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web.groovymark@gmail.com
- December 12, 2024
Question 41
What is a “trial balance”?
A) A report of cash inflows and outflows
B) A summary of all accounts and their balances at a specific date
C) A document that outlines expenses and revenues
D) A statement of financial position
Answer: B) A summary of all accounts and their balances at a specific date
Explanation: A trial balance lists all the accounts in the general ledger along with their respective balances, helping to ensure that total debits equal total credits.
Question 42
Which of the following is true regarding “retained earnings”?
A) It represents total assets
B) It is the cumulative amount of profits retained in the business
C) It is the same as total equity
D) It is only affected by cash transactions
Answer: B) It is the cumulative amount of profits retained in the business
Explanation: Retained earnings are the accumulated net income that a company has reinvested in the business rather than distributed as dividends to shareholders.
Question 43
What is “capital budgeting”?
A) The process of evaluating long-term investments
B) The management of short-term financing
C) The tracking of daily cash flow
D) The preparation of financial statements
Answer: A) The process of evaluating long-term investments
Explanation: Capital budgeting involves analyzing potential investments and expenditures to determine their feasibility and alignment with strategic goals.
Question 44
Which of the following is considered a non-operating activity?
A) Sales revenue
B) Interest income
C) Cost of goods sold
D) Operating expenses
Answer: B) Interest income
Explanation: Non-operating activities refer to revenues or expenses not directly tied to a company's core business operations, such as interest income.
Question 45
What is “prepaid expense”?
A) An expense that has been paid in cash but not yet incurred
B) A liability that represents future obligations
C) An asset that represents cash reserves
D) A revenue that has been recognized
Answer: A) An expense that has been paid in cash but not yet incurred
Explanation: Prepaid expenses are payments made for goods or services to be received in the future, categorized as assets on the balance sheet.
Question 46
What is the primary purpose of internal controls?
A) To ensure compliance with tax regulations
B) To track employee performance
C) To safeguard assets and ensure the accuracy of financial records
D) To improve customer satisfaction
Answer: C) To safeguard assets and ensure the accuracy of financial records
Explanation: Internal controls are processes designed to protect a company's assets and enhance the reliability of its financial reporting.
Question 47
What does “liquidity” refer to?
A) The ability to generate profits
B) The ability to meet short-term obligations
C) The total revenue generated by a company
D) The ability to invest in long-term projects
Answer: B) The ability to meet short-term obligations
Explanation: Liquidity is a measure of how quickly an asset can be converted to cash to meet short-term financial obligations.
Question 48
Which of the following would be recorded as a capital expenditure?
A) Routine repairs and maintenance
B) Purchase of machinery
C) Employee training costs
D) Marketing expenses
Answer: B) Purchase of machinery
Explanation: Capital expenditures involve acquiring or improving long-term assets, such as machinery, which provide future economic benefits.
Question 49
What is the purpose of a “general ledger”?
A) To track daily transactions
B) To summarize financial performance
C) To maintain a record of all financial transactions
D) To calculate tax liabilities
Answer: C) To maintain a record of all financial transactions
Explanation: The general ledger serves as the main accounting record, summarizing all transactions and balances for each account.
Question 50
Which of the following best describes “contributed capital”?
A) Retained earnings
B) The value of assets sold
C) Capital raised through the issuance of shares
D) Cash reserves
Answer: C) Capital raised through the issuance of shares
Explanation: Contributed capital represents funds raised by a company through the issuance of equity, including common and preferred shares.
