Business Accounting Exam Practice Tests
Course Introduction
Business Accounting introduces students to the fundamental principles, concepts, and procedures of accounting in a business context. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, and the use of accounting information for decision-making. Emphasis is placed on understanding how transactions impact financial records, the role of accounting in planning and control, and the interpretation of key financial data. Students gain practical skills in recording, summarizing, and reporting financial information, forming a foundational knowledge base for further study in business and finance.
Recommended Textbook
Horngrens Financial Accounting 8th Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) Hamilton Lawn Service incurred an $800 repair expense and paid the repair company in cash.Which account,besides Cash,decreased?
A)Accounts payable
B)Owners' capital
C)Equipment
D)Accounts receivable
Answer: B
Q2) Owner's drawings are the expenses of a business.
A)True
B)False
Answer: False
Q3) An auditor has been offered a gift of golf clubs as a token of appreciation by a manager in the firm being audited.Which of the following principles in the APESB Code of Conduct would be most relevant in deciding whether to accept the gift?
A)Confidentiality
B)Professional competence and due care
C)Objectivity
D)Integrity
Answer: C
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A listing of all account titles in numerical order is a(n):
A)ledger.
B)journal.
C)chart of accounts.
D)income statement.
Answer: C
Q2) For liabilities and revenues,a debit increases the account.
A)True
B)False
Answer: False
Q3) A liability account is increased by a debit.
A)True
B)False Answer: False
Q4) Which of the following is NOT part of owners' equity?
A)Bills payable
B)Capital
C)Accounts receivable
D)Both A and C
Answer: D
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Ursula Tax Planning Service has the following plant assets: Communications equipment: Cost,$7120 with useful life of eight years;Furniture: Cost,$24,000 with useful life of 12 years;and Computer: Cost,$13,600 with useful life of four years. Ursula's monthly depreciation expense calculated using the straight-line method is: (Assume salvage value of all the assets to be zero)
A)$74
B)$283
C)$524
D)$167
Answer: C
Q2) To accrue revenue means that the cash receipt is recorded before the revenue is earned.
A)True
B)False Answer: False
Q3) The cash basis of accounting provides opportunities for manipulation of reported profits.
A)True
B)False Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Net profit (loss)is the difference between the total debits and the total credits in the Income statement columns.
A)True
B)False
Q2) The worksheet is NOT a journal,a ledger or a financial statement.
A)True
B)False
Q3) Capital is a permanent account.
A)True
B)False
Q4) Permanent accounts are NOT closed at the end of the period.
A)True
B)False
Q5) Which of the following accounts will be closed by debiting the Income summary account?
A)Salary expense
B)Accounts receivable
C)Service revenue
D)Drawings
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Chapter 5: Retailing Operations
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Sample Questions
Q1) Which of the following is the gross profit percentage?
A)Gross profit plus net sales revenue
B)Gross profit times net sales revenue
C)Gross profit divided by net sales revenue
D)Gross profit minus net sales revenue
Q2) Gilbert Ltd generated sales revenues of $1,400,000 in the year 2017.Its cost of sales amounted to $ 560,000 . Calculate Gilbert's gross profit percentage.(Round your answer to the nearest whole percentage. )
A)250%
B)167%
C)60%
D)40%
Q3) Which of the following are the normal balances of Sales,Sales discounts and Sales returns and allowances,respectively?
A)Debit,credit and credit
B)Credit,debit and debit
C)Debit,debit and credit
D)Credit,credit and debit
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7
Chapter 6: Retail Inventory
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Sample Questions
Q1) A company that uses the periodic inventory method provided the following information:
1.Beginning inventory $3000
2.Purchases $140,000
3.Purchase discounts $2200
4.Purchase returns and allowances $1000
At the end of the period,the company does an inventory count and finds $16,000 worth of inventory on hand.
What is the amount of Cost of sales?
A)$147,400
B)$155,800
C)$123,800
D)$140,000
Q2) The Cost of goods available for sale is equal to the:
A)Sales revenue minus the Cost of sales.
B)Cost of sales plus the Ending inventory.
C)Ending inventory plus the Sales revenues.
D)Cost of sales minus the Ending inventory.
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Page 8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which special journal could contain a column for sales discount?
A)purchases journal
B)sales journal
C)cash receipts journal
D)cash payments journal
Q2) Which of the following is not a feature of an ERP system?
A)It feeds data into software for all firm activities.
B)It requires little staff training.
C)The impact of changes in one part of the organisation is automatically reflected elsewhere.
D)Separate systems for payroll and sales may be unnecessary.
Q3) Hide and Seek has retail outlets at both large shopping centres and small plazas.Its accounting information system is able to track total revenues by store,by type of shopping centre,by size of store,by state and by region.This is an example of which feature of a good information accounting system?
A)compatibility
B)favourable cost-benefit relationship
C)control
D)flexibility
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) If a system of internal controls is too strict or complex,it may harm efficiency and not be cost-effective.
A)True
B)False
Q2) In the following situation,which internal control procedure needs strengthening?
At Hofstra Services,the accounting clerk fills out unnumbered purchase order forms for purchases of supplies.An operations engineer completes the form with a detailed description of the supplies being ordered,and the operations manager approves the purchase and passes the purchase order back to the accountant for processing.
A)Separation of duties
B)Competent,reliable and ethical personnel
C)Documents and records
D)Assignment of responsibilities
Q3) Which of the following is NOT included in a voucher?
A)An approval signature
B)A cheque
C)A description of the goods or services being purchased
D)The invoice number
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Chapter 9: Receivables
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Sample Questions
Q1) When a company is using the direct write-off method and an account is written off,the journal entry consists of a:
A)credit to Accounts receivable and a debit to Interest expense.
B)debit to Accounts receivable and a credit to Cash.
C)credit to Accounts receivable and a debit to Bad debts expense.
D)debit to the Allowance for doubtful debts and a credit to Accounts receivable.
Q2) A record that contains the details by customer or vendor of the individual account balances would be called a:
A)journal.
B)subsidiary ledger.
C)control account.
D)liability account.
Q3) What is the maturity value of a bill?
A)The principal amount minus interest due
B)The principal amount times the interest rate
C)The principal amount plus interest due
D)The face amount of the bill
Q4) Bills receivable are usually longer in term than accounts receivable.
A)True
B)False
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Chapter 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles
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Sample Questions
Q1) The cost of demolishing a building on a parcel of land to build a new building is added to the cost of the land.
A)True
B)False
Q2) When an asset is fully depreciated,the residual value must be written off.
A)True
B)False
Q3) Steel Rolling Company purchased a mine on 1 January 2016 for $529,000 and it is estimated to contain 37,000 tonnes of iron ore.There is no residual value.The company extracted 8500 tonnes of ore in 2016 and 12,800 tonnes of ore in 2017.What is depletion expense for 2017? (Do not round your intermediate calculations. )
A)$183,005
B)$143,527
C)$153,005
D)$122,527
Q4) Tangible assets are assets with no physical form that have value because of the special rights they carry.
A)True
B)False
Page 12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) A certain contingent liability was evaluated at year-end,and considered to have a reasonable possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would this have on the financial reporting of the company?
A)The information about the transaction would be inadequately disclosed in the notes.
B)The liabilities on the balance sheet would be understated.
C)There would be no effect.
D)The net profit of the company would be understated.
Q2) Art Parrish is the sole employee of Parrish Sales.His company pays a portion of his health insurance premium,and also contributes to a superannuation fund.The company share of the health insurance premium is $400,and the company contribution to superannuation is $550.The second journal entry in the payroll cycle to record the employee benefits to be paid by the company should include which of the following?
A)Credit Superannuation expense
B)Debit Employee benefits payable
C)Credit Health insurance expense
D)Credit Employee benefits payable
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Page 13
Chapter 12: Non-Current Liabilities, Debentures Payable
and Classification of Liabilities on the Balance Sheet
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Sample Questions
Q1) On 1 January 2017,Carter Sales issued $23,000 in debentures for $18,700.They were six year debentures with a stated rate of 10% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the Debentures discount.Immediately after issue of the debentures,the ledger balances appeared as follows: \(\begin{array}{l} \text { Debentures payable }\\
\begin{array}{lll|l}
\hline &&&&\$23,000&& \\
\end{array}
\end{array}\) \[\begin{array} { | l | l |}
\hline { \text { Discount on debentures payable } } \\
\hline 4300 &\quad\quad\quad \\
\hline
\end{array}\] After the first interest payment on 30 June 2017,what will be the balance in the Discount account?
A)Debit of $4658
B)Debit of $3942
C)Debit of $4300
D)Credit of $358
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Chapter 13: Partnerships
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Sample Questions
Q1) When one partner leaves the partnership for any reason,the old partnership ceases to exist.
A)True
B)False
Q2) Keith and Jim are partners.Keith has a capital balance of $51,000 and Jim has a capital balance of $37,000.Bill invested $27,000 to acquire an ownership interest of 30%.Which of the following statements is true of this transaction?
A)Keith and Jim received a bonus of $2550 each.
B)Keith and Jim received a bonus of $3750 each.
C)Bill received a bonus of $5100.
D)Bill received a bonus of $7500.
Q3) Whenever there is a change in the mix of partners,the old partnership is dissolved and a new one begins.
A)True
B)False
Q4) A new partner may be admitted to a partnership without dissolving the partnership.
A)True
B)False
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15
Chapter 14: Companies: Formation and Shareholders
Equity
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Sample Questions
Q1) If preference shares are cumulative,then the company does NOT need to pay dividends that were passed in previous years.
A)True
B)False
Q2) When a company has issued both preference and ordinary shares,the preference shareholders are allocated their dividends first.
A)True
B)False
Q3) On 1 November 2016,Oster Company declared a dividend of $3.00 per share.Oster Company has 20 000 ordinary shares outstanding and no preference shares.The date of record is 15 November,and the payment date is 30 November 2016.Which of the following statements is TRUE about the date of record?
A)The company transfers cash to a stockbroking firm on the date of record.
B)Cash is disbursed to shareholders on the date of record.
C)The liability must be recorded on the date of record.
D)No journal entry is made on the date of record.
Q4) All companies must issue both ordinary and preference shares.
A)True
B)False
Page 16
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Chapter 15: Companies: Capital Management and the Income Statement
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Sample Questions
Q1) If a company buys back shares,which of the following is TRUE?
A)Total equity will decrease.
B)Total equity will increase.
C)The number of issued shares will increase.
D)The company records a gain or loss on the buy-back.
Q2) Which of the following best describes discontinued operations on the income statement?
A)The gains and losses from transactions that are not part of the normal operations of the business
B)The profit or loss generated from the normal operations of the business
C)The profit or loss from segments of the business that have been sold or terminated
D)The profit or loss generated from unusual or infrequent events
Q3) Which of the following is a TRUE statement?
A)Both a share split and a share dividend will decrease total assets.
B)Neither a share split nor a share dividend will affect total assets or total liabilities.
C)Both a share split and a share dividend will increase total liabilities.
D)A share split will increase total assets but a share dividend will not.
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Page 17
Chapter 16: The Cash Flow Statement
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Sample Questions
Q1) Which of the following sections from the cash flow statement includes activities that increase and decrease non-current liabilities and owners' equity?
A)The financing section
B)The investing section
C)The non-cash investing and financing section
D)The operating section
Q2) Which would NOT be included in the operating activities section of an indirect method statement of cash flow?
A)Changes in accounts receivable
B)Changes in long-term bills payable
C)Changes in inventory
D)Changes in accounts payable
Q3) Most public companies use the direct method to prepare their cash flow statement because the calculations are simpler.
A)True
B)False
Q4) Free cash flow is the same thing as cash flow from operating activities.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Sample Questions
Q1) Under the comparability principle,financial statements should,as far as possible,be:
A)comparable from one period to the next.
B)comparable with foreign businesses.
C)comparable from business to business.
D)both A and C
Q2) Which of the following statements is false?
A)Reliable data are usually supported by objective evidence.
B)An independent valuation is usually considered reliable.
C)Reliable data are verifiable.
D)Owner opinions are one source of objective evidence.
Q3) Under the percentage of completion method,which is used to record profit on assets that take several years to construct,profit is reported as the instalments of contract income that are received.
A)True
B)False
Q4) In most businesses,profit is recognised at the point of sale.
A)True
B)False
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19
Chapter 18: Financial Statement Analysis
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Sample Questions
Q1) Which of the following accurately describes working capital?
A)Current assets minus inventory
B)Total debt minus shareholders' equity
C)Current assets minus current liabilities
D)Cost of sales divided by average inventory
Q2) What does the term financial leverage mean?
A)The ability of a company to pay off its current liabilities
B)The ability of a company to generate cash flows
C)The amount of profit earned by one share of ordinary shares
D)The proportion of a company's total capital that is financed by debt,as opposed to equity
Q3) The common-size statement percentages are the same percentages that appear in horizontal analysis.
A)True
B)False
Q4) Days in inventory is a ratio measure that addresses:
A)how profitable a company is.
B)how quickly a company can sell its inventory.
C)how well a company is positioned to pay its current liabilities.
D)how quickly a company can collect its receivables.
Page 20
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