Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 1)
1
Which of the following is the accounting equation?
Answer
(B)
Assets = Liabilities + Equity
2
If goods are taken out of a business for the owner's own use, what accounting adjustment is required?
Answer
(A)
Increase Drawings; Decrease Purchases
3
Which of the following is a liability?
Answer
(D)
Accounts Payable
4
When a partner contributes assets to the partnership, the partnership will:
Answer
(A)
Debit the asset account and credit the partner's capital account.
5
What is one reason why a partnership is relatively easy to form?
Answer
(C)
It involves minimal formalities.
6
Which of these accounts is NOT typically included on the income statement?
Answer
(C)
Retained Earnings
7
What are the direct material components used in the manufacturing business?
Answer
(A)
Physical raw materials, tools, and supplies
8
What is the main objective of an income statement?
Answer
(B)
To summarize the revenues and expenses of a business.
9
What account decreases when a company writes off an irrecoverable debt?
Answer
(C)
Trade Receivables
10
If a company has an inventory turnover rate of 4, what does that mean?
Answer
(A)
The company sells and replaces its inventory 4 times per year.
11
What is the main function of an appropriation account?
Answer
(B)
To distribute profits among partners
12
Which statement summarizes the profitability of a company over a specific period?
Answer
(B)
Income Statement
13
Which financial statement will be affected by adjusting for accrued expenses?
Answer
A
B
14
What does a partnership lack regarding capital?
Answer
(A)
Building additional capital to finance further business expansion can be difficult
15
What is the relationship between assets, liabilities, and owner's equity?
Answer
(B)
Assets = Liabilities + Owner's Equity
16
What can a limited company issue?
Answer
(C)
Both ordinary and preference shares
17
Income and expenditure accounts show whether the society is:
Answer
(A)
Making a profit or loss
18
In the income statement, which would you use to calculate the gross profit?
Answer
A
B
19
Which of the following is a characteristic of a public company?
Answer
(C)
Subject to greater regulatory scrutiny.
20
What items are not recorded in the Income and Expenditure account?
Answer
(D)
Purchase of capital assets
21
What would be the result if a company understated its closing inventory?
Answer
(B)
Cost of goods sold is overstated and net profit is understated
22
In the statement of financial position, the accumulated fund is:
Answer
A
C
23
What is the effect of drawing from the partners?
Answer
(C)
Decrease in capital
24
Which of the following is NOT a section typically found in an income statement?
Answer
(D)
Assets
25
Called-up share capital is the:
Answer
(A)
total amount of the issued share capital for which payment has been demanded.
26
Ordinary shares are:
Answer
(D)
They may be issued for a price above the nominal value – the extra amount paid is called “share premium”
27
Which of the following are types of business organizations?
Answer
A
B
C
28
Which of the following is a current liability?
Answer
(C)
Trade Payables
29
A certain amount of share is designated or "called up"
Answer
(C)
Called up share capital
30
Equity is maintained by the
Answer
(C)
board share capital and markets of the company
31
What type of financial statement is used to show the calculation of profit or loss for the year?
Answer
(B)
Income Statement
32
In a partnership, interest is allowed on capital at:
Answer
(B)
6% per annum
33
What is the purpose of the statement of financial position?
Answer
(C)
To show the assets, liabilities, and equity of the company at a specific point in time.
34
What is the effect of prepaid expenses?
Answer
(C)
Increase assets
35
What is the formula for calculating the gross profit?
Answer
(B)
Revenue - Cost of Goods Sold
36
Additional directors' salaries relating to forfeits are to be processed:
Answer
(A)
as an expense
37
What are the effects of writing off a bad debt?
Answer
B
D
38
What is the purpose of preparing a statement of financial position?
Answer
(B)
To show the organization's assets, liabilities, and accumulated fund at a specific point in time.
39
Which of the following is NOT a common type of asset?
Answer
(D)
Accounts Payable
40
What types of costs are included in factory overhead?
Answer
(C)
Indirect labor and indirect expenses
41
What is the impact on profits if expenses increase while revenue remains constant?
Answer
(B)
Profits decrease.
42
What is the impact on the financial statements when writing off irrecoverable debts?
Answer
(B)
Decrease trade receivables
43
Directors have a wide range of legal duties and responsibilities. The following are among the most important ones from a financial point of view. Directors must:
Answer
B
D
44
For what type of items are adjustments in the Income Statement required?
Answer
A
B
C
45
What is the formula for gross profit?
Answer
(B)
Gross Profit = Sales Revenue - Cost of Sales
46
In a typical company, the directors will make a recommendation as to how much profit should be distributed as a:
Answer
(C)
Dividend
47
Explain the purpose of a subscription account.
Answer
(A)
a)
48
When is a provision for doubtful debts calculated?
Answer
(A)
At the end of the year
49
What is the purpose of calculating gross profit?
Answer
(B)
To assess a company's ability to control costs of goods sold.
50
What is the primary purpose of a cash flow statement?
Answer
(C)
To track the movement of cash in and out of a company.
