SS1 Second Term Financial Account Past Questions and Answers

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

 

A) Income statement

B) Balance sheet

C) Cash flow statement

D) Statement of retained earnings

Answer: C) Cash flow statement

 

Question: What is the purpose of the current ratio in financial analysis?

 

A) Measure a company’s profitability

B) Assess a company’s liquidity

C) Evaluate the efficiency of operations

D) Examine a company’s debt levels

Answer: B) Assess a company’s liquidity

 

Question: When recording a prepaid expense, which accounts are affected?

 

A) Prepaid Expense and Cash

B) Expense and Accounts Payable

C) Revenue and Accounts Receivable

D) Accumulated Depreciation and Equipment

Answer: A) Prepaid Expense and Cash

 

Question: What is the accounting equation?

 

A) Assets = Liabilities + Equity

B) Assets = Revenue – Expenses

C) Liabilities = Assets – Equity

D) Equity = Assets + Liabilities

Answer: A) Assets = Liabilities + Equity

 

Question: In which financial statement would you find the cost of goods sold (COGS)?

 

A) Income statement

B) Balance sheet

C) Cash flow statement

D) Statement of retained earnings

Answer: A) Income statement

 

Question: What is the purpose of the Sarbanes-Oxley Act in the context of financial accounting?

 

A) Regulate international trade

B) Enhance corporate governance and financial reporting

C) Monitor environmental sustainability

D) Control interest rates

Answer: B) Enhance corporate governance and financial reporting

 

Question: Which type of account increases with a credit entry?

 

A) Asset

B) Liability

C) Equity

D) Expense

Answer: C) Equity

 

Question: What is the difference between gross profit and net profit?

 

A) Gross profit includes operating expenses, while net profit does not

B) Net profit is calculated before deducting taxes, while gross profit includes taxes

C) Gross profit is revenue minus cost of goods sold, while net profit is gross profit minus operating expenses

D) Net profit represents total revenue, while gross profit is a subset of revenue

Answer: C) Gross profit is revenue minus cost of goods sold, while net profit is gross profit minus operating expenses

 

Question: What is the purpose of the double-entry accounting system?

 

A) Prevent errors in financial statements

B) Simplify the recording of transactions

C) Eliminate the need for adjusting entries

D) Track only cash transactions

Answer: A) Prevent errors in financial statements

 

Question: Which financial statement is also known as the statement of financial position?

 

A) Income statement

B) Balance sheet

C) Cash flow statement

D) Statement of retained earnings

Answer: B) Balance sheet

 

Question: What is the difference between accounts payable and accounts receivable?

 

A) Accounts payable represent money owed to the company, while accounts receivable represent money the company owes to others

B) Accounts payable are long-term debts, while accounts receivable are short-term debts

C) Accounts payable are assets, while accounts receivable are liabilities

D) Accounts payable represent money the company owes to others, while accounts receivable represent money owed to the company

Answer: D) Accounts payable represent money the company owes to others, while accounts receivable represent money owed to the company

 

Question: How does the straight-line method calculate depreciation?

 

A) Equal depreciation expense each period

B) Accelerated depreciation in the early years

C) Based on the asset’s market value

D) No depreciation is calculated

Answer: A) Equal depreciation expense each period

 

Question: What is the purpose of the statement of comprehensive income?

 

A) Show changes in equity over time

B) Report the company’s net income

C) Present both net income and other comprehensive income

D) Detail the company’s cash flows

Answer: C) Present both net income and other comprehensive income

 

Question: What is the purpose of a journal entry in accounting?

 

A) Summarize financial transactions

B) Present financial statements to stakeholders

C) Record daily transactions

D) Close the books at the end of the year

Answer: C) Record daily transactions

 

Question: What is the difference between a credit and a debit in accounting?

 

A) Debit decreases liabilities, while credit increases assets

B) Debit increases expenses, while credit decreases revenue

C) Debit represents an increase in assets or expenses, while credit represents an increase in liabilities, revenue, or equity

D) Debit decreases equity, while credit increases liabilities

Answer: C)