Accounting for IGCSE & O level - Advanced Principles (Section 1)
1
Which of following mentions the importance of the independence of an accountant?
Answer
(C)
Accountants should not show favour or be influenced by the opinion of others.
2
The statement about the factors that will increase the rate of inventory turnover are correct, except:
Answer
(C)
holding excess inventory
3
Which of the following is a fundamental accounting assumption?
Answer
(D)
The going concern assumption.
4
What is the main objective of the business entity principle?
Answer
(A)
To keep the financial records of a business separate from the owner's personal financial affairs.
5
Which of the following will improve a company's liquidity?
Answer
A
B
C
6
What is the purpose of the duality principle?
Answer
(B)
To guarantee that every transaction is recorded in at least two accounts.
7
Which of the following is not an impact of good credit contact?
Answer
(C)
Increasing inventory.
8
What is the main focus of the consistency principle?
Answer
(C)
To use the same accounting methods from one period to the next.
9
What is the effect of an overstatement of closing inventory on the cost of goods sold and profit for the period?
Answer
(C)
Cost of goods sold understated, profit overstated.
10
What does a low quick ratio indicate?
Answer
(B)
Inability to pay short term debts.
11
Which of the following is true about working capital?
Answer
(D)
Efficient management of inventory boosts a business’s working capital position.
12
Which of the following is an application of the accounting period principle?
Answer
(C)
Dividing the lifetime of a business into successive accounting periods.
13
Why is it important to use accounting concepts and conventions?
Answer
(A)
To make financial statements and information to be meaningful and comparable.
14
Which of the following actions will INCREASE the gross profit margin?
Answer
A
C
15
What is the main focus of the prudence principle?
Answer
(C)
To exercise caution in accounting and avoid overstating assets or income.
16
Which of the following will not be in the financial statements?
Answer
(D)
Information on non-financial performance
17
What is the primary purpose of the going concern principle in accounting?
Answer
(C)
To assume that a business will continue to operate for the foreseeable future.
18
What can the financial information from the accounts of a business tell you?
Answer
(A)
Financial strength, position, and performance.
19
Which of the following best describes the relationship between inventory levels and inventory turnover?
Answer
(B)
Higher inventory levels result in lower inventory turnover.
20
Which of the following is an application of the historic cost principle?
Answer
(A)
Recording assets and expenses at their actual price paid.
21
Inventory turnover ratio measures the rate at which inventory is sold and replaced over a given period. Which factor is least relevant to increasing a company's inventory turnover ratio?
Answer
(D)
Offer extended credit terms to customers.
22
What does the historical cost principle state?
Answer
(B)
Assets and expenses should be recorded at their original cost.
23
The rule of inventory turnover is a useful indicator of how successfully a business is at selling its products and replacing its inventory. It measures how frequently inventory is sold off and replaced during an accounting year. It is calculated as follows:
Answer
(A)
cost of sales / average inventory
24
Which action would most likely decrease a company's current ratio?
Answer
(B)
Purchasing inventory on credit.
25
The gross profit margin is calculated as:
Answer
(A)
Gross profit / revenue * 100%
26
How can inventory turnover be increased?
Answer
B
C
27
Which of the following is an example of a liquidity ratio?
Answer
(B)
Current ratio
28
What is the relationship between accounting standards and different methods for similar items?
Answer
(A)
Accounting standards allow for different methods for similar items.
29
What is the formula for working capital?
Answer
(A)
Current Assets - Current Liabilities
30
What actions can Chemtura take to improve its liquidity?
Answer
B
C
D
31
What information is used to compute a business's current ratio?
Answer
(B)
Current assets and current liabilities.
32
Which of the following represents a core tenet of the matching principle?
Answer
(A)
Costs must be matched against related income.
33
Which stakeholders are interested in the financial health of a business?
Answer
A
B
34
Is an increase in the trade receivables collection period good or bad for business?
Answer
(B)
Bad: The collection period has now become too long, due to poor credit control, resulting in fewer increases in trade debts.
35
Is a reduction in the trade payables payment period good or bad for business?
Answer
(B)
Bad: The business was previously taking longer to pay suppliers. The business may achieve cash discount for paying promptly. This will increase its profits.
36
What is the purpose of having consistent accounting methods from one period to another?
Answer
(A)
To make financial statements easier to understand and compare
37
Which of the following will reduce working capital?
Answer
(C)
Purchasing inventory.
38
Which of the following is NOT a financial ratio?
Answer
(D)
Capital employed
39
Which of the following is an example of the realization principle?
Answer
(B)
Recognizing income as goods and services are supplied
40
Which of the following is not a method a business can improve its liquidity?
Answer
(B)
Increasing short-term debt.
41
Is an increase in the trade payables payment period good or bad for business?
Answer
(A)
Good: The business can previously taking longer to pay supplies. The business may achieve cash discount for paying promptly. This will increase its profits.
42
What is the main goal of a business?
Answer
(B)
Making a Profit
43
If the closing inventory is overstated, the cost of goods sold is ______ and the gross profit is ______.
Answer
(B)
understated, overstated
44
Which of the following is a limitation of accounting statements and ratio analysis?
Answer
(D)
All of the above
45
Factors that will cause the working capital and quick ratios to improve are:
Answer
A
B
C
46
What does the phrase 'liquid assets' mean in accounting?
Answer
(B)
Assets converted to cash quickly.
47
Which of the following actions improves a company’s liquidity position?
Answer
A
B
C
48
Why is it important to use international standards for accounting?
Answer
(A)
To make it easier to understand financial statements
49
Which of the following are accounting concepts?
Answer
A
B
C
D
50
What are the key characteristics of an accountant?
