Financial Accounting
Practice Questions
Course Introduction
Financial Accounting introduces students to the fundamental principles and practices of accounting as used in business and other organizational contexts. The course covers the preparation, interpretation, and analysis of financial statements, including the balance sheet, income statement, and cash flow statement. Key topics include the accounting cycle, recognition of revenues and expenses, asset and liability valuation, and the role of financial accounting in decision-making. Throughout the course, students develop a strong understanding of generally accepted accounting principles (GAAP) and the ethical considerations involved in financial reporting.
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Accounting Business Reporting for Decision Making 6th Edition by Jacqueline Birt
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Page 2
Chapter 1: Introduction to Accounting and Business Decision Making
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Q1) Which of the following is not a limitation of accounting information?
A) The use of historical data to predict future events.
B) The time delay from when events take place and their reporting.
C) Its subjective nature.
D) Its objective nature.
Answer: D
Q2) Which of these is an asset?
A) Investments.
B) Employee benefits payable.
C) General reserve.
D) Interest earned on investments.
Answer: A
Q3) A bank requesting accounting information is looking for:
A) the amount of tax that should be paid.
B) cash flows from dividends paid.
C) the ability of the entity to repay a loan.
D) environmental aspects of the business.
Answer: C
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Chapter 2: Accounting in Society
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Q1) A major criticism of the financial planning industry is that:
A) financial planners are paid via commissions.
B) financial planners are not salespeople.
C) financial planners are paid from direct fees for services provided.
D) financial planners make recommendations based on their client's objective and risk profile.
Answer: A
Q2) The concept that businesses are required to meet the needs of the present generation without compromising resources for future generations is known as business
Answer: sustainability
Q3) According to stewardship theory,serving on an entity's board of directors:
A) is purely for a director's self-interests.
B) is a personal wealth creation opportunity.
C) is a chance to play a role in the proper workings of the marketplace.
D) is for the benefit of one stakeholder, the entity.
Answer: C
Q4) A commonly accepted part of business sustainability is to ensure the maximisation of _________________ value.
Answer: shareholder
Page 4
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Chapter 3: Business Structures
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Sample Questions
Q1) The Reduced Disclosure Requirements implemented by the AASB in 2013 enable:
A) tier 1 entities to reduce the volume of disclosure notes to the financial statements.
B) all entities to reduce the number of financial statements produced.
C) tier 2 entities to reduce the volume of disclosure notes to the financial statements.
D) all entities to reduce the volume of disclosure notes to the financial statements.
Answer: C
Q2) The profit for a partnership must be distributed:
A) according to the partnership agreement.
B) equally among the partners.
C) according to the workload contribution of each partner.
D) according to the capital contributions of each partner.
Answer: A
Q3) The financial report that details assets,liabilities and equity is the ________________ ________________.
Answer: balance sheet
Q4) A company is a separate _______________ entity to the owners of the business.
Answer: legal
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5
Chapter 4: Business Transactions
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Q1) Invoices,purchase orders,and credit card slips are examples of _____________ _____________ which provide written evidence to verify a business transaction.
Q2) Which of these is not part of a general journal entry?
A) Classification of account (e.g. income, expense, asset, etc.).
B) Debit and credit columns.
C) Date.
D) Account name.
Q3) The ___________ ___________ accounting method requires each transaction to have at least two effects on the accounting equation.
Q4) If the value of Assets is $165 000 and the value of Equity is $100 000,then Liabilities must be equal to ________________.
Q5) A business purchasing inventory on credit creates a liability known as: A) accounts receivable.
B) inventory.
C) supplies.
D) accounts payable.
Q6) _________ is added to opening equity to calculate ending equity.
Q7) Expenses have a (positive/negative)____________________ effect on Equity.
Page 6
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Chapter 5: Balance Sheet
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Q1) A revaluation surplus is a reserve account that arises when:
A) an entity uses fair value rather than cost to measure its long-term assets.
B) an entity uses cost rather than fair value to measure its long-term assets.
C) management transfer funds out of retained earnings to put aside for future use.
D) an entity has an overseas subsidiary.
Q2) Goodwill is regarded as an ______________ intangible asset.
Q3) Which of the following statements about the measurement of 'fair value' is incorrect?
A) It is an exit value.
B) A liability's fair value takes into consideration the time value of money.
C) In an active market, as asset's fair value is observable and verifiable.
D) It is an entry value.
Q4) Inventory is categorised in the balance sheet as a:
A) current asset.
B) current liability.
C) non-current asset.
D) non-current liability.
Q5) The balance sheet does not reflect an entitys full __________ as some economic benefits do not satisfy the definition of an asset.
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Chapter 6: Statement of Profit or Loss and Statement of Changes in Equity
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Q1) The ______________ of _____________ depreciation method measures depreciation based on an asset's activity or output relative to the total activity or output expected.
Q2) A transaction recording accrued income will:
A) have no effect on total assets.
B) increase cash and decrease sales income.
C) increase accounts receivable and sales income.
D) increase accounts receivable and accounts payable.
Q3) For a retailing or manufacturing entity,gross profit is equal to sales less: A) purchases.
B) all expenses.
C) cost of sales.
D) all expenses other than cost of sales.
Q4) The relevant profit measure that isolates the returns associated with investment decisions is ______________ ______________ ______________ and ______________.
Q5) Increases in assets or decreases in liabilities that result in increases in equity,other than those relating to contributions from holders of equity claims,is the Framework's definition of ____________________.
Q6) The statement of profit or loss measures an entity's financial _________. Page 8
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Page 9
Chapter 7: Statement of Cash Flows
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Q1) Which of these causes a difference between the profit in the income statement and the net cash increase in the statement of cash flows?
A) Depreciation.
B) Prepaid insurance.
C) Credit purchases not yet paid.
D) All of the above.
Q2) The amount owing to suppliers for inventory purchases at the beginning of the year is $118 000 and at the end of the year is $94 000.If total credit purchases of inventory for the year are $160 000,the cash paid to suppliers of inventory for the year is:
A) $184 000
B) $66 000
C) $278 000
D) $254 000
Q3) Decision makers have increased their reliance on the statement of cash flows due to the relative difficulty in manipulating the statement of ____________ _______________ compared with manipulating the statement of profit or loss.
Q4) The receipt of dividends would be classified as a cash inflow from ______________ activities.
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Page 10
Chapter 8: Analysis and Interpretation of Financial Statements
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Q1) A high times debtors turnover indicates:
A) the entity's credit sales have decreased.
B) a small percentage of the entity's sales are on credit.
C) the entity is more efficient in collecting monies owing from customers.
D) customers are taking longer to pay their accounts.
Q2) ____________________ analysis is a technique for evaluating a series of financial statement data over a period of time.
Q3) If the beginning balance of inventory is $16 000 and the ending balance is $30 000,credit sales for the period are $420 000 and cost of sales are $380 000,the days inventory calculation is:
A) 29 days.
B) 22 days.
C) 20 days.
D) 26 days.
Q4) Average inventory divided by cost of sales equals the ______________ inventory ratio.
Q5) ____________________ is excluded from the quick ratio as it is the asset that takes the longest to convert to cash.
11
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Chapter 9: Budgeting
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Q1) During the budget cycle,the budget can be used to:
A) monitor and investigate any differences between the budget and the entity's actual results.
B) reward positive performance.
C) reconsider long-term strategies.
D) all of the above options.
Q2) The cash budget assists in identifying periods of cash surpluses and cash _____________ throughout the budget period.
Q3) The difference between actual and budgeted results is known as a ________________.
Q4) Beta Ltd estimates their sales volume for the year is 30 000 units.If the beginning materials inventory is $300 000,and the desired ending materials inventory is $240 000,calculate the budgeted cost of materials for the year if the materials cost per unit is $60.
A) $1 740 000
B) $1 860 000
C) $1 800 000
D) $2 040 000
Q5) A program budget is commonly used in the __________ and not-for-profit sector.
Q6) The cash budget shows the ____________ future cash receipts and cash payments.
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Chapter 10: Costvolumeprofit Analysis
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Q1) Which of the following statements regarding the margin of safety is not true?
A) The margin of safety is the mix between fixed and variable costs.
B) The margin of safety indicates how much revenue can decrease before reaching the break-even point.
C) A small margin of safety should motivate managers to reduce costs and increase sales to avoid potential losses.
D) The margin of safety in units is equal to the actual or estimated units of activity minus units at break-even point.
Q2) Besser Ltd's contribution margin per unit is $2 and the break-even number of units is 2000.If Besser Ltd sell 5000 units their profit will be:
A) $2000
B) $6000
C) $10 000
D) $4 000
Q3) Buying in a product or service instead of producing it is known as _______________.
Q4) The range of activity over which costs are assumed to be valid is the _____________ range.
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Page 13
Chapter 11: Costing and Pricing in an Entity
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Q1) The type of criteria used to select a cost driver that is based on using direct labour hours to encourage a reduction in the number of labour hours used is known as:
A) cause and effect.
B) behavioural.
C) ability to bear.
D) fairness or equity.
Q2) A predetermined indirect cost rate is calculated:
A) using budgeted costs.
B) monthly.
C) using actual costs.
D) using cash flow data.
Q3) Setting high prices when products are first introduced into the market is known as: A) peak-load pricing.
B) penetration pricing.
C) price discrimination.
D) price skimming.
Q4) A cost/benefit test is used to assess the costs against the benefits of having a more detailed ____________ system to obtain cost information.
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Chapter 12: Capital Investment
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Q1) The investment decision rule for net present value calculations is to invest:
A) in the project with the lowest NPV.
B) in the project with the lowest discount rate.
C) in the project with the highest discount rate.
D) in the project with the highest positive NPV.
Q2) When considering whether to keep a machine or replace it,the original cost of the machine (is/is not)________ a factor that must be considered in the decision making process.
Q3) After an investment decision is made,the next step is:
A) the process of physically implementing the project.
B) the planning process.
C) the replacement process.
D) arranging finance.
Q4) The payback period method of investment decision making is generally regarded as:
A) mostly accurate.
B) very accurate.
C) too simplistic to be the only tool used in decision-making.
D) too complex for normal use.
Q5) The ___________ (shorter/longer)a payback period is,the greater the risk.
Page 15
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Chapter 13: Financing the Business
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Q1) Which of these is not a spontaneous source of finance?
A) Accrued wages.
B) Pay-as-you-go tax instalments.
C) Bank overdrafts.
D) Trade creditors.
Q2) If average inventory is $225 000,total credit sales is $1 200 000 and cost of sales is $980 000,the days inventory turnover is (round your answer up to the next full number of days):
A) 69 days.
B) 84 days.
C) 23 days.
D) 19 days.
Q3) Which of the following businesses would be most likely to have the greatest proportion of working capital held as debtors?
A) A grocery retailer.
B) An accountant.
C) A coffee shop.
D) A restaurant.
Q4) For interest-only loans the _______________amount is repaid in full at the end of the loan term.
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Chapter 14: Performance Measurement
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Q1) Which of the following is a criticism of the Australian Government (2011)Clean Energy Future Legislative Package which sets up the carbon pricing mechanism?
A) Carbon price reporting will burden businesses unnecessarily.
B) It will encourage an increase in offshore investments in countries that do not have a carbon price.
C) The carbon tax is not considered to be significant enough to encourage innovation.
D) All of these options are criticisms of this legislation.
Q2) Which one of these perspectives is not used by the balanced scorecard?
A) Employee.
B) Customer.
C) Financial.
D) Innovation and improvement activities.
Q3) One of the main criticisms of the balanced scorecard is:
A) senior management are seldom committed to its success.
B) it must be introduced without a trial.
C) it only measures financial performance.
D) that the causal relationship between some measures and their economic impact have not been tested.
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