Accounting for IGCSE & O level - Advanced Principles (Section 2)
1
What principle states that every transaction has two aspects and both aspects should be recorded in the double-entry accounts of the business?
Answer
(C)
Duality Principle
2
Which statement is correct regarding the information for a business?
Answer
(B)
Financial information from the accounts of the business will tell you about financial strength.
3
What is the main goal of the international standards for accounting?
Answer
(C)
To improve the comparability, reliability and understandability of financial statements.
4
The return on capital employed (ROCE) expresses the profit for the year of a business as:
Answer
(C)
a percentage of the capital employed.
5
Which of the following is a key attribute that is said to be improved by consistency?
Answer
(B)
Comparability of financial statements
6
What does 'inventory turnover' measure?
Answer
(B)
How quickly the business sells its inventory.
7
Which of the following is/are the main responsibilities of accountants?
Answer
B
C
D
8
Which of the following is an application of the business entity principle?
Answer
(B)
The business owner’s personal financial affairs and business finances should be recorded separately.
9
What are some consequences of a professional accountant's misconduct?
Answer
(D)
All the above
10
Which of the following actions will not cause the company's quick ratio to improve?
Answer
(C)
Making more sales.
11
What are the main ratios used to analyze a business?
Answer
(A)
Profitability ratios and liquidity ratios.
12
In which situation should you use the matching principle?
Answer
(B)
When you make sales to customers
13
Is a reduction in the trade receivables collection period good or bad for business?
Answer
(A)
Good: The collection period was previously too long and it improved credit control helps to reduce late payments and irrecoverable debts.
14
What does the matching principle refer to?
Answer
(B)
Matching the expenses incurred in an accounting period to the revenues earned in the same period.
15
Which of the following actions will INCREASE the ROCE?
Answer
A
C
D
16
What ethical principles do professional accountants need to adhere to?
Answer
A
B
C
D
17
The quick ratio (acid test or liquid ratio) measures the ability of a business to pay its immediate and short-term debts without having to sell off inventory. The quick ratio formula is:
Answer
(C)
current assets – inventory / current liabilities
18
Which of the following is true regarding the going concern concept?
Answer
(A)
It assumes the business will continue to operate for the foreseeable future.
19
The profit for the year to revenue ratio indicates:
Answer
(B)
The ability of the business to control its expenses.
20
If a company overstates its ending inventory, how is its profit for the year impacted?
Answer
(B)
Profit is overstated.
21
What concept supports the idea of consistent accounting treatment over time?
Answer
(B)
Consistency
22
The term ‘accounting convention’ is best described as...
Answer
(D)
A custom or generally accepted practice
23
In relation to inventory, which of the following is FALSE?
Answer
(C)
Inventory turnover measures the average value of inventory held.
24
What is a key characteristic of international accounting standards?
Answer
(C)
They aim to improve the comparability of financial information.
25
According to the business entity principle, who should be responsible for the debts of a business?
Answer
(B)
The business itself
26
According to the monetary measurement principle, what should be expressed in monetary terms?
Answer
(A)
All transactions
27
Which of the following action helps a company improve its liquidity?
Answer
(C)
Holding more cash
28
Which of the following is a potential challenge in financial reporting addressed by the use of international accounting standards?
Answer
(B)
Differences in accounting practices between countries.
29
What is the formula used to calculate the 'average days to settle inventory'?
Answer
(B)
365 / Inventory Turnover Ratio
30
Which accounting principle emphasizes the importance of providing comparable financial statements?
Answer
(A)
Consistency
31
Which action is most likely to decrease working capital?
Answer
(C)
Using cash to purchase new equipment.
32
When is revenue recognized according to the realization principle?
Answer
(B)
When goods or services are provided to the customer.
33
Which of the following is a factor that can cause the working capital and quick ratio to improve?
Answer
(B)
Selling more stock capital
34
What does it mean to have an accounts receivable turnover ratio of 12?
Answer
(B)
The company collects its accounts receivable twelve times per year.
35
Which of the following is a characteristic of the realization principle?
Answer
(C)
Revenue is recognized when it is earned, usually upon delivery of goods or services.
36
What is a key disadvantage of maintaining high inventory levels?
Answer
(B)
It requires more working capital.
37
Which of the following are examples of actions taken to improve liquidity?
Answer
A
B
C
38
What do accounting principles provide?
Answer
(B)
A framework of rules for preparing financial statements.
39
What is a potential downside of holding excessive cash?
Answer
(C)
It may not be used efficiently, which decreases profitability.
40
What is the purpose of analyzing financial statements?
Answer
A
B
C
41
What are the benefits of having a high inventory turnover ratio?
Answer
A
B
D
42
Which of the following actions would likely increase a company's ROCE?
Answer
A
B
43
What is the role of accounting concepts and conventions in financial reporting?
Answer
(B)
To ensure the comparability and reliability of financial information.
44
What is the primary goal when managing working capital?
Answer
(C)
To ensure the company can meet its short-term obligations.
45
What does a low inventory turnover ratio typically indicate?
Answer
(C)
Slow-moving inventory.
46
Which accounting principle emphasizes being cautious when recognizing revenue and expenses?
Answer
(B)
Prudence
47
Which of the following accurately describes the purpose of the consistency principle?
Answer
(D)
To ensure that the same accounting methods are applied to similar items each year.
48
Which of the following best describes the 'collection period' for trade receivables?
Answer
(C)
The average time it takes for a business to collect cash from its customers after a sale.
49
The principle of prudence is closely related to which idea?
Answer
(C)
Recognizing potential losses, but not potential gains.
50
What is the effect of undervaluing closing inventory?
Answer
(B)
Overstated COGS, understated gross profit, and understated profit for the year
