# Accounting Knowledge: The accounting equation, account types & normal balances

Questions with answers and explanations, from the Questiva Learning skills tests.
Version 2, authored 2026-08-23.
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## The accounting equation, account types & normal balances

### Q1. Under accrual accounting, a payment for work you haven't done yet is recorded as:

- a) Income, since the money is in the bank.
- b) Accounts Receivable.
- **✓ c) Unearned Revenue, a liability.**
- d) Owner's Equity.

> You still owe the customer the work, so the payment is a liability. It moves to income as you earn it.

### Q2. Money a sole proprietor takes for personal bills is recorded as:

- **✓ a) Debit Owner's Draws, credit Checking.**
- b) Debit Salaries Expense, credit Checking.
- c) Debit Checking, credit Owner's Draws.
- d) An expense, if it pays a bill like rent.

> Money taken for personal use is a draw. It lowers equity and never reaches the Profit and Loss.

### Q3. When you record a loan payment, which part is an expense?

- a) None of it. The whole payment comes off the loan balance.
- **✓ b) The interest.**
- c) The whole payment.
- d) The principal.

> The principal pays back what you borrowed, so it lowers the loan balance. Only the interest is a cost of borrowing, so only the interest goes on the Profit and Loss.

### Q4. Which account normally has a credit balance?

- a) Accounts Receivable
- b) Prepaid Insurance
- c) Cost of Goods Sold
- **✓ d) Accumulated Depreciation**

> Accumulated Depreciation is a contra asset, so it carries a credit balance that reduces the cost of the fixed assets. The other three normally have debit balances.

### Q5. A bakery's flour and its cleaning supplies are categorized as:

- a) Cost of Goods Sold.
- **✓ b) Flour to Cost of Goods Sold, cleaning supplies to operating expenses.**
- c) Operating expenses.
- d) Flour to operating expenses, and cleaning supplies to Cost of Goods Sold.

> Cost of Goods Sold is what goes into the product you sell, like the flour in a cake. Cleaning supplies keep the kitchen running, so they're an operating expense.

### Q6. Sales tax you collect from customers is recorded as:

- a) Part of sales income.
- b) Sales Tax Expense.
- c) Income now, and an expense when you pay the state.
- **✓ d) Sales Tax Payable, a liability.**

> The tax belongs to the state. You only hold it until you pay it over, so it's a liability.

### Q7. Which is true about supplies bought on the business credit card?

- a) Nothing is recorded until you pay the card.
- **✓ b) The expense is recorded now, and the card balance goes up.**
- c) Checking goes down on the day you buy them.
- d) They're an asset until the card is paid, and then an expense.

> The charge records the expense and adds to what you owe on the card, which is a liability. Cash moves only when you pay the card.

### Q8. Which leaves total assets the same?

- **✓ a) Paying cash for equipment.**
- b) Paying a bill already entered.
- c) Buying equipment on account.
- d) A month's depreciation.

> Checking goes down and Equipment goes up by the same amount, so total assets don't change.

### Q9. The owner paid a business expense personally and won't be repaid. It's recorded as:

- **✓ a) An expense and an owner contribution.**
- b) Nothing. No business money was spent.
- c) An expense paid from Checking.
- d) An expense and a loan from the owner.

> The business still has the expense. The owner's money went in for good, so it counts as a contribution to equity.