Basic Financial Accounting Short Questions - Details

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Two common areas of accounting that respectively provide information to internal and external users are ________________________ Select one alternative: A financial accounting and tax accounting B management accounting and environmental accounting C management accounting and financial accounting D forensic accounting and financial accounting

C management accounting and financial accounting

What are assets? Select one alternative: A Resources owned by the business B Money borrowed from external parties that have to be paid back later C Shares sold to external parties D Money owed to others

A Resources owned by the business

What is "Owner's Equity"? Select one alternative: A Money owed to the business or company B The worth of a business or company C Revenue minus expenses D Money owed to creditors

B The worth of a business or company

Which of the following is not a role of accounting in business? Select one alternative: A to provide information to external users to determine the economic performance and condition of the business B to provide reports to users about the economic activities and condition of a business C to assess the various informational needs of users and design an accounting system to meet those needs D to personally guarantee loans of the business

D to personally guarantee loans of the business

Debts owed by a business to someone else are referred to as: Select one alternative: A expenses B liabilities C accounts receivable D owner's equity

B liabilities

When a business owner takes out cash from their business for personal use, it is called ______________. Select one alternative: A liabilities B drawings C revenue D expenses

B drawings

Assume you are starting a business for the first time. When a transaction occurs, what is the first step in the accounting cycle? ( Select one alternative: A Write the t-accounts for the transaction B Prepare the balance sheet C Prepare the income statment D Write the journal entry for the transaction

D Write the journal entry for the transaction

If you wanted to know how cash was received or spent during an accounting year for a business, you would look in the ___________________ Select one alternative: A income statement B personal bank account of the business owner C balance sheet D cash flow statement

D cash flow statement

What do the terms "Debit" and "Credit" mean? Select one alternative: A Debit is the left side and Credit is the right side of a t-account B Debit means increase and Credit means decrease C Debit means add to the income statement while Credit means minus from the income statement D Debit means minus and credit means plus

A Debit is the left side and Credit is the right side of a t-account

Owner's equity will be decreased by all of the following except ______________ . Select one alternative: A revenues B expenses C drawings D All of the above

A revenues

Which of the following groups of accounts have a normal debit balance? Select one alternative: A revenues, liabilities and capital B assets and expenses C liabilities and capital D capital and assets

B assets and expenses

What is the structure of a balance sheet? Select one alternative: A Assets = Liabilities + Equity B Assets + Liabilities = Equity C Assets + Equity = Liabilities D Assets = Liabilities - Equity

A Assets = Liabilities + Equity

Small businesses can usually prepare their Income Statements and Balance Sheet on a cash basis. On what basis do large businesses prepare their Income Statements and Balance Sheets? Select one alternative: A Share price basis B Accrual basis C Cash flow statement basis D Cash basis

B Accrual basis

The following are reasons we need a Statement of Cash Flow except: Select one alternative: A The survival of a business depends on its ability to pay its debts B The Statement of Cash Flow can detect fraud C The statement of cash flow gives users important information about the business’ ability to generate cash and its needs. D There is less scope to manipulate the Statement of Cash Flow

D There is less scope to manipulate the Statement of Cash Flow

Which of the following is not a section in the Statement of Cash Flow? Select one alternative: A Investing B Expensing C Financing D Operating

B Expensing

An owner withdraws cash from the business bank account and uses it for a personal holiday. In which section of the Statement of Cash Flow will you see this cash amount reported? Select one alternative: A Operating B Financing C Expensing D Investing

B Financing

How will a decrease in inventory be reported in the Statement of Cash Flow? Select one alternative: A The amount will be added (i.e. a positive number) to the Investing section of the Statement of Cash Flow B The amount will be added (i.e. a positive number) to the Operating section of the Statement of Cash Flow C The amount will be deducted (i.e. a negative or bracket number) in the Investing section of the Statement of Cash Flow D The amount will be deducted (i.e. a negative or bracket number) in the Operating section of the Statement of Cash Flow

B The amount will be added (i.e. a positive number) to the Operating section of the Statement of Cash Flow

Which of the following is not true about companies or corporations (the words companies and corporations mean the same in this question)? Select one alternative: A A company is owned by shareholders B Shareholders of a company have limited liability C The most common form of a business is a sole proprietor D A company can be private or public

C The most common form of a business is a sole proprietor

What is "Issued share capital"? Select one alternative: A the number of shares a company is authorised to sell B the total par value of shares that has actually been sold to shareholders C the total par value of shares that has actually been paid by the shareholders D the company has issued shares but has only asked for payments in instalments

B. The total par value of shares that has actually been sold to shareholders

What is a "dividend"? Select one alternative: A Extra shares that a company gives to its shareholders from dividing its current shares B Extra shares that a company gives to its shareholders due to good performance C A sum of cash received by a company from its shareholders returning their shares to the company D A sum of cash paid by a company to its shareholders out of its profits

D A sum of cash paid by a company to its shareholders out of its profits

Which of the following is not true about Retained Earnings? Select one alternative: A Retained earnings is decreased by cash dividends paid to the company's shareholders B Retained earnings is the same as Share Capital C Retained earnings is increased by net income D Retained earnings is decreased by net loss

B Retained earnings is the same as Share Capital

Which of the following is correct about Ordinary Shares? Select one alternative: A Ordinary shares are also known as equity shares B Ordinary shares do not carry voting rights C The annual dividend for ordinary shares is fixed D Ordinary shareholders get paid before preference shareholders get paid

A Ordinary shares are also known as equity shares

What is an "unearned revenue"? Select one alternative: A An expense which has been paid in advance, the benefits from which will be received in the next period B A revenue received in advance which creates a liability C A revenue has been earned but has not yet been recorded D An expense has been incurred but has not yet been recorded

B A revenue received in advance which creates a liability

The area of accounting that provides information to internal users is called ________________________ Select one alternative: A financial accounting B management accounting C forensic accounting D environmental accounting

B management accounting

In the accounting equation A = L + E, what does "E" stand for? Select one alternative: A Equilibrium B Entrepreneur C Equity D Equality

C Equity

What does "long-term liability" (also known as non-current liability) mean? Select one alternative: A Money that customers owe the company and must be paid within 12 months B Investment in the company C Money owed to lenders that is due for payment within 12 months D Money owed to lenders that is due for payment more than 12 months away

D Money owed to lenders that is due for payment more than 12 months away

Which of the following financial statements provide information that is a "snap shot" in time (i.e. a day in a year)? Select one alternative: A Balance Sheet B Income Statement C Statement of Cash Flow D Sustainability Report

A Balance Sheet

Which of the following is NOT an asset? Select one alternative: A accrued salaries B inventory C investments D cash

A accrued salaries

Earning revenue _____________________________ . Select one alternative: A increases one asset, decreases another asset B decreases assets, increases liabilities C increases assets, increases owner's equity D increases assets, decreases owner's equity

C increases assets, increases owner's equity

Which of the following accounts is a liability? Select one alternative: A Wages expenses B Accounts receivable C Accounts payable D Service revenue

C Accounts payable

Which statement below concerning the cash account is true? Select one alternative: A Cash will always have more debits than credits B Cash will never have a credit balance C Cash is increased by debiting D None of the above

D None of the above

Which group of accounts is comprised of only assets? Select one alternative: A Accounts Receivable, Revenue, Cash B Unearned revenue, Prepaid expenses, Cash C Cash, Accounts Payable, Buildings D Prepaid expenses, Buildings, Equipment

C Cash, Accounts Payable, Buildings

The process of initially recording a business transaction is called _________________. Select one alternative: A balancing B closing C accounting D journalizing

D journalizing

Adjusting entries always include ________________________ . Select one alternative: A at least one income statement account and one balance sheet account B only income statement accounts C only balance sheet accounts D the cash account

A at least one income statement account and one balance sheet account

Which of the following groups of accounts have a normal debit balance? Select one alternative: A liabilities and capital B revenues, liabilities and capital C capital and assets D assets and expenses

C capital and assets

Expenses can result from _____________________ . Select one alternative: A using up liabilities B purchasing assets C consuming services D increasing owner's equity

C consuming services

Small businesses can usually prepare their Income Statements and Balance Sheet on a cash basis. On what basis do large businesses prepare their Income Statements and Balance Sheets? Select one alternative: A Cash basis B Accrual basis C Cash flow statement basis D Share price basis

B Accrual basis

What is "Retained earnings"? Select one alternative: A Profit that is made and kept for future use in the business B Profit that is made and shared with shareholders C A type of liability D An account found in the Income statement

A Profit that is made and kept for future use in the business

Shareholder's equity : Select one alternative: A includes retained earnings and paid-in capital B includes paid-in-capital and liabilities C is shown on the income statement D is usually equal to cash on hand

A includes retained earnings and paid-in capital

A business sells its inventory and receives cash for it. In which section of the Statement of Cash Flow will you see this cash amount reported? Select one alternative: A Operating B Investing C Financing D Expensing

A Operating

Which of the following is NOT true of a corporation? Select one alternative: A The acts of its owners bind the corporation B It may buy, own and sell property C It may enter into binding legal contracts in its own name D It may sue and be sued

A The acts of its owners bind the corporation

Which of the following is NOT a right possessed by common shareholders of a corporation? Select one alternative: A the right to receive a minimum amount of dividends B the right to share in assets upon liquidation C the right to sell their shares to anyone they choose D the right to vote in the election of the board of directors

A the right to receive a minimum amount of dividends

What is "Issued share capital"? Select one alternative: A the total par value of shares that has actually been sold to shareholders B the company has issued shares but has only asked for payments in instalments C the total par value of shares that has actually been paid by the shareholders D the number of shares a company is authorised to sell

A the total par value of shares that has actually been sold to shareholders

What is a "dividend"? Select one alternative: A Extra shares that a company gives to its shareholders from dividing its current shares B A sum of cash received by a company from its shareholders returning their shares to the company C A sum of cash paid by a company to its shareholders out of its profits D Extra shares that a company gives to its shareholders due to good performance

C A sum of cash paid by a company to its shareholders out of its profits

Which of the following should be shown on a statement of cash flows under the financing activities section? Select one alternative: A the borrowing of money from the bank B the payment of cash to purchase a motor vehicle C The cash received from the sale of a building D the receipt of cash from the sale of inventory

A the borrowing of money from the bank

Which of the following would NOT be classified as an operating activity (in the Statement of Cash Flows) Select one alternative: A payment of dividends B depreciation expense C sale of inventory D selling expenses

A payment of dividends

What is the Statement of Cash Flows also known as? Select one alternative: A Cash Flow Statement B Balance Sheet C Statement of Equity D Income Statement

A Cash Flow Statement

Which of the following statements gives the best definition of the objective of accounting? Select one alternative: A To calculate the dividend to pay the shareholders B To provide useful information for stakeholders C To calculate how much cash flows into an organization D To calculate the tax due to the government

B To provide useful information for stakeholders

Which of the following would be classified as internal users of financial statements? Select one alternative: A The creditors and the shareholders of the company B Shareholders and management of the company C The company's marketing managers D The accountant of the company and the company's shareholders

B Shareholders and management of the company

Which of the following may be classified as an intangible non-current asset? Select one alternative: A Goodwill B Prepaid rent C Trade receivables D Land

A Goodwill

Which of the following is not an asset? Select one alternative: A Accrued wages B Trade receivables C Inventory D Prepaid rent

D Prepaid rent*

Owner's capital is: Select one alternative: A Current assets plus current liabilities. B Total assets minus total liabilities. C Opening capital plus net profit plus trade payables. D Opening capital plus drawings minus net profit.

D Opening capital plus drawings minus net profit.

When a business pays its electricity bill by direct debit, the journal entry is: Select one alternative: A Debit: Bank account; Credit: Heat and Light account. B Debit: Cash account; Credit: Heat and Light account C Debit: Heat and Light account; Credit: Cash account. D Debit: Heat and Light account; Credit: Bank account

C Debit: Heat and Light account; Credit: Cash account.

When a business purchases goods on credit, the journal entry is: Select one alternative: A Debit: Purchases account; Credit: Trade receivables account B Debit: Purchases account; Credit: Trade payables account C Debit: Trade payables account; Credit: Purchases account D Debit: Purchases account; Credit: Bank account

C Debit: Trade payables account; Credit: Purchases account

What is "carriage outwards" ? Select one alternative: A Cost of transporting goods into a business B Goods returned by a business to its suppliers C Goods returned to a business by its customers D Cost of transporting goods to the customers of a business

D Cost of transporting goods to the customers of a business

What is "Return Inwards" ? Select one alternative: A Goods returned to a business by its customers B Cost of transporting goods to the customers of a business C Cost of transporting goods into a business D Goods returned by a business to its suppliers

A Goods returned to a business by its customers

Which of the following are correct? Transaction: Debit: / Credit: (1) Paid for advertising by cheque- Advertising / Bank (2) Sold van for cash (the company's normal operations does not involve selling of vans)- Cash / Sales (3) Owner withdrew cash for personal use- Cash / Drawings (4) Paid for rent by direct debit- Rent / Bank Select one alternative: A (1) and (3) only B (2) and (3) only C (1) and (2) only D (1) and (4) only

B (2) and (3) only

The main purpose of a Trial Balance is to: Select one alternative: A Help balance the bank account B Help check the accuracy of the double entry C Check the accuracy of the books of original entry D Help check the bank account with the bank statement

B Help check the accuracy of the double entry

Which of the following is NOT true about Gross Profit? Select one alternative: A Gross Profit is Sales minus Cost of Goods Sold B Gross Profit is found in the Balance Sheet C Gross profit is Net profit plus Expenses D Gross profit is part of the Trading account

B Gross Profit is found in the Balance Sheet

In accounting, the term "purchases" means : Select one alternative: A Only goods bought and paid for B Only goods bought for resale C All items bought D Only goods bought on credit

C All items bought

Which of the following statements is correct in relation to limited liability companies? Select one alternative: A Companies are owned by their shareholders but managed by their directors B Companies are owned by their shareholders but managed by their auditors C Companies are owned by their directors and managed by their shareholders D Companies are owned by their auditors but managed by their directors

A Companies are owned by their shareholders but managed by their directors

Which of the following is an advantage of a limited liability company over that of a sole trader business? Select one alternative: A A sole-trader has limited liability for the business’ debts B Dividends can be paid from sole-trader businesses but not from limited liability companies. C Shareholders liabilities for the company’s debts are limited to the amount invested in the shares D A sole-trader business has an unlimited life while a limited liability company does not

C Shareholders liabilities for the company’s debts are limited to the amount invested in the shares

A characteristic of ordinary shares is that: Select one alternative: A The ordinary shareholders are the last to be paid if the company goes bankrupt B The dividend rate is usually fixed C They do not carry voting rights D They have a right to receive a dividend before any preference dividend

A The ordinary shareholders are the last to be paid if the company goes bankrupt

Reference shareholders will generally be entitled to: Select one alternative: A vote at the annual general meeting B A fixed dividend that is paid before dividends to ordinary shareholders C whatever is left in a company going through bankruptcy after the ordinary shareholders have been paid D A share of any ordinary dividends declared by the company

B A fixed dividend that is paid before dividends to ordinary shareholders

What are authorised shares? Select one alternative: A The number of shares in the hands of the shareholders. B the total par value of shares that has actually been sold to shareholders C the total par value of shares that has actually been paid by the shareholders D The number of shares a company is allowed to sell.

D The number of shares a company is allowed to sell.

What is "Share premium" ? Select one alternative: A Profits shared with shareholders B the excess of the issue price of a share above its par value C the actual number of shares in the hands of shareholders D Interest paid to debenture holders

B the excess of the issue price of a share above its par value

Which of the following is true about "interim dividend" ? Select one alternative: A it is paid after the end of the accounting year when the profit for the year is known. B it is paid halfway through the accounting year when the profit for the first six months is known. C it is always paid after a final dividend is paid. D it is a flexible payment to be made to only preference shareholders

B it is paid halfway through the accounting year when the profit for the first six months is

A Statement of Cash Flows gives users an indication of: Select one alternative: A the financial performance of the company. B the strategic management of the company. C the financial position of the company. D the financial adaptability of the company.

D) the financial adaptability of the company.

Which of the following is not a source of funds for a company? Select one alternative: A A decrease in current liabilities B A decrease in trade receivables C Increase in loan balances D The sale of a motor vehicle

B A decrease in trade receivables

Which of the following would be classified as an operating activity on a Statement of Cash Flows? Select one alternative: A Purchase of inventory B Purchase of a building C Issue of shares D Repayment of loan

A Purchase of inventory

Using the following information, calculate the cash flow from investing activities: Sold off a non-current asset for cash £9 000 Purchased a machine for cash £11 000 Paid off loan for £3 000 Paid dividends to shareholders for £20 000 Select one alternative: A (2 000) B (25 000) C (5 000) D 2 000

A (2 000)

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