Accounting for IGCSE & O level - Advanced Principles (Section 4)
1
What does a longer trade receivables collection period suggest about a business?
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(C)
It has a problem with credit control.
2
What is the formula to calculate the average inventory used in the inventory turnover ratio?
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(B)
(Beginning Inventory + Ending Inventory) / 2
3
Which of the following is a key step in financial analysis?
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(B)
Comparing results to industry benchmarks.
4
What is the main objective of the matching principle?
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(B)
To match expenses with related revenues in the same accounting period.
5
What does a low current ratio potentially indicate?
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(C)
The company may have difficulty meeting its short-term obligations.
6
Which of the following is NOT a profitability ratio mentioned in the text?
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(D)
Current Ratio
7
What is 'benchmarking' in financial analysis?
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(B)
Comparing a company's financial results with industry averages or competitors.
8
Which of the following are factors that could potentially increase a company's inventory turnover ratio?
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A
B
9
Which of the following is NOT a key user of accounting statements?
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(C)
Competitors
10
What is one potential advantage of having a high inventory turnover ratio?
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(A)
Reduced storage costs.
11
What is the concept of 'double-entry bookkeeping' most closely related to?
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(B)
Duality principle
12
What will be the impact of writing off some obsolete inventory in the inventory turnover ratio?
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(C)
Increase the inventory turnover ratio.
13
How does a company's choice of inventory valuation method affect the inventory turnover ratio?
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(B)
It can impact the cost of goods sold, and therefore the ratio.
14
Which action improves working capital?
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(B)
Increasing current assets
15
What is a disadvantage of having too much inventory?
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(A)
Increased storage costs.
16
What does a high inventory turnover ratio indicate?
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(C)
Efficient inventory management
17
How would paying accounts payable with cash impact the quick ratio?
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(C)
Have no impact on the quick ratio.
18
What is the primary purpose of the quick ratio (acid test ratio)?
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(A)
To assess a company's ability to pay off its short-term obligations with its most liquid assets
19
What is the effect on working capital if a company increases their cash holdings?
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(C)
Working capital stays the same
20
Which of the following is NOT a key area of professional ethics for accountants as mentioned in the text?
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(C)
Materiality
21
What impact does increasing a company’s sales revenue generally have on the inventory turnover ratio, assuming the level of inventory remains constant?
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(B)
Increases the ratio
22
What is the general impact of reducing short-term liabilities on the quick ratio?
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(A)
Improves the quick ratio
23
Which financial ratio would best help determine if a business is managing its trade payables efficiently?
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(C)
Trade Payables Turnover Ratio
24
What does the text identify as the best action for improving the amount of working capital for a business?
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(B)
Selling more shares of stock
25
Which of the following is a key aspect of the prudence principle?
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(D)
Recognizing losses and expenses when they are probable.
26
Which principle of accounting focuses on the significance of items when preparing financial statements?
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(D)
Materiality principle
27
What does the principle of Materiality suggest about the inclusion of small value expense items?
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(B)
Small value expenses can be ignored.
28
What does the principle of professional competence and due care require of accountants?
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(B)
To keep their knowledge and skills up to date.
29
How would a company's current ratio be affected if it uses cash to pay its suppliers?
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(C)
The current ratio would stay the same.
30
Which of the following activities would be most likely to increase a company's current assets?
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B
D
31
What is the likely result if accounting methods are changed to improve the financial results?
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(C)
It should only be done if the new methods give more appropriate financial results.
32
Which of the following is a limitation of ratio analysis?
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B
C
33
What is a key use of the income statement?
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(C)
To evaluate a company’s profitability over a period of time.
34
The 'duality principle' is fundamental to which of the following accounting methodologies?
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(C)
Double-entry bookkeeping
35
Which of the following is a benefit of increasing the trade payables period?
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(A)
Reduced cash outflow
36
Which of the following is NOT a key feature of the going concern principle?
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(D)
Assets are valued at their liquidation value.
37
A company’s ability to quickly convert assets into cash is called?
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(C)
Liquidity.
38
What is the purpose of the realization principle?
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(B)
To record revenue when it is earned and when goods or services have been provided.
39
What can stakeholders do with the financial data?
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A
B
C
D
40
How can a company's average days to settle inventory be used?
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(B)
To measure how efficiently a company is managing its inventory.
41
What is an advantage of having good credit contact?
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A
B
42
Which of the following is an example of an action that can decrease working capital?
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(C)
Purchasing more inventory on credit.
43
What does 'accounts receivable turnover' measure?
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(A)
The average period for collecting payment from customers.
44
How does the text define 'working capital'?
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(A)
Current assets minus current liabilities
45
What happens to the quick ratio when a company pays off its accounts payable with cash?
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(C)
Stays the same
46
What is the impact on working capital if a company pays off short-term liabilities with cash?
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(C)
Working capital remains the same
47
What does the historic cost principle require?
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(B)
Assets and expenses should be recorded at their original purchase price.
48
What does a company’s average days to settle inventory indicate?
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(A)
The number of days it takes to sell inventory.
49
How can a business increase its gross profit margin?
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A
B
50
What information can be obtained from an aged trade receivables schedule?
