Accounting Principles
Pre-Test Questions
Course Introduction
Accounting Principles introduces the foundational concepts and practices essential for understanding how financial information is generated, recorded, and communicated within organizations. The course covers key topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the application of generally accepted accounting principles (GAAP). Students learn to analyze transactions, maintain accurate records, and interpret financial data to support decision-making. By mastering these principles, students gain the essential skills needed to pursue advanced accounting studies and to operate effectively in business environments where financial literacy is crucial.
Recommended Textbook
Financial Accounting An Integrated Approach 5th Australia Edition by Trotman
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Page 2
Chapter 1: Introduction to Financial Accounting
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Q1) What is the net profit for 2012?
A) $70 000
B) $62 000
C) $104 000
D) $112 000.
Answer: B
Q2) Which type of information would be of most interest to trade creditors?
A) dividends declared
B) ability to pay debts
C) pollution of waterways adjacent to the firm's factory
D) continuity of orders for the firm's products.
Answer: B
Q3) Which of the following statements about financial accounting is NOT true?
A) Financial accounting helps banks decide whether or not to lend.
B) Financial accounting helps stock market investors decide whether to buy company shares.
C) Financial accounting reports on the performance of managers as decision-makers.
D) Employees assess whether the company can repay long-term debt.
Answer: D
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Page 3
Chapter 2: Measuring and Evaluating Financial Position and
Financial Performance
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Q1) Which of the following is NOT a liability?
A) provision for long service leave
B) interest payable
C) share capital
D) creditors.
Answer: C
Q2) To which balance sheet grouping does the item 'accumulated depreciation on equipment' belong?
A) current asset
B) noncurrent asset
C) current liability
D) noncurrent liability.
Answer: B
Q3) What is James's owners' equity?
A) $7810
B) $2810
C) $110
D) $2590.
Answer: B
Page 4
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Chapter 3: The Double-Entry System
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Sample Questions
Q1) Commission was earned which will be paid for in 4 months' time.
A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset increased and a liability increased.
Answer: C
Q2) Equipment is purchased on credit,when:
A) one asset increases and another asset decreases
B) an asset increases and a liability increases
C) an asset decreases and a liability decreases
D) an asset decreases and owners' equity decreases.
Answer: B
Q3) A cheque was drawn to pay an account payable.
A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset decreased and an expense increased.
Answer: B
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5
Chapter 4: Record-Keeping
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Sample Questions
Q1) Which of the following accounts is not closed off at year-end?
A) cost of goods sold
B) amortisation expense
C) interest revenue
D) accounts receivable
Q2) A chart of accounts is:
A) a means of ensuring that the debits equal the credits
B) a chronological record of all transactions
C) a list of the titles of all accounts in the ledger,together with an appropriate numbering system for the accounts
D) a trial balance.
Q3) Which of the following is NOT a source document of a business enterprise?
A) trial balance
B) purchase order
C) list of day's collections
D) cheque duplicate.
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Chapter 5: Accrual Accounting Adjustments
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Q1) What is the journal entry made by the surveyor on 15 September 2012?
A. DR Cash \(\quad \) \(\quad \) \(\quad \) CR Unearned revenue
B. DR Unearned revenue \(\quad \) CR Cash
C. DR Cash \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\mathrm { CR }\) Surveying revenue
D. DR Customer deposits \(\quad \) CR Unearned revenue
Q2) Which of the following statements about the allowance for doubtful debts account is NOT true?
A) The allowance for doubtful debts account is a contra asset account.
B) Writing off an account as irrecoverable results in an expense.
C) The expense from bad debts is effectively matched with the revenue to which it relates.
D) When an account is written off as a bad debt,the net realisable value of accounts receivable is unchanged.
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Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Q1) An asset should be recognised in the financial statements when: (i)an exchange has occurred (ii)it possesses a cost or other value that can be measured reliably (iii)it is probable that the future economic benefits embodied in the asset will eventuate.
A) (i)and (ii)only
B) (i)and (iii)only
C) (ii)and (iii)only
D) (i),(ii)and (iii).
Q2) The letters GAAP stand for:
A) government approved accounting principles
B) generally accepted audit procedures
C) generally accepted audit principles
D) generally accepted accounting principles.
Q3) Which of the following statements is NOT true of parties interested in a company's financial accounting?
A) In smaller companies,managers and owners may be the same people.
B) All parties share the same interest in the company's accounting.
C) They assess past financial performance.
D) It is difficult for financial statements to meet the needs of all users.
Page 8
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Chapter 7: Sustainability Reporting
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Sample Questions
Q1) Which statement regarding the Carbon Disclosure Project (CDP)is not true?
A) The CDP is a project seeking to understand the climate change exposure of assets used by organisations.
B) The CDP lists companies that are the highest achiever in reducing energy and emissions.
C) The CDP annual survey includes information regarding climate change strategies,energy and emission reduction targets and emission performance information.
D) The CDP is a project seeking to require companies to report climate change strategies.
Q2) Which of the following statements regarding integrated reporting is not true?
A) Integrated reporting is an additional report included in the annual financial reports of an organisation.
B) An integrated report does not only report on the organisation's stewardship of its financial capital.
C) Integrated reports focus only on the most material information.
D) Integrated reporting includes short-term,medium-term and long-term considerations.
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9
Chapter 8: Internal Control and Cash
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Q1) Which of the following is NOT true of a sound system of internal control?
A) Implementation of controls involves costs.
B) A sound system of internal control is the responsibility of management.
C) All errors and irregularities should be eliminated.
D) A sound system of internal control is fundamental to the production of reliable financial reports.
Q2) In preparing the monthly bank reconciliation,Fur Ltd ascertains that there is a $750 cheque from Hunt Traders for merchandise that is marked NSF.The journal entry to record this in Fur Ltd's books is:
A) DR Accounts receivable\(\quad\)$750\(\quad\)\(\quad\)CR Cash\(\quad\)\(\quad\)$750
B) DR Accounts receivable\(\quad\) $750 \(\quad\) CR Inventory\(\quad\)$750
C) DR Accounts payable\(\quad\)\(\quad\)$750\(\quad\)\(\quad\)CR Cash\(\quad\)\(\quad\)$750
D) CR Accounts receivable\(\quad\)$750\(\quad\)\(\quad\) DR Cash\(\quad\)\(\quad\)$750
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Chapter 9: Inventory
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Q1) What was the value of cost of goods sold of Algo,using the LIFO assumption in a perpetual inventory system?
A) $2600
B) $2700
C) $2720
D) $1400.
Q2) What was the value of ending inventory of Algo,using the LIFO assumption in a perpetual inventory system?
A) $1460
B) $1480
C) $1580
D) $2400.
Q3) The lower of cost or market rule for inventory is an example of the principle of:
A) consistency
B) reliability
C) conservatism
D) relevance.
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11
Chapter 10: Noncurrent Assets
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Q1) A used machine with a purchase price of $75 000,requiring an overhaul costing $8000,installation costs of $4000 and testing costs of $2000,would have a cost basis of:
A) $89 000
B) $75 000
C) $83 500
D) $87 000.
Q2) Where there is an asset revaluation decrement that does not reverse a previous increment,the amount is debited to:
A) expense
B) retained profits
C) revaluation surplus
D) capital.
Q3) What was the depreciation expense for year ended 30 June 2011?
A) $15 000
B) $10 000
C) $7500
D) $5000.
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Chapter 11: Liabilities
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Questions
Q1) RST has been sued by a competitor for a potential copyright infringement.Legal advice is divided over the likelihood of the success of the claim and the likely damages,if any.It would be shown as:
A) an accrual on the balance sheet
B) a provision on the balance sheet
C) a contingent liability on the balance sheet
D) a contingent liability in the notes to the accounts.
Q2) Which of the following CANNOT be a liability?
A) allowance for doubtful debts
B) provision for employee entitlements
C) provision for dividends
D) provision for warranties.
Q3) Interest owed to the bank by MNO Ltd would appear on MNO's balance sheet as:
A) accounts payable
B) accruals
C) provisions
D) contingent liability.
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Page 13
Chapter 12: Completing the Balance Sheet
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Q1) When the cost method of accounting for long-term investment in shares is employed,the receipt of a dividend on those shares is recorded as a credit to:
A) the investment asset
B) dividend revenue
C) dividend declared
D) retained profits.
Q2) XYZ buys a 24% share in ABC for $80m.ABC's total net profit is $50m and it pays $4m in dividends to XYZ.Using the equity method,the value of the investment in ABC would be recorded at year-end as:
A) $80m
B) $88m
C) $92m
D) $19m.
Q3) Investor P has control over another entity,Q.P is referred to as:
A) an associate entity
B) a parent entity
C) a consolidated entity
D) a minority shareholder.
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14
Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Q1) Which of the following transactions may NOT give rise to revenues?
A) receiving government grants
B) disposing of assets for book value
C) forgiveness of liabilities
D) cash received for services provided.
Q2) Using the percentage of completion method,what profit would Romulus Ltd report in 2012?
A) $7 000 000
B) $6 000 000
C) $800 000
D) $280 000.
Q3) If revenue increased by 30%,with no effect on expenses other than income tax,what would be the effect on net after tax profit?
A) It would increase by $6600.
B) It would decrease by $6600.
C) It would increase by $4620.
D) It would decrease by $4620.
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) What were the total dividends paid during the year?
A) $250 000
B) $460 000
C) $480 000
D) $230 000
Q2) Which of the following statements about the indirect method of presenting cash flow from operations is NOT true?
A) The direct and indirect methods give the same cash flow from operations.
B) Australian companies do not need to report information about the indirect method.
C) Depreciation expense is added back to operating profit in the indirect method.
D) Decreases in accounts payable are deducted from operating profit in the indirect method.
Q3) What was the cash flow from investing activities?
A) $5700
B) $2100
C) ($2900)
D) ($3300).
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Chapter 15: Financial Statement Analysis
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Q1) Which of the ratios listed helps to indicate the ability of the company to meet its current obligations?
A) current ratio
B) profit margin
C) debt-to-equity
D) return on assets.
Q2) Which of the following statements is true?
A) If the asset turnover ratio remains constant and the profit margin increases,return on assets must have increased.
B) If return on assets increases,return on equity must increase.
C) If the current ratio increases,the quick ratio will also increase.
D) If return on assets decrease return on equity will increase.
Q3) What is the effect on the debt-to-equity ratio?
A) It increases.
B) It decreases.
C) There is no effect.
D) It cannot be determined from the information provided.
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Chapter 16: Accounting Policy Choices
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Q1) Most accounting policy choices affect both the income statement and the balance sheet.Select the balance sheet account(s)that would be affected by a policy choice at the same time as the cost of goods sold income statement account.
A) accounts receivable
B) inventories
C) prepaid expenses,accrued expenses and liabilities
D) property,plant and equipment; intangible and leased assets.
Q2) Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the allowance for doubtful debts balance sheet account.
A) revenue,bad debts expense
B) cost of goods sold expense
C) depreciation or amortisation expense
D) various expense accounts.
Q3) Assets:
A) $180 000 overstated
B) $144 000 overstated
C) $124 000 overstated
D) no effect.
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Chapter 17: Appendix: Special Journals, subsidiary Ledgers and
Control Accounts
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Q1) Which of the following statements about subsidiary ledgers and control accounts is NOT true?
A) Every entry made to an account in the subsidiary ledger is also reflected in the control account in the general ledger.
B) All credit entries will be the same in aggregate between the subsidiary ledger and the control account.
C) The total of the balances appearing in the accounts in the subsidiary ledger should equal the balance appearing in the control account.
D) If the total of the subsidiary ledger accounts fails to agree with the balance of the control account,the subsidiary ledger must be in error.
Q2) What was the balance of the debtors control account at 30 June 2012?
A) $8300
B) $9700
C) $21 300
D) $9000
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