Accounting for IGCSE & O level - Advanced Principles (Section 2)
1
What principle states that every transaction has two aspects and both aspects should be recorded in the double-entry accounts of the business?
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(C)
Duality Principle
2
Which statement is correct regarding the information for a business?
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(B)
Financial information from the accounts of the business will tell you about financial strength.
3
What is the main goal of the international standards for accounting?
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(C)
To improve the comparability, reliability and understandability of financial statements.
4
The return on capital employed (ROCE) expresses the profit for the year of a business as:
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(C)
a percentage of the capital employed.
5
Which of the following is a key attribute that is said to be improved by consistency?
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(B)
Comparability of financial statements
6
What does 'inventory turnover' measure?
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(B)
How quickly the business sells its inventory.
7
Which of the following is/are the main responsibilities of accountants?
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B
C
D
8
Which of the following is an application of the business entity principle?
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(B)
The business owner’s personal financial affairs and business finances should be recorded separately.
9
What are some consequences of a professional accountant's misconduct?
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(D)
All the above
10
Which of the following actions will not cause the company's quick ratio to improve?
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(C)
Making more sales.
11
What are the main ratios used to analyze a business?
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(A)
Profitability ratios and liquidity ratios.
12
In which situation should you use the matching principle?
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(B)
When you make sales to customers
13
Is a reduction in the trade receivables collection period good or bad for business?
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(A)
Good: The collection period was previously too long and it improved credit control helps to reduce late payments and irrecoverable debts.
14
What does the matching principle refer to?
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(B)
Matching the expenses incurred in an accounting period to the revenues earned in the same period.
15
Which of the following actions will INCREASE the ROCE?
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A
C
D
16
What ethical principles do professional accountants need to adhere to?
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A
B
C
D
17
The quick ratio (acid test or liquid ratio) measures the ability of a business to pay its immediate and short-term debts without having to sell off inventory. The quick ratio formula is:
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(C)
current assets – inventory / current liabilities
18
Which of the following is true regarding the going concern concept?
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(A)
It assumes the business will continue to operate for the foreseeable future.
19
The profit for the year to revenue ratio indicates:
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(B)
The ability of the business to control its expenses.
20
If a company overstates its ending inventory, how is its profit for the year impacted?
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(B)
Profit is overstated.
21
What concept supports the idea of consistent accounting treatment over time?
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(B)
Consistency
22
The term ‘accounting convention’ is best described as...
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(D)
A custom or generally accepted practice
23
In relation to inventory, which of the following is FALSE?
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(C)
Inventory turnover measures the average value of inventory held.
24
What is a key characteristic of international accounting standards?
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(C)
They aim to improve the comparability of financial information.
25
According to the business entity principle, who should be responsible for the debts of a business?
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(B)
The business itself
26
According to the monetary measurement principle, what should be expressed in monetary terms?
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(A)
All transactions
27
Which of the following action helps a company improve its liquidity?
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(C)
Holding more cash
28
Which of the following is a potential challenge in financial reporting addressed by the use of international accounting standards?
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(B)
Differences in accounting practices between countries.
29
What is the formula used to calculate the 'average days to settle inventory'?
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(B)
365 / Inventory Turnover Ratio
30
Which accounting principle emphasizes the importance of providing comparable financial statements?
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(A)
Consistency
31
Which action is most likely to decrease working capital?
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(C)
Using cash to purchase new equipment.
32
When is revenue recognized according to the realization principle?
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(B)
When goods or services are provided to the customer.
33
Which of the following is a factor that can cause the working capital and quick ratio to improve?
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(B)
Selling more stock capital
34
What does it mean to have an accounts receivable turnover ratio of 12?
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(B)
The company collects its accounts receivable twelve times per year.
35
Which of the following is a characteristic of the realization principle?
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(C)
Revenue is recognized when it is earned, usually upon delivery of goods or services.
36
What is a key disadvantage of maintaining high inventory levels?
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(B)
It requires more working capital.
37
Which of the following are examples of actions taken to improve liquidity?
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A
B
C
38
What do accounting principles provide?
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(B)
A framework of rules for preparing financial statements.
39
What is a potential downside of holding excessive cash?
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(C)
It may not be used efficiently, which decreases profitability.
40
What is the purpose of analyzing financial statements?
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A
B
C
41
What are the benefits of having a high inventory turnover ratio?
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A
B
D
42
Which of the following actions would likely increase a company's ROCE?
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A
B
43
What is the role of accounting concepts and conventions in financial reporting?
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(B)
To ensure the comparability and reliability of financial information.
44
What is the primary goal when managing working capital?
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(C)
To ensure the company can meet its short-term obligations.
45
What does a low inventory turnover ratio typically indicate?
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(C)
Slow-moving inventory.
46
Which accounting principle emphasizes being cautious when recognizing revenue and expenses?
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(B)
Prudence
47
Which of the following accurately describes the purpose of the consistency principle?
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(D)
To ensure that the same accounting methods are applied to similar items each year.
48
Which of the following best describes the 'collection period' for trade receivables?
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(C)
The average time it takes for a business to collect cash from its customers after a sale.
49
The principle of prudence is closely related to which idea?
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(C)
Recognizing potential losses, but not potential gains.
50
What is the effect of undervaluing closing inventory?
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(B)
Overstated COGS, understated gross profit, and understated profit for the year
