Accounting for IGCSE & O level - Advanced Principles (Section 4)
1
What does a longer trade receivables collection period suggest about a business?
Answer
(C)
It has a problem with credit control.
2
What is the formula to calculate the average inventory used in the inventory turnover ratio?
Answer
(B)
(Beginning Inventory + Ending Inventory) / 2
3
Which of the following is a key step in financial analysis?
Answer
(B)
Comparing results to industry benchmarks.
4
What is the main objective of the matching principle?
Answer
(B)
To match expenses with related revenues in the same accounting period.
5
What does a low current ratio potentially indicate?
Answer
(C)
The company may have difficulty meeting its short-term obligations.
6
Which of the following is NOT a profitability ratio mentioned in the text?
Answer
(D)
Current Ratio
7
What is 'benchmarking' in financial analysis?
Answer
(B)
Comparing a company's financial results with industry averages or competitors.
8
Which of the following are factors that could potentially increase a company's inventory turnover ratio?
Answer
A
B
9
Which of the following is NOT a key user of accounting statements?
Answer
(C)
Competitors
10
What is one potential advantage of having a high inventory turnover ratio?
Answer
(A)
Reduced storage costs.
11
What is the concept of 'double-entry bookkeeping' most closely related to?
Answer
(B)
Duality principle
12
What will be the impact of writing off some obsolete inventory in the inventory turnover ratio?
Answer
(C)
Increase the inventory turnover ratio.
13
How does a company's choice of inventory valuation method affect the inventory turnover ratio?
Answer
(B)
It can impact the cost of goods sold, and therefore the ratio.
14
Which action improves working capital?
Answer
(B)
Increasing current assets
15
What is a disadvantage of having too much inventory?
Answer
(A)
Increased storage costs.
16
What does a high inventory turnover ratio indicate?
Answer
(C)
Efficient inventory management
17
How would paying accounts payable with cash impact the quick ratio?
Answer
(C)
Have no impact on the quick ratio.
18
What is the primary purpose of the quick ratio (acid test ratio)?
Answer
(A)
To assess a company's ability to pay off its short-term obligations with its most liquid assets
19
What is the effect on working capital if a company increases their cash holdings?
Answer
(C)
Working capital stays the same
20
Which of the following is NOT a key area of professional ethics for accountants as mentioned in the text?
Answer
(C)
Materiality
21
What impact does increasing a company’s sales revenue generally have on the inventory turnover ratio, assuming the level of inventory remains constant?
Answer
(B)
Increases the ratio
22
What is the general impact of reducing short-term liabilities on the quick ratio?
Answer
(A)
Improves the quick ratio
23
Which financial ratio would best help determine if a business is managing its trade payables efficiently?
Answer
(C)
Trade Payables Turnover Ratio
24
What does the text identify as the best action for improving the amount of working capital for a business?
Answer
(B)
Selling more shares of stock
25
Which of the following is a key aspect of the prudence principle?
Answer
(D)
Recognizing losses and expenses when they are probable.
26
Which principle of accounting focuses on the significance of items when preparing financial statements?
Answer
(D)
Materiality principle
27
What does the principle of Materiality suggest about the inclusion of small value expense items?
Answer
(B)
Small value expenses can be ignored.
28
What does the principle of professional competence and due care require of accountants?
Answer
(B)
To keep their knowledge and skills up to date.
29
How would a company's current ratio be affected if it uses cash to pay its suppliers?
Answer
(C)
The current ratio would stay the same.
30
Which of the following activities would be most likely to increase a company's current assets?
Answer
B
D
31
What is the likely result if accounting methods are changed to improve the financial results?
Answer
(C)
It should only be done if the new methods give more appropriate financial results.
32
Which of the following is a limitation of ratio analysis?
Answer
B
C
33
What is a key use of the income statement?
Answer
(C)
To evaluate a company’s profitability over a period of time.
34
The 'duality principle' is fundamental to which of the following accounting methodologies?
Answer
(C)
Double-entry bookkeeping
35
Which of the following is a benefit of increasing the trade payables period?
Answer
(A)
Reduced cash outflow
36
Which of the following is NOT a key feature of the going concern principle?
Answer
(D)
Assets are valued at their liquidation value.
37
A company’s ability to quickly convert assets into cash is called?
Answer
(C)
Liquidity.
38
What is the purpose of the realization principle?
Answer
(B)
To record revenue when it is earned and when goods or services have been provided.
39
What can stakeholders do with the financial data?
Answer
A
B
C
D
40
How can a company's average days to settle inventory be used?
Answer
(B)
To measure how efficiently a company is managing its inventory.
41
What is an advantage of having good credit contact?
Answer
A
B
42
Which of the following is an example of an action that can decrease working capital?
Answer
(C)
Purchasing more inventory on credit.
43
What does 'accounts receivable turnover' measure?
Answer
(A)
The average period for collecting payment from customers.
44
How does the text define 'working capital'?
Answer
(A)
Current assets minus current liabilities
45
What happens to the quick ratio when a company pays off its accounts payable with cash?
Answer
(C)
Stays the same
46
What is the impact on working capital if a company pays off short-term liabilities with cash?
Answer
(C)
Working capital remains the same
47
What does the historic cost principle require?
Answer
(B)
Assets and expenses should be recorded at their original purchase price.
48
What does a company’s average days to settle inventory indicate?
Answer
(A)
The number of days it takes to sell inventory.
49
How can a business increase its gross profit margin?
Answer
A
B
50
What information can be obtained from an aged trade receivables schedule?
