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web.groovymark@gmail.com
- December 12, 2024
Question 01
What is the purpose of the balance sheet?
A) To summarize revenues and expenses
B) To show a company’s financial position at a specific point in time
C) To report cash inflows and outflows
D) To disclose retained earnings
Answer: B) To show a company’s financial position at a specific point in time
Explanation: The balance sheet provides a snapshot of a company's assets, liabilities, and equity as of a specific date, reflecting its financial position.
Question 02
What are current assets?
A) Assets that will be converted to cash or used up within one year
B) Assets that have a long-term useful life
C) Assets that are not yet paid for
D) Assets that are intangible in nature
Answer: A) Assets that will be converted to cash or used up within one year
Explanation: Current assets include cash, accounts receivable, inventory, and other assets expected to be converted to cash or consumed within a year.
Question 03
Which of the following is classified as a non-current asset?
A) Cash
B) Accounts receivable
C) Equipment
D) Inventory
Answer: C) Equipment
Explanation: Non-current assets, or long-term assets, include items like equipment and property that provide value over a long period, typically more than one year.
Question 04
What does “working capital” represent?
A) Total assets
B) Total liabilities
C) The difference between current assets and current liabilities
D) The total equity
Answer: C) The difference between current assets and current liabilities
Explanation: Working capital measures a company's short-term financial health and its efficiency in using current assets to cover current liabilities.
Question 05
What is the “revenue recognition principle”?
A) Revenue is recognized when cash is received
B) Revenue is recognized when earned, regardless of when cash is received
C) Revenue is recognized at the end of the accounting period
D) Revenue is not recognized until it is realized
Answer: B) Revenue is recognized when earned, regardless of when cash is received
Explanation: The revenue recognition principle dictates that revenue should be recognized when it is earned, not necessarily when payment is received.
Question 06
How is “goodwill” classified on the balance sheet?
A) Current asset
B) Non-current asset
C) Liability
D) Equity
Answer: B) Non-current asset
Explanation: Goodwill is an intangible asset that arises when a company acquires another company for more than the fair value of its identifiable net assets and is classified as a non-current asset.
Question 07
What is “accrued revenue”?
A) Revenue received in advance
B) Revenue earned but not yet received
C) Revenue that has been invoiced
D) Revenue that is uncollectible
Answer: B) Revenue earned but not yet received
Explanation: Accrued revenue represents income that has been earned but has not yet been collected or recorded in the accounts receivable.
Question 08
Which statement best defines “deferred revenue”?
A) Cash received for goods not yet delivered
B) Revenue earned in the current period
C) A liability representing a future obligation
D) Revenue that has been recognized but not yet received
Answer: A) Cash received for goods not yet delivered
Explanation: Deferred revenue, also known as unearned revenue, is cash received for services or goods that have yet to be provided, creating a liability.
Question 09
What is the accounting equation?
A) Assets = Liabilities + Stockholders’ Equity
B) Assets + Liabilities = Stockholders’ Equity
C) Assets = Revenues + Expenses
D) Liabilities = Assets – Stockholders’ Equity
Answer: A) Assets = Liabilities + Stockholders' Equity
Explanation: The accounting equation expresses the relationship between a company's assets, liabilities, and equity, ensuring that the balance sheet is balanced.
Question 10
Which of the following is NOT an example of an operating activity in the statement of cash flows?
A) Cash received from customers
B) Cash paid to suppliers
C) Cash paid for purchasing equipment
D) Cash paid for salaries
Answer: C) Changes in equity during a specific period
Explanation: The statement of stockholders' equity provides a summary of changes in equity accounts, including contributions, distributions, and retained earnings.
Question 11
What does the “statement of stockholders’ equity” show?
A) Changes in cash flow
B) The company’s profitability
C) Changes in equity during a specific period
D) The company’s assets and liabilities
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 is the “cost of goods sold” (COGS)?
A) Total revenue minus total expenses
B) The direct costs attributable to the production of goods sold
C) Operating expenses related to selling goods
D) Gross profit minus operating expenses
Answer: B) The direct costs attributable to the production of goods sold
Explanation: COGS includes all costs directly tied to the production of goods that a company sells during a period, such as materials and labor.
Question 13
Which of the following accounts typically has a debit balance?
A) Accounts payable
B) Revenue
C) Expenses
D) Common stock
Answer: C) Expenses
Explanation: Expense accounts typically carry a debit balance, reflecting the costs incurred by a company during a period.
Question 14
What does “financial flexibility” refer to?
A) The ability to generate profits
B) The ability to respond to unexpected needs and opportunities
C) The stability of revenue streams
D) The capacity to manage long-term debts
Answer: B) The ability to respond to unexpected needs and opportunities
Explanation: Financial flexibility indicates a company's capacity to adapt and respond to changing financial conditions and unexpected events.
Question 15
What is the purpose of “depreciation”?
A) To calculate tax liabilities
B) To allocate the cost of an asset over its useful life
C) To increase the value of an asset
D) To reflect cash payments for asset purchases
Answer: B) To allocate the cost of an asset over its useful life
Explanation: Depreciation spreads the cost of tangible fixed assets over their useful lives, matching expenses to revenues generated.
Question 16
Which type of account is “accounts payable”?
A) Asset
B) Liability
C) Equity
D) Expense
Answer: B) Liability
Explanation: Accounts payable represent a company's obligation to pay off short-term debts to its creditors and are classified as liabilities.
Question 17
What is the “time period assumption” in accounting?
A) Financial statements should reflect the life of the company
B) Financial results can be reported in specific time intervals
C) Cash flows should be reported annually
D) All assets must be liquidated within a year
Answer: B) Financial results can be reported in specific time intervals
Explanation: The time period assumption allows businesses to report financial performance and position in shorter intervals, such as quarterly or annually.
Question 18
Which of the following is an example of an intangible asset?
A) Land
B) Patents
C) Buildings
D) Inventory
Answer: B) Patents
Explanation: Intangible assets, such as patents and trademarks, do not have physical substance but provide long-term value to a company.
Question 19
What does a high current ratio indicate?
A) Poor liquidity
B) Strong financial position
C) Excessive debt
D) Ineffective asset management
Answer: B) Strong financial position
Explanation: A high current ratio suggests that a company has sufficient current assets to cover its current liabilities, indicating good liquidity.
Question 20
What is “capital stock”?
A) Total liabilities of a company
B) The value of shares issued by a company
C) The accumulated profits of a company
D) Cash reserved for investments
Answer: B) The value of shares issued by a company
Explanation: Capital stock refers to the total value of shares issued by a company, representing ownership in the company.
