ÷ Current Liabilities = $80,000 ÷ $50,000 = 1.6. It measures short-term liquidity. Ratios above 1 indicate sufficient assets.
In a bank reconciliation, if the bank statement shows $10,000, outstanding checks are $2,000, and deposits in transit are $1,000, what is the adjusted bank balance?
$8,000
$11,000
$13,000
$9,000
Adjusted bank balance = Bank statement balance - Outstanding checks + Deposits in transit = $10,000 - $2,000 + $1,000 = $9,000. This aligns book balance with bank records.
Under FIFO, which inventory cost is assigned to ending inventory when prices are rising?
Replacement costs
Average costs
Most recent costs
Oldest costs
FIFO assigns the oldest costs to cost of goods sold and the most recent costs to ending inventory. When prices rise, ending inventory is valued higher. This impacts profits and taxes.
Which method estimates bad debt expense based on a percentage of sales?
Percentage of receivables
Balance sheet approach
Income statement approach
Direct write-off
The income statement approach applies a percentage to credit sales to estimate bad debt expense. It matches expense to revenue. The balance sheet approach instead uses receivables' aging.
What is the present value of $1,000 received in 3 years at 5%?
$950.00
$863.84
$900.00
$1,150.00
PV = FV / (1 + r)^n = 1000 / (1.05)^3 ? $863.84. Present value discounts future cash flows to today's dollars. Used in investment appraisal.
Which cost is capitalized rather than expensed?
Cost of acquiring a fixed asset
Advertising expense
Office supplies
Monthly utility bill
Capital expenditures (capex), like purchasing fixed assets, are capitalized and depreciated over their useful lives. Operating expenses, like utilities, are expensed immediately.
How is weighted average cost per unit calculated if total cost is $100,000 for 5,000 units?
$15.00
$20.00
$25.00
$5.00
Weighted average cost = Total cost ÷ Total units = $100,000 ÷ 5,000 = $20 per unit. This method smooths cost fluctuations. It's used in inventory valuation.
What is the break-even point in units if fixed costs are $50,000, price per unit is $10, and variable cost per unit is $6?
12,500 units
8,333 units
5,000 units
20,000 units
Break-even units = Fixed Costs ÷ (Price - Variable Cost) = 50,000 ÷ (10 - 6) = 12,500. It shows how many units must sell to cover all costs.
How is the contribution margin ratio computed if contribution margin is $4 and sales price is $10?
60%
10%
25%
40%
Contribution margin ratio = Contribution Margin ÷ Sales Price = 4 ÷ 10 = 40%. It measures the portion of sales revenue available to cover fixed costs and profit.
What is debt-to-equity ratio if total liabilities are $120,000 and equity is $80,000?
0.67
2.0
1.5
0.5
Debt-to-equity ratio = Total Liabilities ÷ Shareholders' Equity = 120,000 ÷ 80,000 = 1.5. It reflects financing structure and risk. Ratios above 1 indicate higher leverage.
How is non-controlling interest presented in consolidated financial statements?
As a contra-equity account
Not presented separately
Under liabilities
As part of equity, separate from parent's equity
Non-controlling interest is shown in equity, separately from the parent's equity, representing the portion of subsidiaries not owned by the parent. It reflects third-party claims on net assets. IFRS requires this presentation.
When is goodwill impaired?
Annually without testing
If market value of stock rises
Only on disposal
When carrying value exceeds recoverable amount
Goodwill impairment occurs when the carrying amount of goodwill exceeds its recoverable amount (higher of fair value less costs or value in use). Companies test goodwill annually or when indicators exist. Impairment losses hit profit or loss.
How is a deferred tax asset recognized?
When deferred tax liability exists
Only with government approval
When it is probable future taxable profits will allow utilization
Automatically on timing differences
A deferred tax asset arises from deductible temporary differences and is recognized only if it's probable that future taxable profits will be available against which the asset can be utilized. This aligns tax expense with accounting profit.
Which qualifies as a hedged item under hedge accounting?
Equity investment only
Entire statement of income
A recognized asset or liability exposure to risk
Forecast transaction in a foreign subsidiary
Under IFRS 9, a hedged item is a recognized asset/liability or a highly probable forecast transaction exposure to risk. It must be formally designated and documented in a hedge relationship. This ensures offsetting gains/losses.
In foreign currency translation, what is the functional currency?
Currency of the primary economic environment
Currency used for reporting only
Currency of the parent company
USD in all cases
Functional currency is the currency of the primary economic environment in which an entity operates. It's determined by cash flows, sales prices, and expenses. Translation to presentation currency follows IFRS guidelines.
When is segment reporting required?
Never under IFRS
Only in consolidated statements
Always, regardless of size
When components earn revenues ?10% of total
IFRS 8 requires segment reporting when reportable segments earn 10% or more of combined revenue, profit, or assets, or meet internal reporting thresholds. Disclosure improves transparency of business parts.
How are defined benefit pension obligations measured?
Contributions paid during the period
Fair value of plan assets
Total salary expense
Present value of future benefits minus plan assets
Defined benefit obligations are measured as the present value of estimated future benefits less the fair value of plan assets. Actuarial assumptions drive this calculation. Recognized under IAS 19.
Under the equity method, how is net income of an investee recorded?
No entry until sale
As contra equity
Investor recognizes its share of investee income
Only dividends received
Using the equity method, the investor increases the investment account by its share of the investee's net income and recognizes that share in its own income. Dividends reduce the carrying amount.
How are derivatives measured initially under IFRS 9?
At cost plus fees
At fair value with transaction costs in profit or loss
At amortized cost
Not recognized until settlement
Derivatives are measured at fair value on initial recognition and subsequently revalued to fair value, with gains or losses in profit or loss, according to IFRS 9. Transaction costs go directly to profit or loss.
How are share-based payments recognized under IFRS 2?
Recorded as a liability only
Not recognized until exercised
Expense measured at fair value of equity instruments
Capitalized as intangible asset
IFRS 2 requires entities to recognize share-based payments as expenses over the vesting period, measured at the fair value of the equity instruments granted. It ensures cost recognition aligned with benefit period.
What is the accounting treatment for a company's share buyback?
Treasury shares at cost, deducted from equity
Deferred liability
Recognized as revenue
Recorded as an expense
When a company buys back its own shares, it records treasury shares at cost as a deduction from equity. No gain or loss is recognized. This reduces outstanding shares and equity.
How are convertible bonds classified initially?
Entirely as equity
Entirely as debt
Not recognized until conversion
Split into liability and equity components
Convertible bonds are separated into a liability component (present value of cash flows) and an equity component (residual). This reflects the convertible feature. IAS 32 governs this treatment.
What is a change in accounting estimate and how is it treated?
As an error correction
Not recognized
Prospectively, by adjusting current and future periods
Retrospectively, restating prior periods
Changes in accounting estimates, like useful lives, are applied prospectively by adjusting current and future periods only. Prior period figures are not restated. IAS 8 provides guidance.
Under IFRS 16, how is a lease liability initially measured?
Fair value of the underlying asset
Present value of lease payments not paid at lease commencement
Zero for operating leases
Sum of lease payments
IFRS 16 requires initial lease liability measurement at the present value of future lease payments, discounted using the interest rate implicit in the lease or incremental borrowing rate. This liability is recorded with a corresponding right-of-use asset.
What model does IFRS 9 require for expected credit losses on financial assets?
Forward-looking expected credit loss model
Historical loss model
Probability of default only
Incurred loss model
IFRS 9 uses a forward-looking expected credit loss (ECL) model, requiring entities to recognize credit losses based on past events, current conditions, and forecasts. It replaced the incurred loss model under IAS 39.
How are insurance contracts measured under IFRS 17 at initial recognition?
At premiums receivable
At fair value
At incurred claims
At the total of fulfillment cash flows plus or minus contractual service margin
IFRS 17 requires insurance contracts to be measured at initial recognition as the sum of the present value of future fulfillment cash flows and the contractual service margin. This reflects the insurer's obligation and profit to be recognized.
Under IFRS 2, how is the fair value of employee stock options determined?
Intrinsic value only
Using an option-pricing model at grant date
Market price at exercise date
Nominal exercise price
IFRS 2 requires the fair value of share-based payment awards like employee stock options to be estimated using an option-pricing model (e.g., Black-Scholes) at the grant date. This value is expensed over the vesting period.
How are joint operations and joint ventures distinguished under IFRS 11?
Both always use equity method
Both never recognized on balance sheet
Joint operations grant rights to assets and obligations for liabilities; joint ventures grant rights to net assets
Joint ventures reported in notes only
IFRS 11 classifies joint arrangements as joint operations (parties have direct rights to assets and obligations for liabilities) or joint ventures (rights to net assets only). Accounting differs: proportionate consolidation vs equity method.
What is the hierarchy for fair value measurement under IFRS 13?
Level A, B, C without inputs
Level 1: quoted prices; Level 2: observable inputs; Level 3: unobservable inputs
Only Level 1 and 2
Hierarchy based on asset class
IFRS 13 establishes a three-level hierarchy for fair value: Level 1 inputs are quoted prices in active markets, Level 2 are observable inputs other than quoted prices, and Level 3 are unobservable inputs. It ensures consistent valuation.
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Study Outcomes

  1. Analyze Ledger Balances -

    After completing the practice test, you will accurately review and reconcile ledger balances to ensure trial balance integrity and pinpoint discrepancies.

  2. Calculate Net Profit and Loss -

    You will master profit calculation questions by determining gross and net profit figures, enhancing your skills for profit and loss statements.

  3. Apply Double-Entry Accounting Principles -

    Use the quiz scenarios to reinforce recording debits and credits correctly, solidifying your understanding of journal entries and ledgers.

  4. Identify and Correct Common Errors -

    Develop the ability to spot and amend typical accounting mistakes, such as transposition errors and omission of entries, improving data accuracy.

  5. Interpret Trial Balance and Adjusting Entries -

    Gain experience evaluating trial balance outputs and implementing necessary adjusting entries to finalize accurate financial statements.

  6. Assess Your Accounting Proficiency -

    Receive a scored evaluation of your performance on the accounting practice exam questions to pinpoint strengths and focus on areas for improvement.

Cheat Sheet

  1. The Fundamental Accounting Equation -

    Every accounting practice exam questions set will test your grasp of Assets = Liabilities + Equity. Remember the mnemonic "ALE" (Assets, Liabilities, Equity) to quickly recall the relationship, as endorsed by the Financial Accounting Standards Board (FASB). Practice with sample transactions - like purchasing equipment on credit - to see how both sides remain balanced.

  2. Trial Balance & Ledger Balances -

    Ensure debits equal credits before moving to financial statements; this prevents errors in your practice accounting test. The University of Cambridge suggests systematically checking each ledger account for posting mistakes. Try running a mini exercise: post three debits and three credits, then compile a trial balance to confirm zero net difference.

  3. Revenue Recognition & Matching Principle -

    Under IFRS and GAAP, revenue is recognized when earned, not necessarily when cash is received. Use the phrase "record then collect" to remember that expenses must be matched to revenues in the same period. For example, if you deliver services in June but get paid in July, record the revenue in June to align with peer-reviewed accounting texts (e.g., Journal of Accountancy).

  4. Profit Calculation & Margin Analysis -

    Net profit margin = (Net Income ÷ Revenue) × 100%. Knowing this formula inside out will help you breeze through profit calculation questions. Harvard Business School materials recommend running small scenarios - adjust sales or cost figures - to see how margins shift under different cost structures.

  5. Adjusting Entries & Accruals -

    Don't overlook end-of-period adjustments like prepaid expenses, accrued liabilities, and depreciation. Use the "DEAD CLIC" mnemonic: Debits increase Expenses, Assets & Dividends; Credits increase Liabilities, Income & Capital. Many universities (e.g., UC Berkeley) provide practice problems where you adjust for one month of rent prepaid or wages earned but unpaid.

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