Principles of Accounting Question Bank
Course
Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in financial and managerial accounting. The course covers the accounting cycle, preparation and analysis of financial statements, and the principles governing the measurement and reporting of assets, liabilities, equity, revenues, and expenses. Emphasis is placed on generally accepted accounting principles (GAAP) and their application in real-world business scenarios, enabling students to interpret financial information critically and make informed decisions. This foundational knowledge prepares students for more advanced studies in accounting and related business disciplines.
Recommended Textbook
Accounting An Introduction 6th Edition by Peter Atrill
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14 Chapters
933 Verified Questions
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Page 2
Chapter 1: Introduction to Accounting
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Sample Questions
Q1) Which of these groups is a user of financial information?
A) Managers.
B) Lenders.
C) Owners.
D) All of the above.
Answer: D
Q2) Financial accounting reports concentrate on:
A) current events.
B) current and future events.
C) past events.
D) future events.
Answer: C
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Chapter 2: Measuring and Reporting Financial Position
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Sample Questions
Q1) The accounting convention that the objectivity principle provides support for is:
A) historic cost.
B) prudence (conservatism).
C) relevance.
D) accounting period.
Answer: A
Q2) A limitation of the statement of financial position in portraying the financial position of an entity is:
A) items which cannot be measured in money are not included.
B) the historical cost approach means that assets are not shown at their estimated market values.
C) there is no adjustment to values for inflation.
D) All of the above are limitations.
Answer: D
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4
Chapter 3: Measuring and Reporting Financial Performance
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Sample Questions
Q1) The asset that is not depreciated is:
A) motor vehicles.
B) buildings.
C) premises.
D) land.
Answer: D
Q2) Employees have worked for the full year and have received total wages of $306,000 in cash.However,they must wait until the next payday to be paid for the last three days of the year they have worked.The amount owing is $5,500.Wages expense in the statement of financial performance and accrued wages in the statement of financial position are respectively:
A) $311,500 and $5,500.
B) $306,000 and $5,500.
C) $306,000 and $0.
D) $311,500 and $0.
Answer: A
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Page 5
Chapter 4: Introduction to Limited Companies
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Sample Questions
Q1) The level of control in a company that is the highest is:
A) board of directors.
B) chief financial officer.
C) executive officer.
D) chief accountant.
Q2) If a company has a share capital of $100,000,revenue reserves of $15,000 and retained profits of $30,000,what is the maximum amount it can legally distribute as cash dividends?
A) $130,000.
B) $45,000.
C) $145,000.
D) $30,000.
Q3) Under the Corporations Act,a proprietary (Pty Ltd)company is restricted to a maximum of:
A) 100 shareholders.
B) 2 shareholders.
C) 50 shareholders.
D) 10 shareholders.
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6
Chapter 5: Regulatory Framework for Companies
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Sample Questions
Q1) The statement that is true about the order of repayment for a company in liquidation is:
A) creditors rank before ordinary shareholders.
B) ordinary shareholders rank before preference shareholders.
C) wages owing to employees rank last.
D) All of the statements are true.
Q2) Which of the following statements is incorrect?
A) A parent company holds a majority interest in a subsidiary company.
B) A takeover is when a company buys a controlling interest in another company.
C) A non-controlling interest is also known as a minority interest.
D) An associate company is another name for a subsidiary company.
Q3) The collapse of several companies earlier this century led to the establishment of a Royal Commission to investigate the contributing issues.Which of the following was not an identified issue?
A) Mismanagement.
B) Unsound management culture.
C) Ill-conceived decisions.
D) All of the above were identified as contributing issue
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Chapter 6: Measuring and Reporting Cash Flows
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Q1) Company F received $20,000 in cash in repayment of a loan made to L Lee.In the statement of cash flows of Company F,the $20,000 would appear as:
A) an investing outflow.
B) an investing inflow.
C) a financing outflow.
D) a financing inflow.
Q2) Under accrual accounting,the receipt of cash from a trade debtor will:
A) have no impact on profit and increase cash.
B) increase profit and increase cash.
C) decrease profit and decrease cash.
D) none of the above.
Q3) Which transaction would not appear in the body of a statement of cash flows?
A) Acquisition of assets by means of a share issue.
B) Purchase of a building by incurring a mortgage to the seller.
C) Conversion of a liability to equity.
D) All of the above.
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Chapter 7: Corporate Social Responsibility and Sustainability Accounting
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Sample Questions
Q1) Aspects of corporate social responsibility are:
A) impact on employment and job creation.
B) health and safety.
C) pollution.
D) all of the above.
Q2) The most common area of voluntary social responsibility reporting in Australia is:
A) nuclear waste.
B) human resources (health and safety, working conditions, etc.).
C) philanthropy.
D) none of the above.
Q3) Why do organisations find corporate social responsibility (CSR)such a challenge?
A) The public view of CSR continues to change.
B) There is no real definition of CSR.
C) There is no CSR 'checklist' for businesses to tick off.
D) Both A and C.
Q4) Give four reasons why a business might engage in activities that are less profitable to itself but which are beneficial to society.
Q5) Briefly outline the essence of the balance scorecard approach.
Page 9
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Chapter 8: Analysis and Interpretation of Financial Statements
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Sample Questions
Q1) The type of analysis being carried out when a company's gross profit ratio for three years is graphed and compared with the average industry gross profit ratio calculated over the same time period is:
A) parallel analysis.
B) vertical analysis.
C) trend analysis.
D) gearing analysis.
Q2) Which of these is not considered a limitation of financial ratio analysis?
A) Ratios are difficult to calculate.
B) It does not consider qualitative factors.
C) There is no adjustment for the effects of inflation.
D) All of the above.
Q3) Operating profit before interest and taxation,divided by sales × 100/1 is the formula for:
A) return on capital employed.
B) asset turnover period.
C) return on shareholders' funds.
D) operating profit margin.
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Chapter 9: Costvolumeprofit Analysis and Relevant Costing
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Sample Questions
Q1) Management's concern about 'scarce resource' is primarily due to:
A) the desire to make the most efficient use of scarce resources.
B) the desire to maximise total revenue.
C) the desire to minimise total costs.
D) social and environmental reasons.
Q2) Where several products are produced and there is a scarce factor,the rule for deciding on the optimum product mix is:
A) produce only the product with the highest contribution margin.
B) produce only the product with the highest contribution margin per unit of scarce factor.
C) produce as much as can be sold of the product with the highest contribution margin per unit of scarce factor, and use any remaining resource to produce the product with the next highest contribution margin per unit of scarce factor etc.
D) produce equal quantities of all products.
Q3) Refer to the table above.The operating gearing for Unique Tables is:
A) higher with the turning machine.
B) higher without the turning machine.
C) insignificant.
D) equal in both cases.
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Page 11
Chapter 10: Full Costing
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Sample Questions
Q1) The approach to overhead costs under activity-based costing is that:
A) overheads provide service to cost objects.
B) overheads are caused by activities.
C) overheads happen.
D) overheads can be traced to cost objects.
Q2) Full product costs comprise:
A) non-production costs only.
B) production costs only.
C) both production and non-production costs.
D) all costs except warrantee costs.
Q3) All of the statements regarding activity-based costing are correct except:
A) it provides better information for decision-making.
B) it provides more accurate product costs.
C) it is used by the majority of businesses in Australia.
D) it is costlier than alternative systems.
Q4) In a competitive market,a supplier will use which type of pricing approach?
A) Cost plus.
B) Target pricing.
C) Target costing.
D) Market price.
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Chapter 11: Budgeting
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Sample Questions
Q1) Budgets are said to be useful in promoting forward thinking and identification of short-term problems,because:
A) management can foresee future promotion opportunities.
B) management can react to problem areas as they occur.
C) potential problem areas can be identified early enough to allow management to explore ways of overcoming the problem.
D) all of the above.
Q2) If budgeted profit is $11,000,favourable variances are $3,100 and unfavourable variances are $7,450,actual profit (loss)is:
A) $21,550 profit.
B) $15,350 profit.
C) ($450) loss.
D) $6,650 profit.
Q3) A budget system that always provides plans for a full 12 months into the future is known as:
A) advance budget.
B) yearly budget.
C) future budget.
D) rolling budget.
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Page 13
Chapter 12: Capital Investment Decisions
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Sample Questions
Q1) Projects can have multiple internal rates of return due to:
A) all positive cash flows.
B) all negative cash flows.
C) both positive and negative cash flows at different points during its life.
D) none of the above.
Q2) Refer to the table above.The accounting rate of return is:
A) 40%.
B) 80%.
C) 50%.
D) 30%.
Q3) Actol Ltd,a printing business,intends purchasing a new computerised printing machine for $800,000.The annual cash flows from the new machine are expected to be $150,000 per year.The machine has an eight-year useful life.The payback period is:
A) 8 years.
B) 5.33 years.
C) 5 years.
D) 6 years.
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Chapter 13: The Management of Working Capital
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Sample Questions
Q1) Sales forecasts to help determine the amount of inventory to be held can be based on all of the following except:
A) the use of statistical techniques.
B) the judgement of sales staff.
C) the rate of inflation.
D) none of the above, i.e., all can be used to determine sales forecasts.
Q2) A company wishes to reduce the amount of working capital it requires to finance its operations.Which of the following would be the least effective way of reducing working capital requirements?
A) Increase the efforts to collect overdue debtor's accounts.
B) Refuse to sell on credit to any customer.
C) Offer a discount for early payment by debtors.
D) Increase the payment time for accounts payable.
Q3) The motive behind the holding of cash balances to protect the firm from unforeseen cash requirements is known as:
A) the transaction motive.
B) the precautionary motive.
C) the legal motive.
D) the speculative motive.
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Page 15
Chapter 14: Financing the Business
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Sample Questions
Q1) An advantage of financing operations with debt rather then equity is:
A) the legal requirement to repay the principal.
B) the tax deductibility of interest expense on debt.
C) the legal requirement to pay interest
D) all of the above.
Q2) Which of these is a disadvantage of Australian Securities Exchange listing?
A) Requirements for additional financial disclosure.
B) Closer monitoring by financial journalists and analysts.
C) The high cost of listing.
D) All are disadvantages.
Q3) A long-term lease that cannot be cancelled and that transfers virtually all the rewards and risks of ownership to the lessee is called:
A) a direct lease.
B) a leveraged lease.
C) a financial lease.
D) an operating lease.
Q4) Discuss the advantages and disadvantages of a company issuing long-term debt,e.g.,debentures,compared to raising funds through an issue of shares.
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Page 16