Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 12)
1
Which of the following describes the purpose of the Statement of Financial Position?
Answer
(C)
To show the assets, liabilities and net worth of a club.
2
What is the basic accounting equation?
Answer
(B)
Assets = Liabilities + Equity
3
When a business purchases supplies on account, what is the correct journal entry?
Answer
(B)
Debit Supplies, Credit Accounts Payable
4
What is the purpose of the "drawings" account in a partnership?
Answer
(C)
To record the partner's withdrawals of cash or assets.
5
What type of account is a partner's current account used for?
Answer
(C)
To record all transactions between a partner and the business during the year.
6
In a partnership agreement, which of the following details is essential to include?
Answer
(B)
The profit and loss sharing ratio.
7
What is the primary purpose of financial statements?
Answer
(A)
To provide information to investors and creditors.
8
In the context of accounting, what does 'accrued expenses' mean?
Answer
(B)
Expenses incurred but not yet paid.
9
The main responsibilities for a partnership usually includes:
Answer
A
C
D
10
What are some of the key considerations that partners make before forming a partnership?
Answer
A
B
C
11
What is the purpose of a 'subscription account'?
Answer
(C)
To track membership income.
12
What is one of the main issues that partners will face?
Answer
(C)
Disagreements
13
What are the basic steps to calculate the profit or loss of a business using the statement of affairs?
Answer
B
C
14
When does the matching principle require an expense to be recognized?
Answer
(B)
When the related revenue is earned.
15
What is the journal entry for unearned revenue being earned?
Answer
(B)
Debit Unearned Revenue, Credit Service Revenue
16
Which of the following is an example of a current liability?
Answer
A
C
17
If the gross profit is $80,000 and the sales revenue is $240,000, what is the gross profit margin?
Answer
(B)
33.33%
18
A club has received subscriptions of $12,000 during the year. At the beginning of the year, subscriptions in arrears were $1,000. At the end of the year, subscriptions in arrears were $1,500. What is the subscription income in the income and expenditure account?
Answer
(C)
$12,500
19
In the context of manufacturing, what is 'work in progress' (WIP)?
Answer
(C)
Goods partially completed but not yet finished
20
Which of the following are advantages of having more partners?
Answer
A
B
C
D
21
Which statement shows the financial performance over a period?
Answer
(C)
Income and Expenditure account
22
What type of account is 'Unearned Revenue'?
Answer
(B)
A liability
23
Which of the following is true about 'unearned revenue'?
Answer
(B)
It is a liability.
24
What is the impact on the financial statements if a business provides services on credit?
Answer
A
B
25
What is the primary purpose of the statement of cash flows?
Answer
(C)
To track the movement of cash in and out of a company.
26
What happens to the company's profit when goods are withdrawn by the owner for personal use?
Answer
(C)
The profit decreases.
27
The primary goal in any type of business is to:
Answer
(D)
Earn profit
28
In a club's Income and Expenditure Account, what does a 'deficit' represent?
Answer
(B)
Expenses exceeding income
29
Which of the following is NOT a characteristic of a manufacturing business?
Answer
(D)
Focuses solely on selling already manufactured goods.
30
What is the primary purpose of the balance sheet?
Answer
(B)
To present a company's assets, liabilities, and equity at a specific point in time.
31
What is the key difference between a trading and a service business in terms of their income statements?
Answer
(B)
Trading businesses report a cost of goods sold, while service businesses do not.
32
What items are typically found on the income statement?
Answer
A
B
33
How does a partner's share of a partnership's expenses affect their capital account?
Answer
(B)
It decreases their capital account.
34
What is the purpose of preparing financial statements?
Answer
A
B
C
35
Which costs are used in the calculation of prime cost?
Answer
(A)
Direct materials and direct labor
36
What is the role of the manufacturing account in the financial statements?
Answer
(B)
To determine the cost of production
37
What is the purpose of the income statement?
Answer
(B)
To report the financial performance of a business over a period.
38
What does 'owner's equity' represent?
Answer
(B)
The owner's investment in the business plus accumulated profits less drawings.
39
What does the text say is the role of the 'Memorandum and Articles of Association' of a Limited Company?
Answer
(A)
To outline the rules and regulations governing the company.
40
What does 'accrued expenses' mean?
Answer
(B)
Expenses that have been incurred but not yet paid.
41
A company provides services for $5,000 on credit. Which journal entry would properly record this transaction?
Answer
(B)
Debit Accounts Receivable, Credit Service Revenue for $5,000
42
In a partnership, which account is used to record the partners' share of the profit or loss?
Answer
(C)
Current Account
43
What financial statement summarizes the cash inflows and outflows during an accounting period?
Answer
(D)
Statement of Cash Flows
44
In the context of accounting, what does 'accrued revenue' mean?
Answer
(B)
Revenue earned but not yet received in cash.
45
Which of the following statements about the matching principle is correct?
Answer
(C)
It requires that expenses be recognized in the same period as the revenues they help generate.
46
Which of the following statements is TRUE regarding manufacturing accounts?
Answer
(B)
They calculate the cost of finished goods
47
What is the effect of a prepaid expense on the accounting equation?
Answer
(B)
Increases assets and decreases liabilities.
48
What does a receipts and payments account start with?
Answer
(B)
The opening bank balance.
49
What is the difference between authorized and issued share capital?
Answer
(B)
Authorized share capital is the maximum amount of shares the company can issue, issued is the amount that has been sold.
50
When a company receives cash in advance for services to be performed later, what account is credited?
