SS1 First Term Financial Account Past Questions and Answers

Question: What is the primary purpose of a balance sheet?

 

A) Record daily transactions

B) Show the financial position at a specific point in time

C) Calculate net income

D) Track cash flows

Answer: B) Show the financial position at a specific point in time

 

Question: Which accounting principle states that expenses should be recognized in the period in which they are incurred, regardless of when the cash is paid?

 

A) Matching principle

B) Revenue recognition principle

C) Cash basis accounting

D) Accrual basis accounting

Answer: D) Accrual basis accounting

 

Question: What is the formula for calculating net income?

 

A) Net Income = Revenue – Expenses

B) Net Income = Assets – Liabilities

C) Net Income = Cash Inflows – Cash Outflows

D) Net Income = Equity + Liabilities

Answer: A) Net Income = Revenue – Expenses

 

Question: Which financial statement reports revenues, expenses, and the resulting net income or loss for a specific period?

 

A) Balance sheet

B) Income statement

C) Cash flow statement

D) Statement of retained earnings

Answer: B) Income statement

 

Question: When recording a sale on credit, which accounts are affected?

 

A) Accounts Receivable and Revenue

B) Cash and Revenue

C) Accounts Payable and Expense

D) Cash and Expense

Answer: A) Accounts Receivable and Revenue

 

Question: What does the term “depreciation” refer to in accounting?

 

A) Increase in asset value

B) Decrease in liability

C) Allocation of the cost of an asset over its useful life

D) Increase in equity

Answer: C) Allocation of the cost of an asset over its useful life

 

Question: Which financial statement shows the changes in equity over a specific period?

 

A) Income statement

B) Balance sheet

C) Cash flow statement

D) Statement of retained earnings

Answer: D) Statement of retained earnings

 

Question: What does the term “contra account” mean in accounting?

 

A) An account that increases assets

B) An account that decreases assets

C) An account with a credit balance

D) An account with a debit balance

Answer: B) An account that decreases assets

 

Question: How is the debt-to-equity ratio calculated?

 

A) Total debt / Total equity

B) Total equity / Total debt

C) Net income / Total equity

D) Total assets / Total equity

Answer: A) Total debt / Total equity

 

Question: What is the purpose of the statement of cash flows?

 

A) Show the financial position at a specific point in time

B) Detail the changes in equity over a period

C) Explain the cash inflows and outflows during a specific period

D) Present revenues and expenses for a specific period

Answer: C) Explain the cash inflows and outflows during a specific period

 

Question: In which section of the cash flow statement would you find information about borrowing money?

 

A) Operating activities

B) Investing activities

C) Financing activities

D) Non-cash activities

Answer: C) Financing activities

 

Question: What is the purpose of the trial balance in accounting?

 

A) Summarize financial transactions

B) Identify errors in the accounting records

C) Present financial statements to stakeholders

D) Record adjusting entries

Answer: B) Identify errors in the accounting records

 

Question: Which financial statement represents a “snapshot” of a company’s financial position at a specific date?

 

A) Income statement

B) Cash flow statement

C) Balance sheet

D) Statement of retained earnings

Answer: C) Balance sheet

 

Question: What does the term “working capital” refer to in accounting?

 

A) Current assets minus current liabilities

B) Long-term assets minus long-term liabilities

C) Total assets minus total liabilities

D) Total equity minus total liabilities

Answer: A) Current assets minus current liabilities

 

Question: Which accounting principle states that you should use the same accounting methods and procedures from period to period?

 

A) Consistency principle

B) Materiality principle

C) Conservatism principle

D) Objectivity principle

Answer: A) Consistency principle

 

Question: What is the purpose of the adjusting entries in accounting?

 

A) Record daily transactions

B) Close the accounts at the end of the period

C) Update the accounts to reflect accrual accounting

D) Calculate the net income

Answer: C) Update the accounts to reflect accrual accounting

 

Question: Which financial statement reports the changes in cash during a specific period?

 

A) Balance sheet

B) Income statement

C) Cash flow statement

D) Statement of retained earnings

Answer: C) Cash flow statement

 

Question: What is the formula for calculating the return on equity (ROE)?

 

A) Net Income / Total Assets

B) Net Income / Average Equity

C) Total Revenue / Total Equity

D) Total Assets / Total Equity

Answer: B) Net Income / Average Equity

 

Question: When is revenue recognized in accrual accounting?

 

A) When cash is received

B) When goods or services are delivered

C) When an invoice is sent

D) When expenses are incurred

Answer: B) When goods or services are delivered

 

Question: What is the purpose of the general ledger in accounting?

 

A) Record daily transactions

B) Summarize financial

transactions

C) Present financial statements to stakeholders

D) Record adjusting entries

Answer: B) Summarize financial transactions