Q. According to accounting standards, which of the following is a qualitative characteristic of financial information?
A.
Relevance
B.
Materiality
C.
Consistency
D.
All of the above
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Solution
All of the options listed are qualitative characteristics of financial information as per accounting standards, emphasizing the importance of providing useful information to users.
Correct Answer:
D
— All of the above
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Q. In the context of final accounts, what does the term 'net profit' refer to?
A.
Total revenue minus total expenses
B.
Total assets minus total liabilities
C.
Gross profit minus operating expenses
D.
Total income minus taxes
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Solution
Net profit is calculated as total revenue minus total expenses.
Correct Answer:
A
— Total revenue minus total expenses
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Q. What is the effect of a purchase of inventory on the accounting equation?
A.
Increase assets and increase liabilities
B.
Decrease assets and increase equity
C.
Increase assets and decrease equity
D.
No effect on the accounting equation
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Solution
A purchase of inventory increases assets (inventory) and may increase liabilities (if purchased on credit), thus affecting the accounting equation.
Correct Answer:
A
— Increase assets and increase liabilities
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Q. What is the effect of recording an accrued expense on the financial statements?
A.
Increase assets and decrease liabilities
B.
Increase liabilities and decrease equity
C.
Increase expenses and decrease assets
D.
Increase revenues and increase equity
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Solution
Recording an accrued expense increases liabilities and decreases equity due to the recognition of an expense.
Correct Answer:
B
— Increase liabilities and decrease equity
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Q. What is the primary difference between FIFO and LIFO inventory valuation methods?
A.
Cost flow assumption
B.
Tax implications
C.
Impact on cash flow
D.
Reporting requirements
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Solution
FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) differ in their cost flow assumptions for inventory valuation.
Correct Answer:
A
— Cost flow assumption
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Q. What is the primary purpose of financial statement analysis?
A.
To prepare tax returns
B.
To assess the financial health of a business
C.
To comply with accounting standards
D.
To calculate depreciation
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Solution
The primary purpose of financial statement analysis is to assess the financial health and performance of a business, helping stakeholders make informed decisions.
Correct Answer:
B
— To assess the financial health of a business
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Q. What is the primary purpose of inventory valuation?
A.
To determine the cost of goods sold
B.
To assess the company's profitability
C.
To calculate tax liabilities
D.
To prepare the balance sheet
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Solution
Inventory valuation is primarily used to determine the cost of goods sold.
Correct Answer:
A
— To determine the cost of goods sold
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Q. Which financial statement provides a snapshot of a company's financial position at a specific point in time?
A.
Income Statement
B.
Cash Flow Statement
C.
Balance Sheet
D.
Statement of Changes in Equity
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Solution
The Balance Sheet provides a snapshot of a company's financial position at a specific point in time.
Correct Answer:
C
— Balance Sheet
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Q. Which of the following accounts would be closed at the end of the accounting period?
A.
Cash
B.
Accounts Receivable
C.
Revenue
D.
Equipment
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Solution
Revenue accounts are temporary accounts that are closed at the end of the accounting period to prepare for the next period's transactions.
Correct Answer:
C
— Revenue
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