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web.groovymark@gmail.com
- December 12, 2024
Question 41
Which financial statement summarizes revenues and expenses over a period of time?
A) Balance sheet
B) Cash flow statement
C) Income statement
D) Statement of changes in equity
Answer: C) Income statement
Explanation: The income statement reports the company’s financial performance by summarizing revenues and expenses, ultimately resulting in net income or loss.
Question 42
What is “gross profit”?
A) Revenue minus total expenses
B) Revenue minus cost of goods sold
C) Net income minus operating expenses
D) Total revenue minus dividends
Answer: B) Revenue minus cost of goods sold
Explanation: Gross profit indicates the efficiency of production and sales by showing how much revenue exceeds the costs directly associated with producing goods.
Question 43
Which of the following is considered a financing activity?
A) Purchasing inventory
B) Collecting accounts receivable
C) Issuing bonds
D) Paying rent
Answer: C) Issuing bonds
Explanation: Financing activities involve transactions that result in changes in the equity and borrowings of the company, including issuing bonds and obtaining loans.
Question 44
What is the term for a company’s net assets?
A) Equity
B) Total liabilities
C) Working capital
D) Retained earnings
Answer: A) Equity
Explanation: Equity represents the residual interest in the assets of the entity after deducting liabilities, indicating ownership in the company.
Question 45
Which of the following statements about prepaid expenses is true?
A) They are always current liabilities.
B) They are recorded as assets until used.
C) They are recognized as expenses immediately.
D) They have no impact on the income statement.
Answer: B) They are recorded as assets until used.
Explanation: Prepaid expenses are considered assets because they represent payments made in advance for services or goods that will be received in the future.
Question 46
What is “cash flow from operations”?
A) Cash generated from investing activities
B) Cash generated from financing activities
C) Cash generated from core business operations
D) Cash generated from asset sales
Answer: C) Cash generated from core business operations
Explanation: Cash flow from operations measures the cash generated or used by a company's core business activities, reflecting its operational efficiency.
Question 47
What type of accounting focuses on internal decision-making?
A) Financial accounting
B) Managerial accounting
C) Tax accounting
D) Auditing
Answer: B) Managerial accounting
Explanation: Managerial accounting provides information tailored for internal management to assist in planning, controlling, and decision-making.
Question 48
What does the “realization principle” state?
A) Revenue should be recognized when cash is received
B) Revenue should be recognized when it is earned
C) All expenses should be recorded in the period incurred
D) Assets should be valued at market price
Answer: B) Revenue should be recognized when it is earned
Explanation: The realization principle dictates that revenue should be recorded when it is earned, regardless of when cash is collected.
Question 49
What is the role of “auditors”?
A) To prepare financial statements
B) To verify the accuracy of financial statements
C) To manage the company’s finances
D) To advise on investment strategies
Answer: B) To verify the accuracy of financial statements
Explanation: Auditors independently assess financial statements for accuracy and compliance with accounting standards and regulations.
Question 50
What is the main function of “inventory management”?
A) To maximize production costs
B) To ensure there is enough inventory to meet customer demand
C) To track employee performance
D) To reduce total assets
Answer: B) To ensure there is enough inventory to meet customer demand
Explanation: Inventory management aims to balance supply and demand, ensuring adequate stock levels while minimizing holding costs.
