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web.groovymark@gmail.com
- December 12, 2024
Question 01
What principle requires that a company recognize revenue when it is earned, regardless of when cash is received?
A) Matching principle
B) Revenue recognition principle
C) Cost principle
D) Conservatism principle
Answer: B) Revenue recognition principle
Explanation: The revenue recognition principle dictates that revenue should be recognized in the accounting period when it is earned, not necessarily when cash is received.
Question 02
Which of the following is an example of a non-current asset?
A) Accounts receivable
B) Cash
C) Equipment
D) Inventory
Answer: C) Equipment
Explanation: Equipment is classified as a non-current asset because it is expected to provide economic benefits for more than one year.
Question 03
What type of account is “accounts payable”?
A) Asset
B) Liability
C) Equity
D) Revenue
Answer: B) Liability
Explanation: Accounts payable represent obligations to pay suppliers for goods or services purchased on credit, classifying it as a liability.
Question 04
Which financial statement provides a snapshot of a company’s financial position at a specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Stockholders’ Equity
Answer: C) Balance Sheet
Explanation: The balance sheet shows the company's assets, liabilities, and equity at a specific date, providing a snapshot of its financial position.
Question 05
What does the term “liquidity” refer to in financial terms?
A) The amount of profit a company generates
B) The ability to pay long-term obligations
C) The ease of converting assets into cash
D) The total revenue generated
Answer: C) The ease of converting assets into cash
Explanation: Liquidity indicates how quickly and easily assets can be converted into cash to meet short-term obligations.
Question 06
What does a company’s “gross profit” represent?
A) Net income minus operating expenses
B) Total revenue minus cost of goods sold
C) Total assets minus total liabilities
D) Revenue from operations only
Answer: B) Total revenue minus cost of goods sold
Explanation: Gross profit is calculated by subtracting the cost of goods sold from total revenue, indicating how much money is made from sales before operating expenses are deducted.
Question 07
What is “deferred revenue”?
A) Revenue earned but not yet received
B) Revenue received before it is earned
C) Revenue that has been recognized in the current period
D) Revenue that is uncollectible
Answer: B) Revenue received before it is earned
Explanation: Deferred revenue refers to cash received for goods or services that have not yet been delivered, requiring recognition as a liability until earned.
Question 08
Which accounting method records revenues and expenses when they are incurred, regardless of cash flow?
A) Cash basis accounting
B) Modified cash basis accounting
C) Accrual basis accounting
D) Tax basis accounting
Answer: C) Accrual basis accounting
Explanation: Accrual basis accounting records transactions when they occur, providing a more accurate picture of financial performance over time.
Question 09
What is “net working capital”?
A) Total assets minus total liabilities
B) Current assets minus current liabilities
C) Cash available for immediate use
D) Total equity minus total liabilities
Answer: B) Current assets minus current liabilities
Explanation: Net working capital measures a company's operational liquidity, indicating the difference between current assets and current liabilities.
Question 10
Which financial ratio measures a company’s ability to cover its short-term liabilities?
A) Quick ratio
B) Return on assets
C) Debt-to-equity ratio
D) Current ratio
Answer: D) Current ratio
Explanation: The current ratio assesses the company's ability to pay short-term obligations with its short-term assets.
Question 11
What is the main purpose of a cash flow statement?
A) To report the company’s assets and liabilities
B) To provide information about cash inflows and outflows
C) To summarize the company’s revenues and expenses
D) To evaluate the company’s financial position
Answer: B) To provide information about cash inflows and outflows
Explanation: The cash flow statement tracks the sources and uses of cash, helping stakeholders understand the company's liquidity and financial health.
Question 12
What does “capital expenditures” refer to?
A) Money spent on operating expenses
B) Investments in long-term assets
C) Payments made to suppliers
D) Cash outflows for dividends
Answer: B) Investments in long-term assets
Explanation: Capital expenditures are funds used to acquire or upgrade physical assets, intended to benefit the company over a long period.
Question 13
Which of the following accounts would be classified as an intangible asset?
A) Inventory
B) Equipment
C) Patents
D) Accounts Receivable
Answer: C) Patents
Explanation: Intangible assets include non-physical items like patents, copyrights, and trademarks that provide long-term value to the company.
Question 14
How is “return on equity” (ROE) calculated?
A) Net income / Total assets
B) Net income / Total equity
C) Net income / Total liabilities
D) Total revenue / Total equity
Answer: B) Net income / Total equity
Explanation: ROE measures a company's profitability by revealing how much profit is generated with shareholders' equity.
Question 15
What does a “negative cash flow” indicate?
A) The company is generating profit
B) The company is losing money
C) The company has high revenues
D) The company is liquidating assets
Answer: B) The company is losing money
Explanation: Negative cash flow indicates that a company's cash outflows exceed its cash inflows, leading to a decrease in available cash.
Question 16
What is the role of the “statement of changes in equity”?
A) To report cash flows during a period
B) To summarize revenues and expenses
C) To show changes in equity accounts over time
D) To assess financial position at a specific time
Answer: C) To show changes in equity accounts over time
Explanation: The statement of changes in equity outlines movements in equity accounts, including new capital and distributions to shareholders.
Question 17
Which of the following is an example of an operating activity?
A) Issuing shares
B) Purchasing equipment
C) Paying salaries
D) Selling investments
Answer: C) Paying salaries
Explanation: Operating activities encompass the primary revenue-generating activities of a business, including cash payments for salaries and other operational expenses.
Question 18
What does the term “materiality” refer to in accounting?
A) The relevance of financial information
B) The reliability of financial statements
C) The need for accuracy in record-keeping
D) The significance of an amount in financial reporting
Answer: D) The significance of an amount in financial reporting
Explanation: Materiality refers to the importance of information that could influence the decisions of users of financial statements.
Question 19
Which accounting concept emphasizes that all relevant financial information should be disclosed?
A) Consistency principle
B) Economic entity assumption
C) Full disclosure principle
D) Conservatism principle
Answer: C) Full disclosure principle
Explanation: The full disclosure principle mandates that all pertinent information must be included in financial statements to inform users effectively.
Question 20
What is the primary focus of “managerial accounting”?
A) Preparing financial statements for external users
B) Providing information for internal decision-making
C) Ensuring compliance with regulations
D) Evaluating financial performance for investors
Answer: B) Providing information for internal decision-making
Explanation: Managerial accounting emphasizes generating data and reports to assist management in making informed business decisions.
