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web.groovymark@gmail.com
- December 8, 2024
Question 41
Which account is debited when a company recognizes depreciation expense?
- A) Cash
- B) Accumulated depreciation
- C) Depreciation expense
- D) Equipment
Answer: C) Depreciation expense
Explanation: Depreciation expense is debited to reflect the cost allocation of the asset over its useful life, and accumulated depreciation is credited.
Question 42
Which account is credited when cash is received from customers?
- A) Sales revenue
- B) Accounts payable
- C) Accounts receivable
- D) Cash
Answer: C) Accounts receivable
Explanation: When cash is collected from customers, accounts receivable is credited because the amount owed decreases.
Question 43
How are dividends typically recorded in the accounting records?
- A) As an asset
- B) As a reduction in equity
- C) As an expense
- D) As a revenue
Answer: B) As a reduction in equity
Explanation: Dividends are a distribution of earnings and are recorded as a reduction in retained earnings (a component of equity).
Question 44
What is the journal entry to record a payment on a note payable?
- A) Debit note payable, credit cash
- B) Debit cash, credit note payable
- C) Debit note payable, credit accounts payable
- D) Debit accounts receivable, credit note payable
Answer: A) Debit note payable, credit cash
Explanation: The company reduces its liability (note payable) by debiting the account and credits cash because it has made a payment.
Question 45
Which financial statement reports a company’s revenues and expenses?
- A) Balance sheet
- B) Statement of cash flows
- C) Income statement
- D) Statement of retained earnings
Answer: C) Income statement
Explanation: The income statement reports a company’s revenues, expenses, and net income or loss over a period of time.
Question 46
What type of account is prepaid rent?
- A) Expense
- B) Liability
- C) Asset
- D) Equity
Answer: C) Asset
Explanation: Prepaid rent is considered an asset because it represents a future benefit (the right to use the rented property).
Question 47
What is the correct journal entry to record the sale of goods for cash?
- A) Debit accounts receivable, credit sales revenue
- B) Debit sales revenue, credit cash
- C) Debit cash, credit sales revenue
- D) Debit cash, credit accounts receivable
Answer: C) Debit cash, credit sales revenue
Explanation: Cash is debited because the company receives money, and sales revenue is credited because the sale has been made.
Question 48
Which of the following would decrease retained earnings?
- A) Issuing common stock
- B) Paying dividends
- C) Earning revenue
- D) Recording depreciation
Answer: B) Paying dividends
Explanation: Dividends reduce retained earnings as they are a distribution of profits to shareholders.
Question 49
What does a credit to retained earnings represent?
- A) An increase in revenue
- B) A decrease in liabilities
- C) A decrease in equity
- D) An increase in equity
Answer: D) An increase in equity
Explanation: A credit to retained earnings increases equity, usually from net income or adjustments that positively affect equity.
Question 50
When is revenue recognized according to the revenue recognition principle?
- A) When cash is received
- B) When the earnings process is substantially complete
- C) When an order is placed
- D) When payment is made
Answer: B) When the earnings process is substantially complete
Explanation: The revenue recognition principle states that revenue is recognized when it is earned, not necessarily when cash is received.
