Accounting for IGCSE & O level - Final Statements (Section 14)
1
If gross profit is greater than total expenses in the same year, the business will make which of the following?
Answer
(C)
A profit for the year.
2
What will happen to the business if the sales return is increased?
Answer
(C)
Net profit will decrease.
3
Which of the following best describes 'cost of goods sold'?
Answer
(C)
The direct costs attributable to the production of the goods sold by a company.
4
What is the purpose of the 'Allowance for Doubtful Accounts'?
Answer
(B)
To reduce the reported value of accounts receivable.
5
What is a major advantage of departmental accounts?
Answer
(B)
They provide a detailed overview of the profitability of each department.
6
What are financial statements primarily prepared for?
Answer
(A)
To calculate and record profits and capital gains.
7
Which item is usually valued at the lower of cost or net realisable value (NRV)?
Answer
(B)
Inventory
8
Which of the following statements is true about inventory valuation methods?
Answer
A
B
9
What accounting concept is most closely related to the valuation of assets at 'historic cost'?
Answer
(C)
Objectivity
10
How are the figures of assets, liabilities, and owner's equity in a statement of financial position recorded?
Answer
(C)
The assets are on the left-hand side, and liabilities and owner's equity are on the right-hand side.
11
What does the income statement help a business owner measure?
Answer
(B)
How profitable the business is
12
What happens to the balance sheet at the end of the accounting year?
Answer
(B)
It is updated to reflect the value of assets and capital.
13
What are the primary categories presented in a statement of financial position?
Answer
(B)
Assets, liabilities, and owner's equity
14
What impact would a decrease in sales revenue have on the gross profit, assuming COGS remains constant?
Answer
(B)
Decrease gross profit
15
Carriage outwards are usually classified as:
Answer
(A)
An operating expense
16
What is the difference between 'historic cost' and 'net book value' of an asset?
Answer
(B)
Historic cost is the original cost, and net book value is the cost less accumulated depreciation.
17
What is the formula to calculate Capital Employed?
Answer
(C)
Total Assets - Current Liabilities
18
What does working capital measure?
Answer
(C)
A company's ability to meet short-term obligations.
19
What is one of the key things that a statement of financial position helps assess?
Answer
(B)
The creditworthiness of the business and the liquidity risk.
20
What is point-of-sale inventory recording?
Answer
(C)
A method to record sales
21
Which inventory valuation method will give the highest valuation when prices are rising?
Answer
(B)
FIFO
22
Which of the following statements is true regarding the selection of inventory valuation methods?
Answer
A
B
D
23
If Assets = $500,000 and Liabilities = $200,000, what is the owner's equity?
Answer
(B)
$300,000
24
When should we use the actual purchase price paid for specific items to value our inventory?
Answer
(B)
When goods are easily distinguishable
25
What type of asset is cash held in the business bank account?
Answer
(B)
Current asset
26
Which of the following is a current asset?
Answer
(C)
Inventory
27
What is the main purpose of the statement of financial position?
Answer
(C)
To show a company's financial condition at a specific point.
28
If a company's net loss for the year is $5,000, and the owner's beginning capital was $20,000, what will be the ending capital amount, assuming no other transactions?
Answer
(A)
$15,000
29
What is the first part of the income statement also called?
Answer
(C)
Trading Account
30
What is the main purpose of the 'Cost of Goods Sold' section in the income statement?
Answer
(B)
To show the expenses directly related to producing the revenue.
31
What does the term "capital employed" include?
Answer
A
B
C
D
32
Which of the following statements is true regarding carriage inwards?
Answer
(B)
It increases the cost of purchases.
33
Which of the following is not a component of calculating cost of goods sold?
Answer
(B)
Sales revenue
34
What will happen if the business had $10,000 in sales revenue, a cost of goods sold of $4,000 and operating expenses of $3,000? (Ignoring income tax).
Answer
(B)
The business will make a profit.
35
What is the formula to calculate the cost of inventory?
Answer
(C)
Quantity x Price
36
What transactions would increase working capital?
Answer
A
C
37
What is the first step in preparing the first part of the income statement?
Answer
(D)
Write the sales account with the final profits balance to 'Sales'
38
What is the main purpose of the 'Gross Profit' line item in the income statement?
Answer
(C)
To show the profit before any operating expenses are deducted.
39
In the context of an income statement, what does the term 'cost of sales' refer to?
Answer
(B)
The costs directly related to the goods sold.
40
Which of the following is an example of a non-current asset?
Answer
(C)
Equipment
41
Which of the following is classified as a liability?
Answer
(C)
Accounts Payable
42
How is Net Assets calculated?
Answer
(B)
Assets - Liabilities
43
Which of the following is the correct sequence of steps in preparing an income statement?
Answer
(C)
Follow the trial balance, transfer balances for sales, purchases, etc., calculate gross profit, and calculate profit/loss.
44
Which of the following statements describes the main purpose of a Statement of Financial Position?
Answer
(B)
To present a company's assets, liabilities and equity at a specific point in time.
45
What are examples of costs that might be included when calculating the net realisable value of inventory?
Answer
A
D
46
Which items are generally included in the calculation of current liabilities?
Answer
A
B
C
47
What is the definition of Net Profit?
Answer
(A)
Total revenues - Total expenses
48
In a statement of financial position, what items are typically listed under 'Assets'?
Answer
(C)
Items the business owns and controls
49
What impact does recording a loss for the year have on net assets and the owner's equity?
Answer
(A)
Reduces net assets and owner's equity.
50
What does the term "liquidity" refer to in business?
Answer
(B)
The ability of a business to convert assets into cash quickly.
