

Small Business Accounting Exam Practice Tests
Course Introduction
Small Business Accounting provides students with an understanding of fundamental accounting principles as they apply to small and emerging businesses. The course covers the complete accounting cycle, including recording financial transactions, posting to ledgers, preparing trial balances, and producing basic financial statements. Emphasis is placed on bookkeeping methods, cash flow management, budgeting, payroll, tax obligations, and the use of accounting software tailored for small business needs. Through practical exercises and case studies, students learn how to maintain accurate financial records, make informed business decisions, and ensure compliance with regulatory requirements.
Recommended Textbook
College Accounting A Practical Approach 12th Canadian Edition by Jeffrey Slater
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25 Chapters
3155 Verified Questions
3155 Flashcards
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Page 2

Chapter 1: Accounting Concepts and Procedures
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Sample Questions
Q1) If expenses are less than revenue, a net income is incurred.
A)True
B)False
Answer: True
Q2) The financial statement that shows business results in terms of revenue and expenses is:
A)an income statement.
B)a balance sheet.
C)a statement of owner's equity.
D)the statement of cash flows.
Answer: A
Q3) Ryan withdrew cash from the business to pay his personal cell phone bill. The expanded accounting equation changes include:
A)increase in both Cash and Withdrawal.
B)decrease in both Cash and Withdrawal.
C)decrease in Cash and increase in Withdrawal.
D)increase in Cash and decrease in Withdrawal.
Answer: C
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3
Chapter 2: Debits and Credits: Analyzing and Recording
Business Transactions
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Sample Questions
Q1) A credit may signify a(n):
A)increase in assets.
B)decrease in liabilities.
C)increase in capital.
D)increase in withdrawals.
Answer: C
Q2) Dennis, owner of Dennis' Golf Center, withdrew $900 in cash from the business. Record the transaction by:
A)debiting Dennis, Withdrawals, $900; crediting Cash, $900.
B)debiting Accounts Receivable, $900; crediting Cash, $900.
C)debiting Expense, $900; crediting Cash, $900.
D)debiting Dennis, Withdrawals, $900; crediting Dennis, Capital, $900.
Answer: A
Q3) The Accounts Receivable account has total debit postings of $1,900 and credit postings of $1100. The balance of the account is:
A)$800 debit.
B)$800 credit.
C)$2,600 credit.
D)$2,600 debit.
Answer: A

Page 4
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Chapter 3: Beginning the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts would be debited in a proper journal entry?
A)Accounts Payable when it is increased
B)Accounts Receivable when it is increased
C)Cash when it is decreased
D)Capital when it is increased
Answer: B
Q2) Describe the difference in information contained in the general journal vs. the general ledger.
Answer: The general journal provides a listing of day-to-day transactions listed in chronological order. It displays the date, titles of the account(s)that are debited, titles of account(s)that are credited, the respective amounts of those debits and credits and the explanation of the transaction. It also includes the post reference column so that you can verify that the transaction was posted to the ledger. The general ledger is a complete "book" of all accounts used by the company. The ledger account keeps a running balance of the specific account based on the transactions posted. It displays the date of transactions and amount of transaction. It also includes the post reference column which shows the journal and page number where the entry is journalized.
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Page 5

Chapter 4: The Accounting Cycle Continued
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Sample Questions
Q1) Adjustments are necessary to update account balances for internal transactions.
A)True
B)False
Q2) Which of the following transactions would result in an accrual?
A)Salary expense has been incurred but unpaid.
B)Rent expired for the month.
C)Supplies used during the accounting period.
D)Equipment depreciated over the period.
Q3) The adjusted trial balance on the worksheet shows Accumulated Depreciation, $1,200, and Depreciation Expense, $900. What was the balance in the Accumulated Depreciation account before the adjustment?
A)$2,100
B)$300
C)$900
D)$1,200
Q4) Not recording the Prepaid Rent used causes:
A)assets to be too high.
B)assets to be too low.
C)expenses to be too high.
D)revenue to be too high.
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Chapter 5: The Accounting Cycle Completed
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Sample Questions
Q1) The beginning capital balance is $5,350, there are no additional investments but the owner did withdraw $500 during the accounting period. The period's revenue is $5,000 and expenses total $6,500. What is the ending capital balance (after closing entries)?
A)$5,350
B)$2,850
C)$5,850
D)$3,350
Q2) Nominal accounts are called temporary accounts because their balances are not carried forward to the next accounting period.
A)True
B)False
Q3) The Withdrawals account is closed to Income Summary.
A)True
B)False
Q4) A real account is the same as a permanent account.
A)True
B)False
Q5) Why will the Income Summary account never appear on a financial statement?
Q6) What are the major goals of the closing process?
Page 7
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Chapter 6: Banking Procedure and Control of Cash
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Sample Questions
Q1) Determine the cash short (-)or over (+)given the following:
The balance per the Petty Cash account $75
The count of coin and currency amounts to $27
There are receipts: for gas of $9, for office supplies of $18, for first aid supplies $14
$ ________
Q2) If the written amount on the check does not match the amount expressed in figures, the bank may:
A)pay the amount written in words.
B)return the check unpaid.
C)contact the drawer to see what was meant.
D)All of the above are correct choices.
Q3) A $50 petty cash fund has cash of $20 and valid receipts for $40. The entry to replenish the fund would include a:
A)credit to Cash for $30.
B)credit to Cash for $40.
C)credit to Petty Cash for $30.
D)debit to Petty Cash for $40.
Q4) ________ Replenishment of petty cash
Q5) ________ Bought Supplies on account
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Chapter 7: Calculating Pay and Payroll Taxes: The
Beginning of the Payroll Process
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Sample Questions
Q1) The individual employee earnings record provides a summary of the following for a single employee, except:
A)earnings.
B)withholding taxes.
C)net pay.
D)allowances.
Q2) Brian Temple's cumulative earnings are $73,000, and his gross pay for the week is $5,300. If the FICA rates are: OASDI 6.2% on a limit of $106,800 and Medicare is 1.45%, what are his FICA-OASDI and FICA-Medicare taxes for the week?
A)$0; $76.85
B)$328.60; $0
C)$328.60; $76.85
D)$3,286; $768.50
Q3) Which of the following taxes has a maximum amount an employee must pay in a year?
A)Federal income tax
B)FICA-Medicare tax
C)FICA-OASDI tax
D)State Income tax

Page 9
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Chapter 8: Paying, Recording, and Reporting Payroll and Payroll Taxes: the Conclusion of the Payroll Process
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Sample Questions
Q1) If an employer owes less than $2,500 for FICA (OASDI and Medicare)and FIT, they can submit:
A)Form 944-Employer's Annual Federal Tax Return.
B)Form 8109-Federal Tax Deposit Coupon.
C)Form 940-Employer's Annual Federal Unemployment Tax Return.
D)Form W-2-Wage and Tax Statement.
Q2) Compute the total state income tax. ________
Q3) The employer records deductions from the employee's paycheck:
A)as debits to expense accounts.
B)as credits to liability accounts until paid.
C)as debits to asset accounts until paid.
D)as credits to capital accounts.
Q4) The employer's annual Federal Unemployment Tax Return is:
A)Form 940.
B)Form 941.
C)Form W-4.
D)Form 8109.
Q5) A deposit must be made when filing the W-3 form.
A)True
B)False
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Chapter 9: Sales and Cash Receipts
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Sample Questions
Q1) Entries to customers' accounts for sales are posted in the:
A)accounts receivable subsidiary ledger.
B)accounts payable subsidiary ledger.
C)fixed asset subsidiary ledger.
D)cash subsidiary ledger.
Q2) Accounts of a single type are kept in this ledger:
A)supplemental ledger.
B)additional ledger.
C)subsidiary ledger.
D)None of these answers are correct.
Q3) The Sales Returns and Allowances account is contra-revenue.
A)True
B)False
Q4) The return of merchandise by a credit customer was recorded with a debit to Accounts Payable and a credit to Accounts Receivable and the subsidiary ledger. This error will cause:
A)the net income for the period to be overstated.
B)the net income for the period to be understated.
C)the control account to not agree with the subsidiary ledger.
D)the assets to be overstated.

11
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Chapter 10: Purchases and Cash Payments
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Sample Questions
Q1) The entry to record a purchase of $5,000 on account, terms of 2/10, n/30, would include a:
A)debit to Purchases Discount for $100.
B)credit to Accounts Payable for $5,000.
C)debit to Accounts Payable for $5,000.
D)credit to Cash for $5,000.
Q2) The seller's sales invoice is the buyer's purchase invoice. A)True B)False
Q3) Purchases Discounts are not taken on freight costs. A)True
B)False
Q4) Office Supplies (not used for resale)bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Purchase Returns and Allowances. This error will cause:
A)net income to be overstated.
B)net income to be understated.
C)net income to not be affected.
D)total assets to be understated.
Q5) Explain the difference between F.O.B. shipping point and F.O.B. destination.
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Chapter 11: Preparing a Worksheet for a Merchandise Company
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Sample Questions
Q1) The adjustment for accrued wages was not done; this would cause:
A)liabilities to be overstated.
B)liabilities to be understated.
C)expenses to be overstated.
D)net income to be understated.
Q2) Joe received $5,000 in advance for renting part of his building for 4 months. What is the entry to record the adjustment after one month has passed?
A)debit Cash; credit Rental Income
B)debit Cash; credit Unearned Rent
C)debit Unearned Rent, credit Rental Income
D)debit Unearned Rent, credit Cash
Q3) The financial statement on which Unearned Rent would appear is:
A)the income statement.
B)the balance sheet.
C)the owner's equity statement.
D)Unearned Rent is not reported until earned.
Q4) Mortgage Payable is found on the income statement.
A)True
B)False
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Q5) Discuss the reasons a company would consider using a periodic inventory system.

Chapter 12: Completion of the Accounting Cycle for a Merchandise Company
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Sample Questions
Q1) The entry to close the owner's Withdrawal account will include which of the following?
A)A debit to Income Summary
B)A credit to Capital
C)A credit to Withdrawals
D)A debit to Withdrawals
Q2) The amount shown in the balance sheet debit column of worksheet for Merchandise Inventory is:
A)the Cost of Goods Sold.
B)net purchases.
C)the ending inventory.
D)the beginning inventory.
Q3) Ending inventory is adjusted by debiting Merchandise Inventory and crediting Capital.
A)True
B)False
Q4) Discuss the purpose of a detailed income statement. Briefly describe the major kinds of business activities covered on a detailed income statement.
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Chapter 13: Accounting for Bad Debts
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Sample Questions
Q1) Bad Debts Expense is recorded in the year the sale was earned when using the income statement allowance approach.
A)True
B)False
Q2) Which account is classified as a contra-asset?
A)Bad Debts Expense
B)Accounts Receivable
C)Sales Returns and Allowances
D)Allowance for Doubtful Accounts
Q3) Net Realizable Value can be defined as:
A)the Gross Accounts Receivable.
B)the Current Bad Debts Expense.
C)the amount of Accounts Receivable you do not expect to collect.
D)the Gross Accounts Receivable minus the Allowance for Doubtful Accounts.
Q4) The aging of Accounts Receivable is an income statement approach.
A)True
B)False
Q5) Wrote off an account using the allowance method.
Debit account ________ Credit account ________
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Chapter 14: Notes Receivable and Notes Payable
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Sample Questions
Q1) Prepare the journal entries for the following transactions for Dobson Industries Company.
a)Dobson sold $5,000 of merchandise to Bolt Imports Company on account.
b)Dobson accepted a 60-day, 9% note from Bolt in settlement of its account.
c)Bolt defaulted on its note on the maturity date.
d)Collected the previously defaulted Bolt note plus $25 additional interest.
Q2) On February 15, Weber Services discounts a customer's 9%, 90-day, $10,000 note dated January 10. The discount rate charged by the bank is 12%. The discount period is:
A)54 days.
B)36 days.
C)90 days.
D)0 days.
Q3) The accounting department forgot to adjust for interest on the note payable. This error would cause:
A)the period end assets to be understated.
B)the period end liabilities to be understated.
C)the period's net income to be understated.
D)None of these answers are correct.
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Chapter 15: Accounting for Merchandise Inventory
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Sample Questions
Q1) Which of the following goods should Pin Department Store include in its December 31 count?
A)Goods held on consignment from ABC Wholesale
B)Goods sold and shipped to Gray Brothers, in-transit F.O.B shipping point.
C)Goods that have been consigned to Dalton Brothers
D)Goods in transit purchased F.O.B. destination point
Q2) Office Supplies bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Merchandise Inventory. This error would cause:
A)the period end Cost of Goods Sold to be understated.
B)the period end Cost of Goods Sold to be overstated.
C)the period's net income to be understated.
D)None of these are correct.
Q3) The journal entry to record a purchase of inventory on credit under the perpetual system includes:
A)a debit to Merchandise Inventory.
B)a debit to Purchases.
C)a credit to Accounts Payable.
D)both A and C.
Q4) Title passes immediately to the buyer under FOB ________.
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Chapter 16: Accounting for Property, Plant, Equipment, and Intangible Assets
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Sample Questions
Q1) Land Improvements is an asset account that records improvements to land that have an unlimited life.
A)True
B)False
Q2) The entry to record the purchase of a machine on account that costs $20,000, set-up fees, $1,000, and freight, $500, would be:
A)debit Machinery $20,000; credit Accounts Payable $20,000.
B)debit Machinery $21,500; credit Accounts Payable $21,500.
C)debit Machinery $20,000, debit Expenses $1,500; and credit Accounts Payable $21,500.
D)debit Machinery $20,500; credit Accounts Payable $20,500.
Q3) Which depreciation method does not deduct residual value when computing depreciation expense?
A)Units-of-production
B)Straight-line
C)Double-declining-balance
D)Both A and B are correct.
Q4) Two depreciation methods that ignore the salvage value are ________ and ________.
Page 18
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Chapter 17: Partnership
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Sample Questions
Q1) A statement of partner's equity is the same as a statement of owner's equity except for:
A)there is a capital account for all partners.
B)net income is assigned to one partner.
C)no additional investment by partners are shown on the statement.
D)There is no difference in the statements.
Q2) Sue and Jill, who have ending capital balances of $80,000 and $60,000 respectively, agree to admit two new partners. Carlos will buy 1/4 of Sue's interest for $20,000 and 1/3 of Jill's interest for $25,000 directly from the partners. Carmen will invest $30,000 for a $30,000 equity interest. Journalize the entry to admit Carlos and Carmen.
Q3) The journal entry to close a net income to the partners is to:
A)debit Income Summary; credit the capital accounts.
B)credit Income Summary; debit the capital accounts.
C)credit Net Loss; debit the capital accounts.
D)debit Net Loss; credit the capital accounts.
Q4) After all liabilities have been paid, the remaining assets are always distributed evenly.
A)True
B)False
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Chapter 18: Corporations: Organizations and Stock
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Sample Questions
Q1) Corporations are subject to more government regulations than sole proprietorships and partnerships.
A)True
B)False
Q2) Prepare the journal entries for Mayhem Manufacturing:
June 10 Incurred organization costs totaling $4,200
June 14 Issued 9,000 shares of $10 par value common stock for $110,000
June 22 Issued 3,500 shares of 7%, $30 par value preferred stock for $115,000.
Q3) Birch Company issued 200 shares of common stock with a par value of $12 per share in exchange for equipment with a fair market value of $3,000. Record the journal entry for the stock issuance.
Q4) The articles of incorporation are:
A)submitted by the incorporators to the IRS for approval.
B)submitted by the incorporators to the Office of the Secretary of State for approval.
C)submitted by the incorporators to Securities and Exchange Commission for approval.
D)submitted by the incorporators to the Governor of the State for approval.
Q5) Sold common stock at a price above the par value.
Debit ________& ________ & ________ Credit ________ & ________ &

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Chapter 19: Corporations: Stock Values, Dividends, Treasury
Stocks, and Retained Earnings
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Q1) A dividend is declared by:
A)the board of directors.
B)president of the corporation.
C)CFO of the corporation.
D)stockholders.
Q2) Rick's Internet Corporation balance in Retained Earnings is $30,000. The board of directors directs that $15,000 be appropriated for future business expansion. This will cause total retained earnings to:
A)remain at $30,000.
B)increase by $15,000.
C)decrease by $15,000.
D)increase or decrease $5,000, as determined by the board.
Q3) Prior period adjustments are included in the statement of retained earnings. A)True B)False
Q4) Sold treasury stock at a price below cost when there was sufficient paid-in capital from treasury stock to absorb the difference between cost and selling price. Debit ________ & ________ & ________
21
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Chapter 20: Corporations and Bonds Payable
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Q1) When the maturities of a bond issue are spread over a several dates, the bonds are called:
A)term bonds.
B)bearer bonds.
C)debenture bonds.
D)serial bonds.
Q2) The interest paid to bondholders is determined by:
A)multiplying the bond's annual rate of interest by the face value.
B)multiplying the market rate of interest by the face value.
C)dividing the bond's annual rate of interest by the face value.
D)dividing the face value by the bond's annual rate of interest.
Q3) On January 1, Auctions Online issued $300,000, 9%, 10-year bonds to lenders at the contract rate. Interest is to be paid semiannually on July 1 and January 1. Journalize the following entries:
a. Issued the bonds.
b. Paid first semiannual interest payment.
c. Retired the bonds at maturity.
Q4) Accrued interest on bonds which sold at face value. Debit ________ & ________ & ________ Credit ________ & ________ &

Q5) The formal written agreement for issuing bonds is called a(n)________.
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Chapter 21: Statement of Cash Flows
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Q1) The statement of cash flows can be used for evaluating, comparing, and predicting future cash flows.
A)True
B)False
Q2) Discuss the purpose of a statement of cash flows, and describe its components.
Q3) The cash flows from operating activities are reported by the direct method on the statement of cash flow. Determine the following:
a. If sales for the current year were $600,000 and accounts receivable decreased $25,500 during the year, what was the amount of cash received from customers?
b. If sales salaries expense for the current years was $80,000 and sales salaries payable increased $25,000 during the year, what was the amount of cash payments for sales salaries?
Q4) If Accounts Receivable decreases on a comparative balance sheet, this means:
A)collections were more than sales.
B)credit sales are decreasing.
C)credit sales are increasing more than collections.
D)None of these answers are correct.
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Chapter 22: Analyzing Financial Statements
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Q1) Common-size statements deal with the percentage of change in a certain item over several years.
A)True
B)False
Q2) The debt in relation to the risk taken by stockholders is measured by:
A)debt to stockholders' equity.
B)gross profit ratio.
C)rate of return to stockholders.
D)None of these answers are correct.
Q3) In a common-size income statement, selling expenses are 55%. This means that they are 55% of:
A)net income.
B)net sales.
C)gross profit.
D)net profit.
Q4) Liquidity ratios measure:
A)how effectively a company is using its equity.
B)how effectively a company is using its liabilities.
C)a company's ability to pay shareholders.
D)a company's ability to pay off short-term debts.
Page 24
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Chapter 23: The Voucher System
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Sample Questions
Q1) When a purchase is made, the business will:
A)credit Vouchers Payable.
B)enter a voucher in the voucher register.
C)debit Purchases.
D)All of the above.
Q2) The check register is:
A)a special journal.
B)used when paying out of petty cash.
C)used to record customer receipts.
D)used to house unpaid vouchers.
Q3) If it is later decided to pay an approved voucher in two payments:
A)a memo in the check register must show the unpaid balance.
B)an entry in the Paid column of the voucher register must show the unpaid balance.
C)the original voucher must be canceled and two new vouchers must be issued.
D)a memo must be made on the voucher to show the unpaid balance.
Q4) The voucher system is a form of internal control.
A)True
B)False
Q5) Any change in an already recorded voucher dictates the ________ of that voucher.
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Chapter 24: Departmental Accounting
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Q1) A department income statement showing gross profit by department is a useful tool in analyzing performance of individual departments.
A)True
B)False
Q2) Gross profit by department appears on the:
A)balance sheet.
B)statement of retained earnings.
C)statement of cash flows.
D)income statement.
Q3) What is the total gross profit of the company if there are three departments (A, B, and C)and the net sales are $200,000, $164,000, and $286,000, respectively, and cost of goods sold is $86,000, $92,000, and $82,000, respectively?
A)$390,000
B)$650,000
C)$400,000
D)$260,000
Q4) A human resource department would be a profit center.
A)True
B)False
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Chapter 25: Manufacturing Accounting
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Sample Questions
Q1) Omega.com sold 25 jet skis for $7,000 which cost $5,000. The entry to record the sale would include:
A)credit to Finished Goods Inventory $5,000.
B)credit to Sales for $7,000.
C)debit to Cost of Goods Sold for $5,000.
D)all of the above.
Q2) A lot ticket is a:
A)document prepared to show the movement of materials or products between departments.
B)document used to order materials or supplies from the storeroom.
C)document used for charging material to production.
D)None of these answers are correct.
Q3) Ending finished goods inventory is subtracted from ________ to get cost of goods sold.
A)cost of goods available for sale
B)cost of goods manufactured
C)net purchases
D)none of the above
Q4) Charged the following costs to overhead: utilities, salaries, and depreciation.

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