Q. What is the effect of recording depreciation on the final accounts?
-
A.
Increases net income
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B.
Decreases net income
-
C.
Has no effect on net income
-
D.
Increases total assets
Solution
Recording depreciation decreases net income as it is an expense.
Correct Answer:
B
— Decreases net income
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Q. When preparing final accounts, which of the following is considered a current liability?
-
A.
Bank loan due in 5 years
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B.
Accounts payable
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C.
Owner's equity
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D.
Long-term debt
Solution
Accounts payable is considered a current liability.
Correct Answer:
B
— Accounts payable
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Q. When should a sole trader recognize revenue according to accounting standards?
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A.
When cash is received
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B.
When goods are sold
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C.
When the service is performed
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D.
When the invoice is issued
Solution
Revenue should be recognized when the service is performed or goods are delivered, according to the accrual basis of accounting.
Correct Answer:
C
— When the service is performed
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Q. Which accounting standard governs the preparation of financial statements for sole traders?
-
A.
IFRS
-
B.
GAAP
-
C.
IAS
-
D.
Both IFRS and GAAP
Solution
GAAP (Generally Accepted Accounting Principles) governs the preparation of financial statements for sole traders.
Correct Answer:
B
— GAAP
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Q. Which inventory valuation method results in the highest profit during periods of rising prices?
-
A.
FIFO
-
B.
LIFO
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C.
Weighted Average
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D.
Specific Identification
Solution
The FIFO (First In, First Out) method results in the highest profit during periods of rising prices.
Correct Answer:
A
— FIFO
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Q. Which of the following is a common method of calculating depreciation?
-
A.
Straight-Line Method
-
B.
Double Declining Balance Method
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C.
Units of Production Method
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D.
All of the above
Solution
All of the above methods are common ways to calculate depreciation.
Correct Answer:
D
— All of the above
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