Course Introduction
Principles of Accounting Practice Exam
Principles of Accounting introduces students to the fundamental concepts and principles underlying the accounting process. The course covers the basics of financial accounting, including the accounting cycle, preparation of financial statements, and the interpretation and analysis of financial information. Topics include understanding assets, liabilities, equity, revenues, and expenses, as well as the principles of double-entry bookkeeping and the use of accounting systems. This foundational knowledge equips students with the skills necessary to record transactions, prepare reports, and make informed business decisions based on financial data.
Recommended Textbook
Accounting Understanding and Practice 4th Edition by Danny Leiwy
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19 Chapters
492 Verified Questions
492 Flashcards
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Page 2
Chapter 1: The Statement of Financial Position Balance
Sheetand What It Tells Us
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Sample Questions
Q1) The main purpose of financial accounting information is to:
A) Provide financial information for taxation purposes
B) Provide financial information to managers
C) Provide financial information for external users, such as shareholders and creditors
D) Provide financial information to customers
Answer: C
Q2) The accounting equation can be stated as:
A) Assets = Liabilities + Owner's Equity
B) Assets + Liabilities = Owner's Equity
C) Liabilities = Owner's Equity + Assets
D) Assets = Liabilities - Owner's Equity
Answer: A
Q3) Corporation tax payable would be classified as:
A) Equity on statement of financial position
B) Liability on statement of financial position
C) Asset on statement of financial position
D) Expense on income statement
Answer: B
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Chapter 2: The Income Statement Profit and Loss Account
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Sample Questions
Q1) If opening stock is £3,000,purchases for the year £15,000 and the cost of goods sold is £14,000,what is the value of closing stock?
A) £2,000
B) £4,000
C) £3,000
D) £5,000
Answer: B
Q2) A company buys 500 units of stock at a cost of £22 per unit.During the year,it sells 450 units at a price of £30 per unit.What is the "cost of goods sold" on the Income Statement?
A) £11,000
B) £9,900
C) £13,500
D) £3,600
Answer: B
Q3) Profit = revenue + expenses
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Development of Financial Reporting
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Sample Questions
Q1) The establishment of the limited liability company made the position of creditors less secure
A)True
B)False
Answer: True
Q2) The measurement of profit is useful:
A) As a guide to dividend decisions
B) As a basis for taxation
C) Statements A and B are both correct
D) None of the above
Answer: C
Q3) The going concern concept assumes that the business will continue in operational existence for only a limited period of time
A)True
B)False Answer: False
Q4) Companies are allowed to pay dividends out of capital
A)True
B)False
Answer: False
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Chapter 4: Ratios and Interpretation: a Straightforward Introduction
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Sample Questions
Q1) A gearing ratio of above 50% suggests:
A) The company is profitable
B) The company is over-reliant on borrowing
C) The company is financed mostly by equity
D) The company is almost bankrupt
Q2) If a supplier was interested in whether or not they will be paid on time,which of the calculations would they make?
A) Trade receivables /sales revenue x 365
B) Sales revenue/trade receivables x 365
C) Trade payables/cost of sales x 365
D) Cost of sales/trade payables x 365
Q3) The return on capital employed (ROCE)shows how "solvent" a company is A)True
B)False
Q4) Which of the following rations considers the relationship between current assets and current liabilities?
A) Quick ratio
B) Current ratio
C) Capital gearing ratio
D) ROCE
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Chapter 5: How the Stock Market Assesses Company Performance
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Q1) The "market capitalization" of a company refers to the total market value of a companies shares
A)True
B)False
Q2) Dividend per share expressed as a % of current share price is known as:
A) Dividend cover
B) Price/earnings ratio
C) Dividend yield
D) Earnings per share
Q3) Which of the following statements is correct?
A) You can buy shares by directly contacting the company you want to buy shares in B) It is usually quite difficult to buy the shares of unlisted companies
C) It is difficult for investors to make profits when share prices are rising
D) All of the above statements are correct
Q4) A high price/earnings (P/E)ratio indicates that a company is profitable
A)True
B)False
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Chapter 6: Cash Flow Statements: Understanding and Preparation
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Sample Questions
Q1) If the opening balance on accounts receivable was £35,000 with a closing balance of £15,000 and the income statement reported revenue of £180,000,what is the cash collected from customers?
A) £195,000
B) £200,000
C) £20,000
D) £145,000
Q2) Generating lots of cash is a definite sign of success
A)True
B)False
Q3) Which of the following would be classified as an operating activity on a cash flow statement?
A) Purchase of a building
B) Purchase of inventory
C) Repayment of loan
D) Issue of shares
Q4) The annual depreciation expense is an outflow of cash
A)True
B)False
8
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Chapter 7: Advanced Interpretation of Company and Group Accounts
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Q1) "Minority interest" refers to the owners of shares which have no voting rights
A)True
B)False
Q2) In a group or consolidated balance sheet,the retained earnings figure for the group is the sum of the retained earnings for the parent company and all of the retained earnings for each subsidiary
A)True
B)False
Q3) Which of the following is not included in the calculation of a Z-Score?
A) Working capital
B) Cash Flow
C) Market value of equity
D) Sales
Q4) A company with interest cover of 10 is less safe than a company with interest cover of 2
A)True
B)False
Q5) Deferred taxation is a "liability" that may never have to be paid
A)True
B)False
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Chapter 8: Current Issues in Financial Reporting
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Q1) Creative accounting is not only concerned with maximizing profit and may include income smoothing which may require understating profits
A)True
B)False
Q2) Which of the following statements is false?
A) Social and environmental accounting is concerned with reporting relevant and measurable social costs and benefits to shareholders and creditors
B) Social and environmental accounting is concerned with organizations being more widely accountable for social and environmental issues
C) Social and environmental accounting involves disclosing information in addition to to conventional financial accounting statements
D) Social and environmental accounting is concerned with organizations being more widely accountable to interest groups other than shareholders and creditors
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10
Chapter 9: Bookkeeping to Trial Balance
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Sample Questions
Q1) The Accounting Equation regarding the Statement of Financial Position is:
A) Capital + Assets = Liabilities
B) Assets - Liabilities = Capital
C) Capital = Assets + Liabilities
D) Income - Expenses = Profit
Q2) In general,a sales account has a credit balance
A)True
B)False
Q3) A creditor account of £10,500 represents:
A) An expense
B) An asset
C) A liability
D) A sale
Q4) Sales made on credit are shown on the left-hand side of the sales account and on the right hand side of the trade receivables account
A)True
B)False
Q5) In general,an asset account has a debit balance
A)True
B)False
11
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Chapter 10: Trial Balance to Final Accounts
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Sample Questions
Q1) Which of the following statements is correct?
A) Sole traders pay income tax as individuals but there is no taxation on the profits of the business itself
B) On the accounts of a sole trader, retained earnings and capital are usually kept separate
C) The owners of limited companies receive payment as "drawings"
D) None of the above statements are correct
Q2) A Sole Trader has a number of debtors.The total amount in the Sales Ledger at the end of the financial year is £5,600.However,it is discovered that one debtor who owes £400 has just been declared bankrupt.Past experience shows that approximately 2% of debts are never repaid,and therefore a provision equal to 2% of closing debtors is required.There is currently a provision of £80.Which of the following is the correct adjustment for the provision for bad debts?
A) Make a new provision for bad debts at £112
B) Increase the current provision by £24
C) Make a new provision for bad debts at £104
D) Increase the current provision by £32
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Chapter 11: Financing a Business
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Sample Questions
Q1) An easy way for companies to raise additional funds is to issue bonus shares
A)True
B)False
Q2) Which of the following statements is correct?
A) Preference shares carry additional voting rights
B) Preference shares carry a fixed rate of interest
C) Preference shares are more risky than ordinary shares
D) If no dividend is paid on preference shares, dividend can be still paid on ordinary shares
Q3) Dividend Policy decides what proportion of the profits to pay out as dividends.
Which of the following is the best policy?
(i) Pay out all profits as dividends
(ii) Pay out no profit as dividend,but use all the profit to expand the company
(iii)Pay out the same £ value as dividends every year
A) (i) is the best, as it rewards shareholders for their investment.
B) Something between (i) and (ii) is the best, as it allows shareholders to receive some dividend and the company to retain earnings to grow. (ii) is unfair to the shareholder.
C) (iii) is best, as it allows shareholders to plan for the dividend received.
D) None of them are "best". It depends upon what shareholders prefer.
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Page 13
Chapter 12: Management of Working Capital
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Sample Questions
Q1) A company has steady annual demand of 4,000 units.Ordering costs £250 per order.The holding cost is £8 per unit per year.
Using the Economic Order Quantity,what is the optimum order quantity for the company,and how many orders should be placed per year?
Formula: \[E O Q = \sqrt { \frac { 2 C _ { O } D } { C _ { H } } }\]
A) Order 4,000 units at a time, with a total of 1 order per year
B) Order 16 units at a time, with a total of 250 orders per year
C) Order 500 units at a time, with a total of 8 orders in the year
D) Impossible to calculate, since we do not know cost per unit
Q2) High levels of working capital are associated with insolvency
A)True
B)False
Q3) Which of the following is a limitation of Economic Order Quantity?
A) It is weak in assessing the appropriate order quantity
B) It fails to consider inventory holding costs
C) It does not take quantity discounts into account
D) It fails to consider ordering costs
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Chapter 13: Introduction to Management Accounting
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Sample Questions
Q1) Standard costing is the most appropriate approach where actual costs do not fluctuate much
A)True
B)False
Q2) A manufacturing account shows the opening inventory of finished goods minus manufacturing costs of the finished goods plus the closing inventory of finished goods
A)True
B)False
Q3) Knowing the cost of producing a product helps determine the price to be charged for it
A)True
B)False
Q4) A company uses "Standard Costing".If the standard variable cost of making one unit is £0.32 and the budgeted production is 10,000 units but company produced 12,000 units,the expected variable cost would be:
A) £3,200
B) £0.32
C) £3,840
D) £640
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Chapter 14: Investment Appraisal
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Q1) The internal rate of return (IRR)calculates the discount rate at which the net present value (NPV)of the project is zero
A)True
B)False
Q2) Which of the following is not used as an investment appraisal technique?
A) IRR
B) ARR
C) NPV
D) Capital gearing
Q3) A project with a high IRR might have a lower NPV
A)True
B)False
Q4) Which of the following is correct?
A) Payback is based on profit as opposed to cash flow
B) Payback is based on cash flow as opposed to profit
C) Payback shows the internal rate of return (IRR) of the project
D) None of the above statements are correct
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Chapter 15: Budgetary Planning and Control
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Q1) Which of the following is not an advantage of zero-based budgeting?
A) Easy to apply
B) Helps identify inefficient operations
C) Can increase staff motivation towards greater efficiency
D) Ensures alternatives, such as outsourcing, are considered
Q2) Which of the following statements is correct?
A) In a large organization, budgets may be required for different products
B) In a large organization, budgets may be required for the advertising department
C) In a large organization, budgets may be required for the human resource department
D) All of the above statements are correct
Q3) An approach to producing a budget which encourages managers to justify a budget for their department and to justify each item in its entirety is called:
A) Planning, programming budgeting system (PPBS)
B) Zero-based budgeting (ZBB)
C) Incremental budget
D) Performance budget
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17
Chapter 16: Absorption Costing
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Sample Questions
Q1) Direct labour costs are wages and employment costs charged directly to particular jobs as well as maintenance staff costs
A)True
B)False
Q2) Which of the following statements is correct?
A) Activity based costing (ABC) will be less detailed than absorption costing
B) Absorption costing will produce more accurate overhead charges than Activity based costing (ABC)
C) Statements A & B are both correct
D) Activity based costing (ABC) makes more accurate overhead charges than absorption costing
Q3) Which of the following statements is correct?
A) Closing inventory should be shown at the higher of cost and net realizable value
B) Manufacturing costs include administration costs
C) In determining the cost of producing something, costs have to be allocated between cost of sales and closing inventory
D) All of the above statements are correct
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18
Chapter 17: Marginal Costing and Decision-Making
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Sample Questions
Q1) WhoMadeWho Ltd.is planning to reduce the selling price of one of its products from £80 to £60.Fixed costs are £1.1m per annum; variable costs £40 per unit; 70,000 units per annum are made and sold.
How many additional units must be sold to make up for the price reduction?
A) 10,000 units
B) 600,000 units
C) 140,000 units
D) 70,000 units
Q2) Which of the statements is correct?
A) In the short term direct labour costs may be more like fixed costs
B) In the long run most fixed costs behave more like variable costs
C) If production is to increase above existing production capacity , then fixed costs will have to increase
D) All of the above statements are correct
Q3) The break-even point can be expressed as:
A) Sales/fixed costs-contribution
B) Fixed costs/(contribution per unit/sales per unit)
C) Fixed cost/sales
D) Fixed costs-contribution/sales
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Page 19
Chapter 18: Standard Costing and Variance Analysis
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Sample Questions
Q1) The sales margin volume variance measures the effect of a change in sales price
A)True
B)False
Q2) An adverse variable overhead cost variance might mean that some item of variable overhead,such as cleaning costs,has cost more than expected
A)True
B)False
Q3) Direct materials price variance can be expressed as:
A) Actual quantity x (actual price - standard price)
B) Actual quantity x (standard price x standard quantity)
C) Standard price x (actual quantity x standard quantity)
D) Standard price x (actual quantity - standard quantity)
Q4) What might you assume if a company had a favourable material price variance and an unfavourable material usage variance?
A) Direct labour rate was higher than standard
B) The actual material cost per unit was less than the standard cost per unit
C) Less material per unit was used than the standard usage per unit
D) All of the above
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Chapter 19: Incomplete Records
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Q1) At the beginning of the financial year,trade receivables are £6,000 and trade payables are £4,000.Cash received from receivables in the year are £40,000 and cash paid to payables are £20,000.Closing receivables are £3,000 and closing payables are £5,000.
What are the purchases of the business in the year?
A) £43,000
B) £37,000
C) £25,000
D) £19,000
Q2) At the end of the year,Terraplane company has inventory in hand at a selling price of £20,600.What was the cost of inventory assuming inventory is sold at a margin of 60%?
A) £12,875
B) £8,000
C) £8,240
D) £12,360
Q3) Assets = Liabilities - Capital
A)True
B)False
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