Accounting for IGCSE & O level - Advanced Principles (Section 6)
1
What is the effect of an incorrect valuation of the inventory on the company's profitability?
2
What is the main goal of using international accounting standards?
Answer(C)
To improve the comparability and reliability of financial reporting across different countries.
3
What does a business's accounting policy define?
Answer(A)
The specific methods and procedures used to prepare financial statements.
4
Which of the following is an example of professional misconduct in accounting?
Answer(C)
Submitting returns without cause.
5
Which of the following is a way of assessing a company's performance against rivals?
Answer(C)
Applying financial ratios and using industry averages.
6
Which of the following is an example of unethical behavior by an accountant?
Answer(C)
Failing to maintain confidentiality of client information.
7
What will happen to the working capital of a business when it invests in long-term assets?
8
If a company uses cash to pay its suppliers, what is the impact on its quick ratio?
Answer(C)
Has no impact on the quick ratio.
9
What are some potential disadvantages of delaying payments to suppliers?
10
What is the primary benefit of maintaining a schedule of aged trade receivables?
Answer(B)
To estimate the provision needed for doubtful debts.
11
Which formula is used to compute the ‘quick ratio’?
Answer(A)
(Current Assets – Inventory) / Current Liabilities
12
Which of the following is an example of a financial ratio?
13
Why might a business want to delay payments to its suppliers?
Answer(B)
To free up cash for other uses.
14
Which of the following will have the most significant impact on a company’s profitability?
Answer(D)
Retaining more profit in the business.
15
How would increasing the amount of inventory affect the working capital of a business?
16
Which of the following is a liquidity ratio?
17
What is the formula used to calculate working capital?
Answer(B)
Current Assets - Current Liabilities
18
Which of the following actions would decrease a company's working capital?
Answer(B)
Purchasing new equipment with cash.
19
What does a high inventory turnover ratio often indicate?
Answer(C)
Efficient sales and inventory management.
20
What is meant by 'current liabilities'?
Answer(A)
Obligations due within one year.
21
What does the duality principle essentially mean in accounting?
Answer(B)
Every transaction has two aspects, with a debit and a credit.
22
Which of the following could result from not managing inventory efficiently?
Answer(C)
Increased risk of obsolescence.
23
Which of the following statements best describes the impact of a shorter trade payables period?
Answer(B)
Faster payment to suppliers.
24
What is the impact of an increase in the trade receivables collection period?
Answer(A)
The collection period is longer than expected
25
What is the consequence of an accountant being found guilty of professional misconduct?
Answer(B)
They may face disciplinary action, such as being fired.
26
What is the formula for calculating gross profit?
Answer(A)
Sales Revenue - Cost of Goods Sold
27
A business with a poor working capital position is likely to have which of the following characteristics?
28
What is the primary purpose of tracking and analyzing the inventory turnover ratio?
Answer(B)
To assess how efficiently a company manages its inventory.
29
What does a high current ratio generally indicate?
Answer(A)
A strong ability to meet short-term obligations.
30
What is a potential risk associated with a high inventory turnover ratio?
Answer(B)
Potential stockouts and lost sales.
31
If a company has a quick ratio of 0.8, what does that indicate?
Answer(B)
The company may have difficulty paying its short-term debts.
32
If a company overstates its ending inventory, what is the impact on the income statement for the current period?
Answer(B)
Cost of goods sold is understated, and net income is overstated.
33
What can be a negative impact of a high inventory turnover ratio?
Answer(C)
Increased risk of stockouts.
34
What is a potential disadvantage of a low inventory turnover ratio?
Answer(A)
Increased risk of obsolescence.
35
What is the main goal when performing financial analysis?
Answer(C)
To see trends and help make decisions.
36
What is the fundamental concept underlying the 'monetary measurement principle'?
Answer(C)
All financial transactions and events must be expressed in monetary terms.
37
In double-entry bookkeeping, what must always equal?
38
Which is an example of the use of an accounting ratio?
Answer(B)
To assess the relationship between different accounting data items.
39
What effect does taking a loan have on working capital?
40
How can a company potentially increase its inventory turnover ratio?
41
Which of the following is an example of a non-financial aspect when evaluating a company?
42
What is the primary objective of a for-profit business, as mentioned in the text?
43
Which of the following is NOT an example of how companies can improve trade receivables collection period?
Answer(D)
Offering a shorter credit period.
44
What type of actions should a company take to enhance its liquidity?
45
Which factor can cause working capital and the quick ratio to decline?
Answer(B)
A failure to manage expenses.
46
If a company's trade receivables collection period increases, what is the most likely impact on its cash flow?
47
In the context of the text, what is a primary indicator of a company's ability to meet its short-term obligations?
48
Which of the following actions is most likely to improve a company's current ratio?
Answer(C)
Issuing new shares of stock for cash.
49
Which of the following are considered key users of accounting statements?
50
What is the potential effect on profit if inventory is understated?
Answer(A)
Gross profit is understated, and the profit for the year is overstated.
