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Accounting for IGCSE & O level - Advanced Principles (Section 5)

1
What would an increase in expenses do to the profit margin?
Answer
(B)
Decrease it.
2
Which principle would be most relevant when deciding if a business can recognize revenue from a sale?
Answer
(C)
Realization principle
3
What is the primary purpose of the 'business entity' principle?
Answer
(B)
To separate business transactions from the personal transactions of the owners.
4
What does the phrase 'average days to settle inventory' measure?
Answer
(A)
The number of days it takes to sell inventory.
5
What impact does an increase in expenses have on the profit margin?
Answer
(B)
Decreases the profit margin.
6
What is the purpose of the consistency principle in accounting?
Answer
(B)
To allow for comparisons of financial performance over time.
7
In the context of accounting, what does 'integrity' refer to?
Answer
(B)
Being honest and straightforward in professional and business relationships.
8
What is the effect on working capital if a company buys more inventory on credit?
Answer
(C)
Working capital remains the same
9
What does the 'matching principle' directly relate to when determining the profit of a business?
Answer
(B)
The expenses incurred to generate those sales
10
What does the text say regarding the relationship between inventory turnover ratio and profitability?
Answer
(C)
Increasing the inventory turnover will reduce inventory turnover and profit margins.
11
Which of the following strategies would increase a company's profit margin?
Answer
A
B
C
12
Which of the following best describes the concept of materiality in accounting?
Answer
(C)
Considering if the size of an item is significant enough to influence decisions.
13
Which of the following are key reasons for analyzing financial statements?
Answer
A
B
C
14
What is the time period assumption?
Answer
(B)
It means that a business's lifetime should be divided into successive accounting periods.
15
What does a high ROCE generally indicate?
Answer
(C)
More efficient use of capital
16
How does an increase in accounts payable affect a company's current ratio, assuming all other factors remain constant?
Answer
(B)
Decreases the current ratio
17
What does an increase in the trade payables period signal?
Answer
(A)
The business is taking longer to pay its suppliers.
18
Which of the following actions is most likely to improve a company's quick ratio?
Answer
(B)
Collecting accounts receivable.
19
Which ratio helps determine how quickly a company converts its accounts receivable into cash?
Answer
(C)
Accounts receivable turnover ratio.
20
What is the purpose of international accounting standards?
Answer
(C)
To enhance the comparability and reliability of financial statements across countries.
21
What does the gross profit margin measure?
Answer
(C)
The amount of gross profit as a proportion of its revenue from sales
22
Which financial ratio is most useful in assessing a company's short-term liquidity?
Answer
(C)
Current ratio
23
What does the 'matching principle' require?
Answer
(A)
Revenues and expenses are matched in the same period.
24
In the context of financial statement analysis, what is the purpose of calculating ratios?
Answer
(B)
To assess the financial performance and position of a company.
25
Which of the following statements is true regarding working capital?
Answer
A
B
26
What impact would an incorrect valuation of inventory have on financial statements?
Answer
A
B
27
What does a high accounts receivable turnover ratio suggest about a company?
Answer
(C)
The company is efficiently collecting its debts.
28
What is the general impact on working capital of increasing short-term debt?
Answer
(C)
No effect
29
What can a company do to improve its inventory turnover ratio?
Answer
A
C
30
What does the inventory turnover ratio help assess?
Answer
(B)
How efficiently a company sells its inventory.
31
What does the text suggest about the relationship between good credit contact and liquidity?
Answer
(A)
Good credit contact improves a company's liquidity.
32
What is a potential consequence of an accountant violating the principles of professional ethics?
Answer
(C)
They may face disciplinary actions, including losing their license.
33
Under the principle of consistency, which of the following is crucial?
Answer
(B)
The same accounting methods are used from one accounting period to the next.
34
In the context of financial analysis, what does 'benchmarking' involve?
Answer
(A)
Comparing a company's financial ratios against industry averages or competitors.
35
What does a ROCE of 25% mean for a company?
Answer
(B)
The company is generating a profit of $0.25 for every $1 of capital employed.
36
What could cause a business to have a poor current ratio?
Answer
(D)
Insufficient combined value of all its assets in cash to pay current liabilities
37
If a company experiences a decrease in its inventory turnover ratio, what could this suggest?
Answer
(A)
The company is selling inventory more slowly.
38
What is the impact on the current ratio of a company selling goods on credit?
Answer
(C)
Has no direct impact on the current ratio.
39
Which ratio is most useful when determining if a company has enough liquid assets to meet its immediate obligations?
Answer
(B)
Current Ratio
40
What is the primary objective of the consistency principle?
Answer
(B)
To provide information for comparative purposes over time.
41
Which statement best describes the concept of 'prudence' in accounting?
Answer
(C)
Taking a cautious approach when making accounting estimates.
42
What is the primary aim of the accounting principle of 'duality'?
Answer
(A)
To provide a true and fair view of the performance of a business.
43
What does the matching principle aim to accomplish in accounting?
Answer
(A)
Match expenses with revenues in the same accounting period.
44
Which principle is used to ensure that the financial statements from different businesses can be easily compared?
Answer
(B)
Consistency
45
Which of the following is an example of a 'non-financial' aspect to consider when interpreting accounting data?
Answer
(B)
Brand reputation
46
What do the accounting concepts help with?
Answer
(D)
Ensure financial information is reliable and comparable
47
What are the implications if the inventory is undervalued?
Answer
(B)
COGS is understated, gross profit is overstated, and profit for the year is overstated.
48
What is the direct impact of writing off obsolete inventory on a company's working capital?
Answer
(B)
Decreases working capital
49
What is the impact of overstating closing inventory?
Answer
(B)
Understated cost of goods sold, overstated gross profit, and overstated profit for the year
50
What is the formula for calculating the quick ratio (acid-test ratio)?
Answer
(A)
(Current Assets - Inventory) / Current Liabilities