Accounting for IGCSE & O level - Final Statements (Section 3)
1
Which item is recorded under the heading 'current assets'?
Answer
(C)
Closing inventory
2
What is the purpose of preparing an income statement?
Answer
(B)
To evaluate the performance of the company over a specific period.
3
What do you subtract from sales to calculate gross profit?
Answer
(C)
Cost of goods sold
4
What typically comes after the trading account in an income statement?
Answer
(B)
Profit and loss account
5
Which of the following is shown in the income statement?
Answer
(C)
Revenue
6
Trade receivables are?
Answer
(A)
Money owed to the business by customers
7
What is the formula for gross profit?
Answer
(A)
Revenue - Cost of Sales
8
What is the formula for owner's equity?
Answer
(A)
Assets - Liabilities
9
What would be the effect on a company's working capital if it uses cash to pay off accounts payable?
Answer
(C)
Working capital remains the same
10
What is the main purpose of the statement of financial position (balance sheet)?
Answer
(B)
To present a snapshot of a company's assets, liabilities, and equity at a specific point in time.
11
How does the choice of inventory valuation method (FIFO, LIFO, AVCO) affect a company's reported profit during periods of changing prices?
Answer
(B)
It can significantly impact reported profit.
12
Which of the following is NOT included in the cost of goods sold?
Answer
(D)
Selling and administrative expenses
13
Which of the following is a current asset?
Answer
(B)
Accounts Receivable
14
What is the basic accounting equation?
Answer
(A)
Assets = Liabilities + Equity
15
What is the formula for calculating 'Net Assets'?
Answer
(A)
Capital Employed - Non-Current Liabilities
16
If a business's liabilities are more than its assets, it will have...
Answer
(A)
Negative equity
17
Which of the following is *not* included in the expense accounts?
Answer
(D)
Cost of Sales
18
What is the main function of the income statement?
Answer
(B)
To summarize a company's revenue, expenses, and profitability over a period.
19
In the context of an income statement, what does 'revenue' represent?
Answer
(C)
The total income generated from sales of goods and services.
20
Which financial statement reports a company's financial performance over a period of time?
Answer
(B)
Income Statement
21
If a department has a high gross profit margin, what does that indicate?
Answer
(B)
The department is selling goods at a high profit relative to their cost.
22
What is the first section of an income statement?
Answer
(C)
Trading account.
23
Which are the common rules for valuing assets?
Answer
(D)
All of the above
24
Which of the following factors affects the net realizable value of inventory?
Answer
A
C
D
25
What is the purpose of an inventory valuation statement?
Answer
(C)
To determine the value of the ending inventory and COGS.
26
Which of the following are considered current assets?
Answer
A
B
C
27
What factors can increase capital employed in a business?
Answer
B
D
28
Suburban Services Ltd. have just started up in business supplying cordless vacuum cleaners. During the first three months trading they have been buying from various suppliers at different prices to establish where they can get the best deals.
Answer
(A)
True
29
If a business has more assets than liabilities, what does that indicate?
Answer
(C)
The business has positive owner's equity.
30
What is the formula for calculating working capital?
Answer
(C)
Current Assets - Current Liabilities
31
When calculating the gross profit, what is the calculation?
Answer
(A)
Sales - Cost of Sales
32
Where does the owner's equity reside?
Answer
(A)
Balance sheet
33
Goodwill is a premium paid by the buyer over the book value of its ______
Answer
(D)
net assets
34
Which of the following is NOT a current asset?
Answer
(D)
Equipment
35
What is the significance of the "first-in, first-out" (FIFO) method?
Answer
(C)
It matches the cost of the first units purchased with those sold first.
36
What is the impact on the owner's equity when a business makes a profit?
Answer
(A)
Increases owner's equity
37
Which of the following would likely be considered the best inventory valuation method for a business selling perishable goods?
Answer
(A)
FIFO
38
Describe the three methods of valuing inventory
Answer
(A)
FIFO, LIFO, AVCO
39
What is the effect on the accounting equation if a business owner invests cash into the business?
Answer
(B)
Assets increase, owner's equity increases
40
What do banks and tax authorities use the statement of financial position for?
Answer
(B)
To assess creditworthiness and liquidity risk.
41
Which of the following is NOT an example of a current asset?
Answer
(D)
Land
42
What does the term "cost of goods sold" represent?
Answer
(A)
The total cost of all goods sold during a period.
43
What does the cost of sales represent?
Answer
(B)
The cost of the goods sold during a specific period.
44
How can net profit for the year be increased?
Answer
(C)
By reducing the total expenses.
45
If revenue from sales exceeds the cost of the items sold, what is the outcome?
Answer
(B)
A gross profit.
46
Temlah Adwole operates a small music store. Over a number of years he has accumulated an inventory of CDs. These have cost an average of $6.00 to purchase. Due to the increasing popularity of digital downloading of music, it has become more difficult to sell these CDs and a decision has been taken to have an immediate “clear out” sale at a price of $4.00 for every disc following the accounting year end. An additional $0.50 will be spent on repackaging. At what price should these CDs be valued at the year end?
Answer
(C)
$3.50
47
How do you calculate Gross Profit?
Answer
(A)
Sales - Cost of Goods Sold
48
What is the effect on the income statement of a net loss?
Answer
(B)
Decreases net assets and owner's equity.
49
What are the two main categories of assets?
Answer
(A)
Current and Non-Current
50
In a merchandising business, what does "Cost of Goods Sold" include?
Answer
(C)
The cost of the inventory that was sold during the period.
