Introduction to Accounting Test Questions
Course Introduction
Introduction to Accounting provides students with a foundational understanding of accounting principles and practices used in business and organizations. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, double-entry bookkeeping, and the role of accounting in decision-making. Students will learn how to record, classify, and summarize financial transactions, as well as explore the ethical considerations and regulatory environment surrounding the accounting profession. By the end of the course, students will be equipped with the basic skills to interpret financial information and understand its significance in real-world business contexts.
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Financial Accounting and Reporting A Global Perspective 5th Edition by Herv Stolowy
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Chapter 1: Accounting: the Language of Business
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Q1) The usefulness of financial information is enhanced if it is comparable,verifiable,timely and relevant.
A)True
B)False
Answer: False
Q2) Financially,lenders are rewarded by:
A) Dividends.
B) Interest.
C) Profits.
D) None of the above.
Answer: B
Q3) What are lenders mainly interested in?
A) The use of the money the firm has borrowed.
B) The ability of the business to create new products.
C) The wealth created by the firm.
D) The ability of the business to reimburse the money it has borrowed.
Answer: D
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Chapter 2: Introduction to Financial Statements
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Q1) That part of the profit which is not distributed is considered to be:
A) Capital
B) Dividends
C) Retained earnings
D) Income
Answer: C
Q2) Which of the following sections form the statement of financial position/balance sheet?
A) Assets,liabilities and profit
B) Assets,liabilities and shareholders' equity
C) Assets and profit
D) Liabilities and profit
Answer: B
Q3) It is common for the cash balance and profit to be the same.
A)True
B)False
Answer: False
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Chapter 3: Financial Statements: Interrelations and Construction
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Sample Questions
Q1) The term 'credit' is synonymous with 'increase'.
A)True
B)False
Answer: False
Q2) The need for a statement of cash flows arises from:
A) Cash accounting
B) Accrual accounting.
C) International accounting.
D) None of these.
Answer: B
Q3) All over the world,the overall structure of the accounts code is left entirely up to company management.
A)True
B)False
Answer: False
Q4) The income statement offers a dynamic vision of the financial position of the firm.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Accounting Principles and End-Of-Period Adjustments
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Q1) The IASB (IAS 16)defines fixed or tangible assets as assets held by an entity for which purpose(s)?
A) Use in the production or supply of goods or services
B) Administrative purposes
C) Rental to others
D) All of these
Q2) The going concern principle is a key reason for valuing assets and resources or liabilities at their historical costs rather than at their ____ value.
A) Replacement
B) Present
C) Liquidation
D) Discounted
Q3) When an error is uncovered,the most common solution is to cancel the erroneous entry by means of:
A) A 'reversing entry'.
B) An 'upturned entry'.
C) An 'opposite entry'.
D) None of these
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Chapter 5: Regulation of Accounting and Financial Reporting
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Q1) IAS 1 specifies that: 'an entity shall disclose the amount expected to be recovered or settled after more than ____ months for each asset and liability line item that combines amounts expected to be recovered or settled: (a)no more than ____ months after the reporting period,and (b)more than ____ months after the reporting period'
A) Three
B) Six
C) Twelve
D) Twenty-four
Q2) Which of the following is a financial liability?
A) Bank overdraft
B) Debt to tax authorities
C) Advance payment received from customers
D) Accounts payable
Q3) An annual report includes:
A) A letter to the shareholders
B) A management report
C) Financial statements
D) All of these
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Chapter 6: Revenue Recognition Issues
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Q1) Which of the following methods is not used to determine the percentage of completion of a transaction?
A) Cost allocation method.
B) Quantity of services performed to date as a percentage of total services to be performed.
C) Actual measurement of work performed.
D) The proportion that costs incurred to date represented as a percentage of the re-estimated total cost of the transaction at completion.
Q2) There are two kinds of differences between income tax rules and accounting rules.What are these called?
A) Permanent and impermanent differences
B) Permanent and temporary differences
C) Persistent and temporary differences
D) Present and future differences
Q3) The basic principle of deferred taxation is that the difference is not expected to be reversed in future periods.
A)True
B)False
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Chapter 7: Tangible Fixed Assets
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Q1) Which criterion (criteria)should capital expenditures meet?
A) The quantity of services from the asset will be increased through a longer useful life.
B) The quantity of services from the asset will be increased with more units of output.
C) The quality of the service received from using the asset will be increased.
D) Capital expenditures should meet at least one of the previous criteria.
Q2) What is the most commonly accepted useful life for furniture?
A) 3 years
B) 5 years
C) 10 years
D) 20 years
Q3) What is the distinguishing feature of a tangible asset compared to other fixed assets?
A) A tangible asset has a physical substance.
B) A tangible asset is subject to a reduction of its value over time.
C) A tangible asset is a long-lived asset.
D) A tangible asset is used in the course of the operations of the business and is not acquired for the purpose of resale.
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Chapter 8: Intangible Assets
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Q1) The R&D intensity can also be computed as R&D expenses/operating expenses.
A)True
B)False
Q2) What is a trademark?
A) It is a document granted by a government or an official authority bestowing on the inventor of a product or manufacturing process the exclusive right to use or sell the invention or rights to it.
B) It is a contractual agreement that allows the holder to sell certain products or services.
C) It is the exclusive right to the publication,production and sale of the rights for an intellectual creation.
D) It is a distinctive identification of a manufactured product or of a service.
Q3) What is the duration of the protection offered by a patent?
A) Unlimited.
B) Varies between countries.
C) Lasts generally 10 years.
D) Is generally not defined by law.
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Chapter 9: Inventories
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Q1) What is (are)the main reason(s)for not using LIFO?
A) Inflation is very limited today in developed economies and there is often simultaneously inflation and deflation on different products or resources thus the reporting benefit of LIFO might not be significant.
B) With even a small inflation,the LIFO-based taxable income would be less than it would be under FIFO or WAC and,if there is deflation,LIFO might create larger swings in taxable income levels than would WAC or FIFO.
C) LIFO in periods of heavy inflation may lead to a negative valuation of an inventory that is physically real,thus giving less credibility to the balance sheet.
D) All of these
Q2) Which of the following equations is correct?
A) Beginning inventory - Purchases - Cost of goods sold = Ending inventory
B) Beginning inventory - Purchases + Cost of goods sold = Ending inventory
C) Beginning inventory + Purchases + Cost of goods sold = Ending inventory
D) Beginning inventory + Purchases - Cost of goods sold = Ending inventory
Q3) The periodic inventory system relies on periodic physical counting.
A)True
B)False
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Chapter 10: Financial Instruments in the Statement of
Financial Position and Fair Value Accounting
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Q1) Which of the following statements is not correct?
A) Under the direct write-off method,no provision is created when the risk of uncollectibility appears.
B) All countries allow the direct write-off method.
C) The direct write-off method shows receivables at their nominal value when in fact,there is a known risk of uncollectibility.
D) The only situation where the direct write-off method might not create a misrepresentation of the financial situation of the firm is when the sales revenue and the percentage of uncollectible receivables is essentially constant or stable.
Q2) Which of the following statements is false?
A) Uncollectible accounts must be written off.
B) A claim is considered as uncollectible when the debtor is not solvent.
C) Uncollectible accounts are not reported in the financial statements.
D) The write off of the uncollectible accounts generates a bad debt expense in the income statement.
Q3) IAS 39 defines three categories of financial instruments in assets?
A)True
B)False
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Chapter 11: Shareholders Equity
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Q1) Which of the following statements is not correct?
A) The special rights of preferred shares make them less attractive to purchase than ordinary shares.
B) The special rights of preferred shares can take many forms,which may combine pecuniary advantage and different voting rights.
C) The basic idea behind preferred shares is that they allow capital to be raised without necessarily creating a proportional dilution,or without creating a shift in stewardship away from the original shareholders.
D) Preferred shares generally represent a trade-off between return and control: either higher dividends but reduced voting rights,or higher voting rights but lower returns.
Q2) Which of the following equations is correct?
A) Subscribed capital = Paid-in capital - Capital receivable - Uncalled capital
B) Subscribed capital = Paid-in capital + Capital receivable + Uncalled capital
C) Subscribed capital/Paid-in capital = Uncalled capital
D) Subscribed capital × Uncalled capital = Paid-in capital
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Chapter 12: Liabilities and Provisions
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Q1) What is the term used for the amount that will be given to the bondholder on the date of redemption?
A) Principal
B) Face value
C) Maturity value
D) All of these.
Q2) How is the debt ratio calculated?
A) Total assets/Total debt
B) Total debt/Total assets
C) Debt/Shareholders' equity
D) Long-term debt/Shareholders' equity
Q3) Which of the following items is not part of working capital?
A) Trade payables
B) Cash
C) Trade receivables
D) Accruals for employee
Q4) In accounting terms,wages and salaries are handled differently.
A)True
B)False
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Chapter 13: Business Combinations
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Q1) Which concept is applied if one considers that the consolidated financial statements are established mainly for internal decision making-purposes?
A) Property concept.
B) Parent company concept.
C) Entity concept.
D) Parent company extension concept.
Q2) What is the difference between the price paid and the book value of the equity of the subsidiary?
A) Difference arising on first consolidation.
B) Valuation difference.
C) Residual difference.
D) Price to book difference.
Q3) According to IFRS 10 (new standard),control exists if,and only if,the investor has A) Power over the investee
B) Exposure,or rights,to variable returns from its involvement with the investee
C) The ability to use its power over the investee to affect the amount of the investor's return
D) All of these
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Chapter 14: Income Statement Analysis
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Q1) Eudora Inc.is a pharmaceutical laboratory involved in advanced biotechnology research,manufacturing and sales and distribution of advanced medications in growing markets.At the beginning of X1 shareholders' equity was 1,000 CU.From period X1 to period X2,production increased from 2,000 CU to 2,400 CU.Simultaneously,consumptions from third parties increased from 1,500 to 1,860.The philosophy of management is that value-added should be partitioned as follows: 50% to employees in the form of remunerations in the larger sense,5% go to paying for interest expenses,15% go to the state in the form of taxes paid,5% are set aside as a provision for price reductions for patients in developing countries who cannot afford buying the medication at the list price,and 25% go to shareholders (but no dividends are paid in either year),.What was the return on equity during X1 and during X2.
A) X1 ROE = 12.5%;X2 ROE = 13.5%.
B) X1 ROE = 25%;X2 ROE = 25%.
C) X1 ROE = 25%;X2 ROE = 24%.
D) X1 ROE = 12.5%;X2 ROE = 12%
Q2) Trend analysis and common-size analysis can give sufficient or final answers to the decision maker.
A)True
B)False
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Chapter 15: Balance Sheet Analysis
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Q1) Balmer Company sells manufactured products for a price of 10 CU per unit.The credit terms received from suppliers of materials are 90 days.It grants credit to its customers for 10 days.Its inventory of finished products turnover is 24;its raw material inventory turnover is 48.Its transformation process takes a day.Its manufacturing value added to raw materials purchased is 10%.Its gross margin is 20%.Its net margin before tax is 5%.All costs other than materials are paid cash.The working capital need required to sell one unit is likely to be:
A) - 341.50
B) - 364.00
C) - 405.36
D) - 369.60
Q2) A positive working capital need is typical of a firm operating in the distribution sector.
A)True
B)False
Q3) How is the net cash calculated?
A) Bank borrowings - Bank overdrafts
B) Positive cash and cash equivalents - Bank overdrafts
C) Bank borrowings + Bank overdrafts - Positive cash and cash equivalents
D) Working capital + Working capital need
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Chapter 16: Statement of Cash Flows Construction
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Q1) Which of the following equations is correct?
A) Purchases + Change in accounts payable = Cash paid out for purchases
B) Purchases = Change in accounts payable + Cash paid out for purchases
C) Purchases + Cash paid out for purchases = Change in accounts payable
D) Purchases + Cost of merchandise sold + Change in inventory = 0
Q2) The majority of activities or transactions that affect the income statement are included in which section of the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Managing activities
Q3) The indirect method calculates the net cash flow from operating activities by adjusting net profit or loss for the effects of:
A) Changes during the period in inventories and operating receivables and payables.
B) Non-cash items such as depreciation,provisions,deferred taxes.
C) All other items included in the net income for which the cash effects are investing or financing cash flows.
D) All of these
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Chapter 17: Statement of Cash Flows Analysis and Earnings
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Q1) A business entity is generating small operating losses year after year and has a large positive cash flow from operations year after year.
A) It is an impossible situation.
B) It is a business entity that provides little value added beyond providing an infrastructure (such as the provision of pipe lines or of rail tracks right-of-ways)and continuously invests in rapidly depreciable assets.
C) It is a business that is doomed.
D) It is an entity that cannot invest in any new assets.
Q2) Which of the following patterns of cash flow best describes that of a fast growing dynamic firm in a high technology,fast changing industrial sector:
Cash flow from operations Cash flow from investing Cash flow from financing
A) Generates cash Consumes cash Generates cash
B) Consume cash Generates cash Consumes cash
C) Generates cash Generates cash Consumes cash
D) Consumes cash Consumes cash Generates cash
Q3) Generally,the operating cash flow is expected to be positive.
A)True
B)False
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Chapter 18: Ratio Analysis, financial Analysis and Beyond
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Q1) The so-called 'DuPont formula' defines capital employed as:
A) The sum of shareholders' equity plus long-term debt (including current portion).
B) The sum of fixed assets net of depreciation and current assets net of provision for bad debt.
C) Shareholder capital plus retained earnings,reserves (and provisions if applicable).
D) The sum of net fixed assets plus working capital.
Q2) All things being otherwise equal,when a business entity is created,choosing a significantly higher financial leverage ratio (than the rule of the three thirds would command)will generally lead to (compared to a lower leverage ratio):
A) Larger earnings and larger earnings per share
B) Lower earnings and higher ROE
C) Higher earnings and lower ROE
D) Lower earnings and lower earnings per share
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