Accounting for IGCSE & O level - Advanced Principles (Section 8)
1
Which statement provides a snapshot of a company's assets, liabilities, and equity at a specific point in time?
2
What is the main objective of the matching principle in accounting?
Answer(B)
To match revenues with the expenses incurred to generate them.
3
What accounting principle is most closely associated with the phrase "record losses as soon as they are probable"?
4
Which of the following situations is most directly related to the application of the materiality principle?
Answer(B)
A company does not record a small expense.
5
Which of the following are considered limitations of accounting statements and ratio analysis?
6
In general, which of the following actions is most likely to improve a company's quick ratio?
Answer(C)
Selling inventory for cash.
7
What is the impact on the quick ratio when a company sells its goods on credit?
8
What is the primary relationship between working capital and a company's short-term liquidity?
Answer(B)
A higher working capital generally indicates stronger short-term liquidity.
9
Which of the following would directly impact the profit margin?
10
Which principle dictates the use of the same accounting methods from one accounting period to the next?
11
What type of ratios are used to assess a company's ability to manage its expenses?
12
Which of the following statements is/are true regarding the interpretation of the working capital ratio (current ratio)?
13
What is the formula for Return on Capital Employed (ROCE)?
Answer(A)
Profit for the year / Capital employed * 100
14
What will likely happen to the current ratio if a company uses cash to purchase inventory?
15
What does the liquidity ratio measure?
Answer(B)
The ability of a business to pay its current liabilities
16
How does a business determine its trade payables period?
Answer(A)
Trade payables / Cost of sales * 365 days
17
What does the text suggest about the relationship between a company's creditworthiness and its liquidity?
Answer(B)
They are directly related.
18
Which accounting principle addresses the timing of expense recognition?
19
Which factor would indicate a need for more capital?
20
How is the performance of a business typically compared to industry averages?
Answer(C)
By comparing its ratios to industry averages.
21
How can a business reduce its trade receivables collection period?
Answer(A)
Offering more generous cash discounts for early payments
22
Which action would directly impact a company's working capital?
Answer(A)
Purchasing new equipment with cash.
23
Under the Materiality Principle, what criteria would be used to decide the significance of a small expense?
Answer(B)
Whether the expense will affect the profit or value of the business.
24
What does it mean to have a current ratio greater than 1?
Answer(B)
The business has more current assets than liabilities.
25
What is a possible consequence of not managing inventory efficiently?
Answer(B)
Stockouts and lost sales.
26
What does it mean if a company has a high inventory turnover ratio?
Answer(C)
They are efficiently managing inventory.
27
Why are accounting policies important?
Answer(B)
They provide the basis for preparing financial statements.
28
What can you use to measure the long-term debts of a business?
29
What is the impact on working capital when a company receives cash from the sale of its goods?
Answer(C)
Working capital remains unchanged
30
Which accounting principle would best guide the decision of whether to write down the value of an asset due to market decline?
31
What is the formula for calculating the Working Capital Ratio (or current ratio)?
Answer(A)
Current assets / Current liabilities
32
If a company's profit margin decreases, what is the likely cause?
33
What is the main goal of financial statements?
34
Which accounting principle is most relevant to the phrase 'costs must be matched against related revenue'?
35
If a company wants to improve its working capital ratio, what should they focus on?
Answer(C)
Increasing their current assets relative to current liabilities.
36
What are the likely consequences of selling inventory quickly?
37
Which factor is used when calculating Return on Capital Employed (ROCE)?
38
What actions did Chemtura take to improve its liquidity in the provided example?
39
Which type of accounting would be most useful to a government wanting to assess tax revenue?
40
What is the main goal of the consistency principle?
Answer(B)
To ensure that the same accounting methods are applied to similar items each accounting period.
41
Which of the following are the core principles of ethical conduct for accountants?
42
What is a key benefit of using international accounting standards?
Answer(C)
They improve the comparability of financial statements across different countries.
43
What are the key steps when performing financial analysis?
Answer(A)
Calculate ratios, compare results, and draw conclusions
44
What is the potential financial risk associated with having a low inventory turnover ratio?
Answer(A)
Increased carrying costs, and obsolescence of inventory.
45
What is the main goal of a business that provides goods?
46
What is meant by the term 'trade payables period'?
Answer(A)
The time it takes for a business to pay its suppliers.
47
What impact does an increase in accounts receivable have on the quick ratio?
Answer(C)
Has no impact on the quick ratio.
48
What are the advantages of good credit contact?
49
Which of the following are used to assess a business's ability to pay its short-term liabilities?
50
Which of the following stakeholders would be most interested in a company's liquidity ratios?
