Q. In preparing final accounts, which financial statement shows the company's profitability?
-
A.
Balance Sheet
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B.
Cash Flow Statement
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C.
Income Statement
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D.
Trial Balance
Solution
The Income Statement shows the company's profitability over a specific period.
Correct Answer:
C
— Income Statement
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Q. In preparing final accounts, which statement is prepared first?
-
A.
Balance Sheet
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B.
Income Statement
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C.
Cash Flow Statement
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D.
Statement of Changes in Equity
Solution
The Income Statement is prepared first to determine the profit or loss, which is then used in the Balance Sheet.
Correct Answer:
B
— Income Statement
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Q. What is the effect of an adjusting journal entry on the trial balance?
-
A.
It does not affect the trial balance
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B.
It increases total debits
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C.
It increases total credits
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D.
It balances the trial balance
Solution
An adjusting journal entry does not affect the overall balance of the trial balance; it adjusts the individual accounts.
Correct Answer:
A
— It does not affect the trial balance
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Q. What is the primary purpose of a journal entry in accounting?
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A.
To summarize financial transactions
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B.
To record financial transactions
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C.
To prepare financial statements
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D.
To analyze financial ratios
Solution
A journal entry is used to record financial transactions in the accounting system.
Correct Answer:
B
— To record financial transactions
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Q. What is the primary purpose of an audit?
-
A.
To prepare financial statements
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B.
To detect fraud
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C.
To provide assurance on financial statements
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D.
To manage company finances
Solution
The primary purpose of an audit is to provide assurance that the financial statements are free from material misstatement.
Correct Answer:
C
— To provide assurance on financial statements
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Q. What is the purpose of an audit?
-
A.
To prepare financial statements
-
B.
To detect fraud
-
C.
To provide assurance on financial statements
-
D.
To manage company finances
Solution
The primary purpose of an audit is to provide assurance that the financial statements are free from material misstatement.
Correct Answer:
C
— To provide assurance on financial statements
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Q. What method of depreciation allocates an equal amount of depreciation expense each year?
-
A.
Declining Balance Method
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B.
Units of Production Method
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C.
Straight-Line Method
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D.
Sum-of-the-Years'-Digits Method
Solution
The Straight-Line Method allocates an equal amount of depreciation expense each year over the useful life of the asset.
Correct Answer:
C
— Straight-Line Method
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Q. Which of the following is a key principle of auditing?
-
A.
Independence
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B.
Confidentiality
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C.
Integrity
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D.
All of the above
Solution
All of the above are key principles of auditing that ensure the quality and reliability of the audit process.
Correct Answer:
D
— All of the above
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Q. Which of the following is an example of a non-current asset?
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A.
Inventory
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B.
Accounts Receivable
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C.
Land
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D.
Cash
Solution
Land is considered a non-current asset as it is not expected to be converted into cash or consumed within one year.
Correct Answer:
C
— Land
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Q. Which of the following is an example of a temporary account?
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A.
Cash
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B.
Accounts Receivable
-
C.
Revenue
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D.
Retained Earnings
Solution
Revenue is a temporary account that is closed at the end of the accounting period.
Correct Answer:
C
— Revenue
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Q. Which of the following is NOT a component of a trial balance?
-
A.
Assets
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B.
Liabilities
-
C.
Equity
-
D.
Revenue
Solution
A trial balance includes assets, liabilities, and equity, but does not include revenue as a separate component.
Correct Answer:
D
— Revenue
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Q. Which principle requires that expenses be matched with revenues in the period in which they are incurred?
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A.
Revenue Recognition Principle
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B.
Matching Principle
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C.
Cost Principle
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D.
Conservatism Principle
Solution
The Matching Principle requires that expenses be matched with revenues in the period in which they are incurred.
Correct Answer:
B
— Matching Principle
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