# Accounting Knowledge: Transactions, journal entries & the accounting cycle

Questions with answers and explanations, from the Questiva Learning skills tests.
Version 2, authored 2026-08-23.
Take it interactively: https://www.questivalearning.com/qbcu-certification-prep#skills
## Transactions, journal entries & the accounting cycle

### Q1. Under accrual accounting, an invoice for finished work is recorded as:

- a) Debit Checking, credit Service Income.
- b) Debit Service Income, credit Accounts Receivable.
- c) Nothing until the customer pays.
- **✓ d) Debit Accounts Receivable, credit Service Income.**

> Under accrual, income counts when the work is done. The customer owes you, so the amount sits in Accounts Receivable until they pay.

### Q2. Paying a bill you've already entered is recorded as:

- a) Debit the expense, credit Checking.
- **✓ b) Debit Accounts Payable, credit Checking.**
- c) Debit Checking, credit Accounts Payable.
- d) Debit the expense, credit Accounts Payable.

> The expense was recorded with the bill. Paying it clears Accounts Payable and lowers Checking.

### Q3. A one-year policy starting in September was paid upfront to Prepaid Insurance. With no adjustments since, the December 31 adjustment:

- **✓ a) Expenses the months already used.**
- b) Expenses the whole premium.
- c) Debits Prepaid Insurance and credits Insurance Expense.
- d) Expenses the months still to come.

> The months of coverage used up by December 31 move to Insurance Expense. The rest stays prepaid for next year.

### Q4. A trial balance that balances can still hide:

- a) An entry with only the debit side posted.
- **✓ b) Rent posted to Advertising Expense.**
- c) A credit entered for less than its debit.
- d) A debit posted as a credit.

> A trial balance only checks that debits equal credits. An amount posted to the wrong account still balances, so you find it in the account detail.

### Q5. At year end, which accounts are closed so they start the new year at zero?

- a) Cash, Accounts Receivable and Inventory.
- b) Every balance sheet account.
- **✓ c) Income, expense and draw accounts.**
- d) Only the expense accounts.

> Income, expenses and draws measure one year at a time, so their net is closed into equity (Retained Earnings or Owner's Capital). Asset, liability and capital accounts carry their balances forward.

### Q6. With perpetual inventory, a sale is recorded as:

- a) Sales now. Cost of Goods Sold is figured from the year-end inventory count.
- b) Sales for the profit, and Inventory for the item's cost.
- **✓ c) Sales, and the item's cost moved from Inventory to Cost of Goods Sold.**
- d) A credit to Inventory for the full price.

> Perpetual inventory updates your stock with every sale. The price goes to Sales, and the item's cost moves from Inventory to Cost of Goods Sold at the same time.

### Q7. In bookkeeping software, which of these usually needs a manual journal entry?

- a) Billing a customer.
- b) Entering the phone bill.
- c) Applying a customer's check to two invoices.
- **✓ d) Monthly depreciation.**

> Depreciation has no form of its own, so it goes in as a journal entry. Invoices, bills and payments each have a form.