Accounting Neco Past Questions And Answers (Objective and Theory)

Multiple Choice Questions (21-35)

What is the purpose of a petty cash fund in accounting?

A) To pay salaries

B) To make small, routine purchases

C) To invest excess cash

D) To settle long-term debts

Answer: B

Which accounting principle requires recording expenses when they are incurred rather than when they are paid?

A) Matching principle

B) Revenue recognition principle

C) Historical cost principle

D) Conservatism principle

Answer: A

What is the formula for calculating the return on assets (ROA)?

A) Net income / Total equity

B) Net income / Average total assets

C) Total revenue / Total assets

D) Total assets / Net income

Answer: B

In the context of accounting, what does the term “liquidity” refer to?

A) Ability to meet short-term obligations

B) Long-term investment potential

C) Profitability of operations

D) Ability to generate revenue

Answer: A

How does the straight-line method calculate depreciation?

A) Equal depreciation expense over the useful life of an asset

B) Accelerated depreciation in the early years of an asset

C) No depreciation is calculated

D) Depreciation based on market value

Answer: A

What is the purpose of the trial balance in the accounting cycle?

A) To summarize financial transactions

B) To identify errors in accounts

C) To calculate net income

D) To record adjusting entries

Answer: B

When is a contingent liability recognized in financial statements?

A) When it is probable and the amount can be reasonably estimated

B) When it is certain, regardless of the amount

C) Only when it becomes an actual liability

D) Never recognized in financial statements

Answer: A

What is the primary purpose of the statement of changes in equity?

A) To show the company’s financial position

B) To report cash transactions

C) To outline changes in owners’ equity over a period

D) To record day-to-day business activities

Answer: C

Which financial statement provides information about a company’s cash inflows and outflows from operating, investing, and financing activities?

A) Income statement

B) Statement of changes in equity

C) Balance sheet

D) Statement of cash flows

Answer: D

How is the acid-test ratio calculated?

A) (Current assets – Inventory) / Current liabilities

B) Current assets / Current liabilities

C) (Current assets + Inventory) / Current liabilities

D) Current assets – Current liabilities

Answer: A

What is the role of a general ledger in the accounting process?

 

A) To record day-to-day transactions

B) To prepare financial statements

C) To maintain a record of individual accounts

D) To calculate net income

Answer: C

Which accounting principle emphasizes the assumption that a business will continue operating indefinitely?

 

A) Matching principle

B) Going concern principle

C) Revenue recognition principle

D) Conservatism principle

Answer: B

What is the purpose of the cash basis of accounting?

 

A) To record transactions when cash is received or paid

B) To recognize revenue when earned, regardless of cash flow

C) To record transactions at historical cost

D) To match expenses with revenues

Answer: A

How does the FIFO (First-In-First-Out) method allocate costs in inventory valuation?

 

A) Allocates the latest costs first

B) Allocates the oldest costs first

C) Allocates an average cost

D) Allocates the highest costs first

Answer: B

What is the purpose of the internal control system in accounting?

 

A) To increase expenses

B) To safeguard assets and ensure accuracy of financial information

C) To maximize revenue

D) To decrease liabilities

Answer: B

Theory Section (36-40)

Explain the concept of “conservatism” in accounting and its impact on financial reporting.

 

Discuss the importance of budgeting in financial management and how it aids decision-making within a business.

 

Define the term “accounting cycle” and outline its key steps in maintaining accurate financial records.

 

Describe the concept of “materiality” in auditing and its relevance in determining the significance of financial information.

 

Explain the difference between a cash discount and a trade discount, providing examples for each.