SS1 Third Term Financial Account Past Questions and Answers

Question: How does a company calculate the acid-test ratio (quick ratio)?

 

A) (Current Assets – Inventory) / Current Liabilities

B) Current Assets / Current Liabilities

C) (Current Assets + Inventory) / Current Liabilities

D) Current Assets – Current Liabilities

Answer: A) (Current Assets – Inventory) / Current Liabilities

 

Question: What is the purpose of the cost of goods sold (COGS) on the income statement?

 

A) Calculate net income

B) Represent operating expenses

C) Measure the cost of producing goods or services

D) Determine total revenue

Answer: C) Measure the cost of producing goods or services

 

Question: What is the role of a contra-asset account?

 

A) Increase asset value

B) Decrease asset value

C) Record revenue transactions

D) Track expenses

Answer: B) Decrease asset value

 

Question: In the context of financial accounting, what is the purpose of the statement of changes in equity?

 

A) Summarize revenue and expenses

B) Detail the company’s cash flows

C) Explain the changes in equity during a specific period

D) Report the cost of goods sold

Answer: C) Explain the changes in equity during a specific period

 

Question: How does the par value of a stock differ from its market value?

 

A) Par value is the original cost of the stock, while market value is the current market price

B) Par value represents the stock’s market value

C) Par value is always higher than market value

D) Market value is irrelevant in accounting

Answer: A) Par value is the original cost of the stock, while market value is the current market price

 

Question: What is the purpose of the Financial Accounting Standards Board (FASB)?

 

A) Regulate international trade

B) Establish and improve accounting standards

C) Monitor stock market fluctuations

D) Enforce tax regulations

Answer: B) Establish and improve accounting standards

 

Question: Which financial statement helps in assessing a company’s ability to generate cash to meet its short-term obligations?

 

A) Income statement

B) Balance sheet

C) Statement of cash flows

D) Statement of comprehensive income

Answer: C) Statement of cash flows

 

Question: What is the purpose of the perpetual inventory system?

 

A) Update inventory levels at the end of the accounting period

B) Track real-time changes in inventory

C) Determine the cost of goods sold

D) Record periodic adjustments to inventory

Answer: B) Track real-time changes in inventory

 

Question: Which principle in accounting suggests caution when valuing assets and recording transactions?

 

A) Consistency principle

B) Materiality principle

C) Conservatism principle

D) Revenue recognition principle

Answer: C) Conservatism principle

 

Question: What is the primary purpose of the Statement of Cash Flows?

 

A) Summarize financial transactions

B) Show changes in equity over time

C) Present both net income and other comprehensive income

D) Explain cash inflows and outflows during a specific period

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

 

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

 

A) Allocation of the cost of an intangible asset over its useful life

B) Allocation of the cost of a tangible asset over its useful life

C) Recordation of prepaid expenses

D) Increase in equity

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

 

Question: In accounting, what is the purpose of the general journal?

 

A) Summarize financial transactions

B) Record daily transactions

C) Present financial statements to stakeholders

D) Record adjusting entries

Answer: B) Record daily transactions

 

Question: What is the primary focus of managerial accounting?

 

A) External financial reporting

B) Internal decision-making and planning

C) Compliance with tax regulations

D) Auditing financial statements

Answer: B) Internal decision-making and planning

 

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 retained earnings statement?

 

A) Summarize financial transactions

B) Explain the changes in equity during a specific period

C) Calculate net income

 

D) Record adjusting entries

Answer: B) Explain the changes in equity during a specific period