Answer To DAF BURERA

Accounting and Finance MCQs Test 1
https://www.financestrategists.com/accounting/quiz/multiple-choice/final-exam/
1.H buys goods on credit from J. The goods are unsuitable and H returns them to J. What is the
name of the document that H sends to J with the goods?
 Credit note
 Debit note
 Invoice
 Statement of account
H is the buyer of the goods, and so when he returns goods to J, he will send J a
debit note to indicate that J's account has been debited.
2.Why is the general journal used to correct errors in the ledger?
 To avoid making alterations in the ledgerTo complete the double entry To provide
a record explaining ledger entries To save the bookkeeper's time
 To complete the double entry
 To provide a record explaining the ledger entries
 To save the bookkeeper's time
The correct answer is option 3.

3.Which book of prime entry is part of the double-entry system?
 Cash book
 General journal
 Purchases journal
 Sales journal
Option 1 is correct as it has two sides of debit and credit and also acts as an
account.
4.In which of the following will cash discount allowed be first recorded?
 Cash book
 General journal
 Ledger
 Sales journal

The cash book is used to record transactions relating to cash in hand, cash
at bank, and cash
discounts.
5.A cash book has separate columns for bank and cash transactions. On 1 March, the balance in
the cash account was $200. Transactions during March were:
Cash banked $30
Check drawn for cash $70
What is the balance on the cash account at the end of March?
 $100
 $160
 $170
 $240
6.A cash book (bank column) showed a balance of $1,973 (credit) on 31 March. The following
items did not appear in the bank statement on that date:
Unpresented checks $942
Checks banked $865
What was the balance on the bank statement on 31 March?
 $1,896 (credit)
 $1,896 (debit)
 $2,050 (credit)
 $2,050 (debit)
Awesome! Your answer is correct.

7.The discount column on the debit side of the cashbook adds up to $842. It was posted to the
Discount Received Account. The discount column on the credit side of the cashbook adds up to
$613. It was posted to the Discount Allowed Account. Which entries correct these errors?
 Credit Discount Allowed Account ($229)Credit Discount Received Account

($229)
 Debit Discount Allowed Account ($229)Credit Discount Received Account
($229)
 Debit Discount Allowed Account ($229)Debit Discount Received Account
($229)
 Debit Discount Received Account ($229)Credit Discount Allowed Account
($229) . The correct answer is option 3.
8.The owner of a business takes inventory for her own use. What are the ledger account entries
to record this?
 Debit drawings, credit purchases

 Debit drawings, credit inventory
 Debit capital, credit sales
 Debit inventory, credit drawings
9.In a business's books, the ledger account of J. Brown, a customer, shows a debit balance of
$450. What does this mean?
 Brown has paid $450 to the business

 Brown owes the business $450
 The business has paid Brown $450
 The business owes Brown $450
Your answer is correct.

The question shows the position (balance) of an account on a particular date.
Options 1 and 3 are examples of accounting transactions and do not represent
balances, whereas option 4 represents a liability on part of the business.
Moreover, debit balance indicates an asset (receivable), so option 2 is correct.
10.A suspense account was opened with a credit balance of $840. Which error caused this?
 A check of $420 received from a customer was debited to his account

 Discounts allowed, $420, was debited twice in the Discounts Allowed Account
 Goods costing $420 taken by the owner of the business for own use were credited
to his Drawings Account
 Rent received, $420, was credited twice in the Rent Receivable Account
11.A truck cost $8,000. The price included $36 for petrol. The total payment of $8,000 was
debited to the Truck Account. What is the effect on the income statement and balance sheet?
 No effect (Income Statement)No effect (Balance Sheet)

 Profit overstated by $36 (income statement)Non-current assets overstated by
$36 (balance sheet)
 Profit overstated by $36 (income statement)Non-current assets understated by $36
(balance sheet)
 Profit understated by $36 (income statement)Non-current assets understated by
$36 (balance sheet)
Awesome! Your answer is correct.
12.A bookkeeper mistakenly treats a capital expenditure item as revenue expenditure. What is
the effect of this error?
 Gross profit is understated

 Total assets are overstated
 Net profit is overstated
 Total assets are understated
. The correct answer is option 4.
13.X and C need to obtain two machines to make one of their products. Machines P and Q may
be purchased or, if preferred, similar machines may be hired. The table below shows the details
of the machines
All the machines will produce the same revenue each year. Which choice of machines will
produce the greatest net profit in the first year?
 P and Q (Purchase)- (Rent)

 P (Purchase)One machine (Rent)
 Q (Purchase)One machine (Rent)
 - (Purchase)Two machines (Rent)
Your answer is correct. As the annual cost of machine Q is the lowest, it should
be chosen with one of the rental machines that has costs that are lower than
machine P. Therefore, option 3 is correct.
14.A vehicle costing $20,000 is depreciated by 20% per annum on the diminishing balance
method. What is the depreciation charge at the end of the second year?
 $3,200
 $4,000
 $6,400
 $8,000
Your answer is incorrect. The Correct answer is (option 1).
15.A machine bought two years ago for $20,000 is sold for $13,000. Plant and Machinery is
depreciated by 10% on cost. What is the balance on the Provision for Depreciation of Plant and
Machinery Account after this sale, if provision for depreciation before this sale was $28,000?
 $22,000
 $24,000
 $26,000
 $28,000
16.What happens to the balance of the Bad Debts Account at the end of a financial year?
 Transferred to the trading section of the income statement

 Shown as a deduction from trade receivables in the balance sheet
 Transferred to the profit and loss section of the income statement
 Entered in the cash book as an expense
17.A social club's receipts and payments account for 1996 showed rent paid as $4,000. On 1
January 1996, rent owed by the club was $800. On 31 December 1996, rent owed by the club
was $1,000. What is the amount charged for rent in the income and expenditure account for
1996?
 $4,000
 $4,200
 $4,800
 $5,000
your answer is correct.
18.A business rented premises to a tenant from 1 April 2018 for $10,000 a year. Rent received
by the business was $5,000 on 1 May 2018 and $5,000 on 1 November 2018. In the
business's income statement for the year ended 31 December 2018, what is the amount shown
for rent?
 $7,500 debit
 $7,500 credit
 $10,000 debit
 $10,000 credit

The realization and matching concepts state that income is recorded in the books
when it is earned, whether received or not. As a rental receipt of $10,000 covers a
period of 12 months from 1 April 2018 to 31 March 2019, whereas the business
year ends on 31 December 2018. So, up to that date, rent of only 9 months has
expired (i.e., from 1 April 2018 to 31 December 2018), so $7,500 ($10,000 x
75%) will be reported as rental income for the year. As income has a credit
nature, it will be shown in the income statement as a credit entry.
19.A business allowed Smith, a customer, a cash discount of $30. This was entered correctly in
the Discount Allowed Account, but omitted from Smith's account. A suspense account was
opened. Which correcting entries are required to close the suspense account?
 Debit Smith's account $30, credit suspense account $30

 Debit suspense account $30, credit discount allowed account $30
 Debit suspense account $30, credit Smith's account $30
 Debit Smith's account $30, credit discount allowed account $30
20.Which item would not appear in a sales ledger control account?
 Discounts allowed
 Interest charged on overdue accounts
 Provision for bad debts
 Sales returns
Your answer is incorrect. The correct answer is option 3.

Option 3 is correct. As provision for bad debts is created out of profits (i.e., when
it increases, profit reduces and vice-e-versa for the contrary), it is not recorded in
the total trade receivables account or the sales ledger control account.
21.What is the purpose of control accounts?
 to calculate the sales and purchases

 to find errors quickly
 to make the trial balance balanced
 to prevent errors
Awesome! your answer is correct.

There are many other items in the trial balance in addition to control account
items so it cannot help to make the trial balance balanced on its own ("3" option),
As errors would have already incurred so control accounts cannot prevent errors
("4" option). Errors in the personal accounts and in the books of prime entry can
be detected by comparing their respective balances so "2" option is correct.
22.Inventory at 31 December 2017 overstated by $6 000. What was the effect on the gross
profit for the year to 31 December 2018?
 S6 000 overstated
 $6 000 understated
 $12 000 overstated
 nil effect
Inventory at 31 December 2017 will be the opening inventory of 2018. So its
overstatement will increase cost of sales of 2018 to which it is added which will
ultimately understate profits by $6 000.
23.The table shows data relating to two departments of the same business.
Head office expenses will not be reduced by the closure of a department. Which action will
result in the highest profit?
 close department 1
 close department 2
 close both departments
 keep both departments open

Department 1 should not be closed as it is generating positive profits Of $20 000
whereas although department 2 is not producing any profit but if it is closed then
head office expenses of S30 000 allotted to the department 2 will be charged to
department 1 which will reduce existing profits of S20000 ($20 000 + Nil) to a
loss of $10 OOO ($20 000 - $30 000).
24.A Trial Balance showed:
The Provision is to be maintained at 5% of Trade receivables. How would the Provision be

shown in the Balance Sheet?
 a liability of $1,100
 a deduction from receivables of $1,100
 a liability of $1,250
 a deduction from receivables of $1,250
The Correct answer is (option 4).
Provision for bad debts is a contra asset so it is deducted from trade receivables.
Moreover its amount be S1 250 (S25 000 5%); so "4" option is correct.
25.A business had working capital of $6 000 at 31 January. On 2 February, trade receivables
paid $1 150 in full settlement of debts $1 200, and damaged inventory costing $200 was written
off. What was the working capital at close of business on 2 February?
 $4,600
 $5,750
 $6,950
 $7,150.
26.How is an invoice for an expense owing shown in the Balance Sheet?
 current asset
 non-current asset
 current liability
 non-current liability

Expense owing means expense, which has been incurred, but payment for it is yet
to be made; so it is a liability. Moreover as its amount is payable within one year
so is shown as a current liability.
27.How are non-current assets normally recorded in a balance sheet?
 at book value
 at cost
 at replacement cost
 at scrap value
28.If partners do not have any agreement, how should profits or losses be shared?
 equally
 equally after interest has been allowed on capital
 in proportion to the amount of time that the partners work
 in the ratio of the partners' individual capitals

29.A manufacturer buys a machine for $20 000. Its estimated life is five years with a scrap value
of $10 000. Depreciation is charged on the straight-line method. What is the percentage rate of
depreciation on an annual basis?
 5%
 10%
 20%
 50%
30.Bill and Ben are in partnership sharing profit; and losses in the ratio 3:2. Bill receives a salary
of $12,000 per year. The firm's net profit for the year is $52,000. What are the amounts to be
credited to the partners' Current Accounts?
 Bill $26,000, Ben $26,OOO

 Bill $31 200, Ben $20 800
 Bill $36 000, Ben $16 OOO
 Bill $24 000, Ben $16 OOO
31.Which of the following is similar to a club's receipts and payments account?
 a balance sheet
 a cash or bank account
 an income and expenditure account
 an income statement

"2" option is correct as cash or bank account also shows details of receipts and
payments Of cash.
32.The following information is taken from a sole trader's accounts: Opening Capital $12 000
Closing Capital $13 800 Net Profit $3 000 What are the trader's drawings?
 $1 200
 $1 800
 $4 800
 $22 800
33.What is a limited company's authorized capital?

 capital the company is allowed to raise
 issued capital plus loan capital
 paid up share capital
 shares issued
34.What is the main reason for preparing a manufacturing account?
 to calculate the cost of overheads

 to calculate the cost of production
 to calculate the cost of raw materials used
 to calculate the prime cost

"2" option is correct as is also the answer (last item) of the manufacturing
account; whereas the remaining items are simply used to calculate cost of
production.
35.A manufacturing business extracts the following information from its books: Direct materials
$14 000 Direct labour $11 000 Indirect expenses $4000 What is the amount of prime cost?
 $18 000
 $21 000
 $25 000
 $29 000
36.The policy of a manufacturing company is to state its profit fairly. On which basis should its
inventory of finished goods is valued in its accounts?
 prime cost, $20 000

 cost of production, $50 000
 cost of similar goods bought from another supplier, $55 000
 price at which goods were transferred from the factory to the warehouse, $60 000

Obviously inventory should be recorded at that cost, which has actually been
incurred to bring them in a saleable condition i.e., cost of production.
37.A firm's sales are $100 000, the expenses are $30 000 and the net profit is $20 000. What is
the gross profit as a percentage of the sales?
 10%
 50%
 70%
 80%
Correct answer is (option 2).
38.A trader made the following forecasts for the business for the next financial year: Average
inventory at cost: $80 000 Rate of inventory turnover: 6 times Gross profit margin as a
percentage of cost: 25% What are the forecast sales for the next financial year?
 $120 000
 $480 000
 $576 000
 $600 000
39.Business X is managed by its owner. It pays rent for its premises. Business Y owns its
premises. The owner employs a manager to run the business for him. The table shows data
relating to the two businesses.
Which profit figures allow a proper comparison of the two businesses to be made?
 Business X ($82 000), Business Y ($60 000)


For a proper comparison, both businesses should have same facilities. As
Business X is not paying manager's salary, if salary would had been paid profit
figure would be $82 000 ($100 000 $18 000). Likewise Business Y is not paying
rent of premises, if rent would had been paid, profit figure would be $60 000
($100 000 - $40 000); so "1" option is correct.
40.What is the meaning of the money measurement concept?
 accounts are kept on the double entry basis

 assets are normally shown at cost price
 only items with monetary value are included in the accounts
 profits are calculated on the basis of cash received less cash paid
www.principlesofaccounting.com/quizzes/chapter-22-multiple-choice/
1.An accounting system wherein the operations are broken down into cost centers
controllable by a foreman, sales manager, or supervisor, is known as:
a- control accounting
b- budgetary accounting
c- responsibility accounting
d- allocated cost accounting
2.A business unit is known as a profit center:

a- if its management is held accountable for both revenues and expenses, and
has the authority to make decisions regarding its products, markets, and
sources of supply.
b- if its management is compensated based on the level of profitability.
c- if its management is evaluated not only on revenues and expenses but also on
asset investment.
d- if its operations or departments are not directly involved in revenue generating
activities, but instead focus on elements of cost control (including choosing the
source of supply)
3.The basic difference between a static budget and a flexible budget is that:
a- A flexible budget considers only variable costs, but a static budget considers all
costs.
b- Flexible budgets allow management latitude in meeting goals, whereas a static
budget is based on a fixed standard.
c- A static budget is for an entire production facility, but a flexible budget is
applicable only to a single department.
d- A static budget is based on one specific level of production and a flexible
budget can be prepared for any production level within a relevant range.
4.Linwood Industries prepared a flexible budget which revealed total production

costs of $79,000 at an anticipated 10,000 unit activity level. Variable production
costs were (per unit) $1.50 for direct materials, $3.50 for direct labor, and $0.75 for
variable factory overhead. How much are total anticipated production costs in
Linwood's flexible budget for an activity level of 10,800 units?
a- 21500
b- 62100
c- 79000
d- 83600
5.Which of the following is not one of the objectives in utilizing standard costs?
a- To simplify costing procedures and expedite cost reports.
b- To allow management to readily determine and focus attention on special
problem areas.
c- To allow a measure of cost assuming ideal or perfect operating conditions.
d- To provide a measure of budgeted cost for a single unit of activity
6.If a unit manager made a decision to purchase raw materials that were of superior
quality to that which was anticipated, and this decision resulted in less spoilage
than normal, the effect on the quantity and price variances, respectively, would be:
a- Unfavorable, unfavorable
b-Favorable, unfavorable
c- Favorable, favorable
d- Unfavorable, favorable
7.Quillen uses a single raw material in its production process. The standard price
for a unit of material is $7.00. During October the company purchased and used
10,000 units of this material. The actual purchase price was $8.00 per unit. The
standard quantity required per finished product is 3 units. Quillen produced 3,000
finished units of the final product in October. How much was the material price
variance for October?
a- $3,000 favorable
b- $3,000 unfavorable
c- $9,000 unfavorable
d- $10,000 unfavorable
8.Finch produced 3,000 units of output. The production process normally requires
3 hours of labor per unit of output. The standard labor rate is $7.00 per hour, but
Finch paid $6.00 per hour. Actual hours needed to complete the production
process were 8,500. How much was the labor efficiency variance?
a- $3,000 favorable
b- $3,000 unfavorable
c- $3,500 favorable
9.Actual direct labor at Subramaniam Tire during the month of June amounted to
14,000 hours. This compares to the standard direct labor hours for the actual
output of 15,000 hours. During June, total actual variable overhead was $32,000.
The standard total variable overhead application rate per standard direct labor
hour was $2.25. How much was the variable overhead spending variance for
June?
a- $500 favorable
b- $500 unfavorable
c- $2,000 favorable
10.Which of the following factors would be subject to evaluation in a balanced

scorecard approach to performance evaluation?
a- financial outcomes
b- customer outcomes
c- business process outcomes
d- all of these
Cost of the project is 600,000, life of the project is 5 years annual cash flow is 200,000 cut off
rate is 10% the discounted pay back period is ______________
 A2 yrs
 B2 yrs 6 months
 C3 yrs
 D3 yrs 9 months
FINANCE
The correct answer is D. 3 yrs 9 months
The discounted payback period is the length of time it takes to break even on an investment in
terms of the present value of cash inflows.
It is calculated by adding up the discounted cash inflows until this sum equals the initial
investment.
Given the annual cash flow of 2,00,000 and a discount rate of 10%, we can calculate the
discounted cash flows for each year and sum them until they equal or exceed the initial
investment of 6,00,000.
The discounted cash flows are as follows:
Year 1: 200,000 / (1 + 0.10)^1 = 181,818.18
Year 2: 200,000 / (1 + 0.10)^2 = 165,289.26
Year 3: 200,000 / (1 + 0.10)^3 = 150,262.96
Year 4: 200,000 / (1 + 0.10)^4 = 136,602.69
Year 4: 200,000 / (1 + 0.10)^5 = 124,184.26
The cumulative balance is 497,370.4 at the end of year 3 and 633,973.09 at the end of year 4.
So, the discounted payback period is 3 years plus
$\frac{102629.6}{136602.69} \times 12=9.0$
So, the payb ack is 3 years and 9 months
Balance Sheet
 Multiple Choice Questions
The balance sheet is a financial statement that lists the assets and liabilities of an organization at a
single point in time. It possesses items like – Property, machinery, equipment, Investments, etc.
There are also liabilities like Accounts payable to vendors, Short-term loans, etc. It is a statement of
the financial position of an organization at a single point in time.
In financial accounting, a balance sheet list is a snapshot of the business at one point in time. It
summarizes what the company owns (its assets), what it owes (its liabilities), and its equity at that
time.
Q:1 Balance sheet is also known as:
A. Statement Of Financial Position
B. Statement Of Operations
C. Statement of finance
D. Statement of operational position
Ans. (A) Statement of financial position
Explanation:
A balance sheet is sometimes also called the statement of financial condition or
financial position.
Q:2 The Statement of Financial Position gives the receipts minus the payments of
an organization which is called as:
A. Net Change in Receipts and Payments
B. Net Cash Variation
C. Net credit amount
D. Net equity
Ans. (A) the net change in receipts and payments
Explanation:
The Net cash variation is given by the statement of the financial position of an
organization, and it shows the difference between the net increase in assets and the net
increase in liabilities during a given period. It is also called a cash flow statement.
Q:3 The statement of financial position gives the information about the status of
an organization by:
A. Giving the details of the Inventory,
B. Long term investments
C. Assets
D. Income and expenses
Ans. (A) giving details of the Inventory
Explanation:
At any point in time, there is a stock of products and materials held by a business. The
balance sheet will give the details about these stocks and their value. This value may be
compared to the value shown in last year’s balance sheet or in another previous period
to determine whether the stock has increased or decreased.
Q:4 The Statement of Financial Position gives the information about
A. Assets and Liabilities
B. Income
C. Expenses
D. Credits
Ans. (A) Assets and liabilities
Explanation:
The statement of financial position gives the details about assets, their value, and the
liabilities that a business owes to others at a particular point in time. This information
helps to determine the net worth or equity of the business at that point in time.
Q:5 All the following are included in the Statement of Financial Position except:
A. Short term loans
B. Short term investments
C. Long term loans
D. Long term investments
Ans. (B) Short term loans and short term investments
Explanation:
Current assets are shown in the balance sheet and give details about cash, Inventory,
accounts payable, and other current assets that a business or organization has at a
particular point in time. The balance sheet will not give information about short-term
loans or short-term investments.
Q:6 Assets are shown in the balance sheet as
A. Debt
B. Equity
C. Credit
D. Asset
Ans. (B) Equity
Explanation:
Assets will be shown in “assets = liabilities + equity.” Equities represent the contribution
of shareholders to a business. Hence equity is also referred to as “net worth” or simply
“worth.”
Q:7 Liabilities are shown in the balance sheet as:
A. Income
B. Expenses
C. Credits
D. Assets
Ans. (B) Expenses
Explanation:
Liabilities show the amount of money a business owes to its creditors. In other words,
liabilities are the amount of money a business owes to its investors, suppliers, and
customers.
Q:8 A company buys goods for $100 and pays $90. The amount owed to suppliers
is $20. The company has bought $100 worth of goods. The amount owed to
creditors is:
A. Payments made to suppliers
B. Payments made to creditors
C. Payments made by suppliers
D. Payment made by creditors
Ans. (A) Payments made to suppliers
Explanation:
The balance sheet details the items that the business or organization owes to its
suppliers and creditors. These amounts are given at a particular point in time. If no
money has changed hands, then nothing has changed since last year’s balance sheet.
Q:9 Which assets are labelled as non-physical items:
A. Property
B. Intangible Assets
C. Equipment
D. Plants and plots
Ans. (B) Intangible assets
Explanation:
Intangible assets are shown in the balance sheet as non-physical items like patents,
trademarks, and goodwill that may not be easily converted into cash.
Q:10 The statement of financial position will give the information about
A. Shares of the company’s capital stock
B. Shares of the company’s stock
C. Shares of the market’s stock
D. Shares of stocks
Ans. (B) Shares of the company’s capital stock
Explanation:
The balance sheet gives details about a business or organization’s capital structure,
also known as its long-term liabilities and equity.
Q.11: The amount of money that a company owes to its creditors is called:
A. Liabilities
B. Current Liabilities
C. Assets
D. Credit ratings
Ans. A), Liabilities
Explanation: Liabilities are the debts or claims an organization owes to creditors or
others. For example, if a business borrows money from a bank and then fails to repay it
when it is due, this amount will be shown as one of the liabilities on its balance sheet.
Q.12: A company has Inventory worth $100 and some accounts payable
amounting to $60. In this case, the amount of current liabilities is
1.
A. $60
B. $100
C. $40
D. $160
Ans. B), $100
Explanation: A company’s current liabilities include all short-term or current monetary
obligations or debts that an organization owes to others.
Q:13 Which one of the following is included in the income statement?
A. Income
B. Expenses
C. assets
D. Investment
Ans. (B) Expenses
Explanation:
An income statement is also known as a Profit and Loss Account or P&L statement. It
shows the operating income and expenses against a company’s performance for a
particular period of time. The other financial statements listed are Balance Sheet, Cash
Flow Statement, Statement of changes in stockholders’ equity, and Statement of
Retained Earnings.
Q:14 The statement of financial position gives information about:
A. Assets and liabilities
B. Income
C. credits
D. Expenses
Ans. (A) Assets and liabilities
Explanation:
Q:15 The balance sheet of a company will show short term loans and short term
investments as:
1.
A. Current assets
B. Long term assets
C. Short term assets
D. Liabilities
Ans. (B) Long-term assets
Explanation:
Short-term investments or loans are not included in current assets, and they can be
found under long-term assets in a company’s balance sheet. Current Assets are shown
in the balance sheet and give details about cash, inventory, accounts payable, and
other current assets that a business or organization has at a particular point in time.
Q:16 The statement of financial position shows the details about the current
liabilities. For example, what do you think the statement would show for a
company that buys goods for $100 and pays $90?
1.
A. $10
B. $20
C. $5
D. $15
Ans. (B) $20
Explanation:
Current liabilities represent short-term monetary obligations or debts that an
organization owes to others at a particular point in time.
Q:17 A company’s current liabilities include all short-term or current monetary
obligations or debts that the organization owes to others as
1.
A. short-term investments
B. accounts payable
C. Liabilities
D. Credits
Ans. (B) Accounts payable
Explanation:
Accounts Payable, if any, are part of current liabilities that indicate all money that the
company owes to suppliers, vendors, and others within one year. Another name for this
is payables.
Q:18 The balance sheet of a company will show long term loans and long term
investments as:
A. Current assets
B. Long-term assets
C. Income
D. Expenses
Ans. (A) Current assets
Explanation:
A company’s balance sheet gives details about its liquidity or solvency, and the
solvency ratios help measure the impact of current and noncurrent assets, current
liabilities, and stockholders’ equity in terms of business operations.
Q:19 The statement of operations gives details about:
A. Income
B. Expenses
C. Salary
D. Credits
Ans. (B) Expenses
Explanation:
An income statement is also known as a Profit and Loss Account or P&L statement, and
it shows the operating income and expenses against the performance of a company for
a particular period of time. The other financial statements listed are the Balance Sheet,
Cash Flow Statement, Statement of changes in stockholders’ equity, and statement of
retained earnings.
Q:20 The statement of financial position gives information about:
A. Assets and liabilities
B. Income and expenses
C. Credits
D. Liquidity
Ans. (B) Assets and liabilities
Explanation:
Q:21 An account that shows the amount of money a company has gained or lost
is:
A. Interest expense
B. Earnings before interest and tax
C. Bank charges
D. Interest income
Ans. (B) Earnings before interest and tax
Explanation:
Interest expense is an account that shows the revenue gained by the company from
borrowing. It is also known as bank charges and interest income.
Q:22 Which of the following are not included in the statement of financial
position?
A. Short-term or current financial obligations
B. Current assets
C. Financial position
D. Assets
Ans. (A) Short-term or current financial obligations
Explanation:
The balance sheet is also referred to as the statement of financial position or the
statement of financial condition. It gives details about assets, their value, and the
liabilities that a business owes to others at a particular point in time.
15. Enterprise risk management:

a. Guarantees achievement of business objectives.
b. Requires establishment of risk and control activities by internal auditors.
c. Involves the identification of events with negative impacts on business objectives.
d. Includes selection of best risk response for the organization
Which of the following is not one of the objectives in utilizing standard costs?
a.To simplify costing procedures and expedite cost reports.
b.To allow management to readily determine and focus attention on special problem areas.
c.To allow a measure of cost assuming ideal or perfect operating conditions.
d.To provide a measure of budgeted cost for a single unit of activity.
Which of the following analytical procedures should be applied to the income statement?
A. Select sales and expense items and trace amounts to related supporting documents.
B. Obtain from the proper client representatives, the beginning and ending inventory amounts
that were used to determine costs of sales.
C. Compare the actual revenues and expenses with the corresponding figures of the
previous year and investigate significant differences.
D. Ascertain that the net income amount in the statement of cash flows agrees with the net
income amount in the income statement.
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accounting-equation-mcqs/
MCQs 1 To 10
Click The Option and See Result
During a reporting period, a company’s
assets increase by Rs. 80,000,000.
Liabilities decrease by Rs. 20,000,000.
Equity must therefore?
Increase by Rs. 60,000,000
Decrease by Rs. 100,000,000
Increase by Rs. 100,000,000
Decrease by Rs. 60,00,000

Correct!
Which of the following is not a correct
form of the Accounting Equation?
Assets = Liabilities + Owner Equity
Assets – Liabilities = Owner’s Equity
Assets + Owner’s Equity = Liabilities
Assets = Claims
Correct!
Find out value of account receivable
from following Cash Rs. 48,000
account payable Rs. 33,000 office
equipment Rs. 21,000 owner equity Rs.
77,000?
Rs. 41,000
Rs. 15,000
Rs. 110,000
Rs. 21,000
Correct!
Which one of the following equations
correctly expresses the relationship
between assets (A), liabilities (L),
revenues (R), expenses (E) and capital
(C)?
A=L+R+E+C
A = C - (R - E) + L
A = C + L + (R-E)
A = (L - C) + (R - E)
Correct!
Consider the following data?
Rs. 49,000
Rs. 55,000
Rs. 198,000
Rs. 440,000
Correct!
The accounting equation should remain
in balance because every transaction
affects how many accounts?
Two or more
Only one
All of given options
Only two
Correct!
On January 1st, 2009 an entity's
balance sheet showed total assets of Rs.
750 and liabilities of Rs. 250. Owners'
equity at January 1st was?
Rs. 1,000
Rs. 750
Rs. 500
Rs. 250
Correct!
Which of the following statements is
incorrect?
Liabilities + Assets = Capital
Assets – Liabilities = Capital
Liabilities + Capital = Assets
Assets - Capital = Liabilities

Correct!
If the assets of a business are Rs.
100,000 and equity is Rs. 20,000, the
value of liability will be?
Rs. 80,000
20,000
Rs. 120,000
Rs. 100,000
Correct!
Find out the missing value liabilities in
an accounting equation with the help of
given data?
Rs. 201,000 liabilities
Rs. 291, 000 liabilities

Correct!
Accounting Equation (1-10)
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MCQs 11 To 20
Which of the following account is
affected from the drawings of cash in
sole-proprietorship business?
Expense account
Shareholder account
Capital account
Liability account
Correct!
Which one of the following represents
the expanded basic accounting
equation?
Assets + Dividends - Expenses = Liabilities + Common Shares + Revenues
Assets = Liabilities + Common Shares + Dividends – Revenue – Expenses
Assets – Liabilities – Dividends = Common Shares + Revenues – Expenses
Assets = Revenues + Expenses – Liabilities

Correct!
Revenue of the business includes?
Cash sales only
Credit sales only
Both cash sales and credit sales
Credit purchases only

Correct!
Mr. “A” borrowed money from bank;
this transaction involves which one of
the following accounts?
Cash & Bank Loan
Cash & Bank
Bank & Debtors
Drawing & Cash

Correct!
Which of the following is not a
satisfactory statement of the balance
sheet equation?
Assets - liabilities = owner’s equity
Assets = liabilities + owner’s equity
Assets = liabilities - owner’s equity
Assets - owner’s equity = liabilities

Correct!
Which of the following transactions
would have no impact on stockholders'
equity?
Purchase of land on credit
Net loss
Dividends to stockholders
Investment in cash by stockholders
Correct!
The liabilities of a business are Rs.
30,000; the capital of the proprietor is
Rs. 70,000. The total assets are?
Rs. 30,000
Rs.70,000
None of given options
Rs.40,000
Correct!
Mr. A provided the following
information from his books of accounts
at the end of the month. What is the
amount of his capital?
Rs. 200
Rs. 900
Rs. 1,200
Rs. 1,300
Correct!
The favorable balance of profit and loss
account should be?
Added in capital
Added in liabilities
Subtracted from liabilities
Subtracted from current assets

Correct!
Which of the following accounts will be
used in equation, if the goods are sold
on credit to Mr. Mahmood?
Account Payable and Owner’s Equity
Cash account and Owner’s equity
Cash and Account Receivable
Account Receivable and Owner’s equity

Correct!
Which of the following assertions is relevant to whether the company owns the cash
accounts as of the balance sheet date?
a. Existence/occurrence.
b. Completeness.
c. Rights and obligations.
d. Valuation or allocation.
e. All of these.
C
Which of the following assertions is relevant to whether the company owns the cash
accounts as of the balance sheet date?
b. Completeness.
e. All of these.
C
Which of the following assertions is relevant to whether the cash balances reflect the
true underlying economic value of those assets?
b. Completeness.
e. All of these.
D
Inherent risk for cash is usually assessed as high for which of the following reasons?
a. The volume of transactions flowing through cash accounts throughout the year
makes the account more susceptible to error.
b. The cash account is more susceptible to fraud because cash is liquid and easily
transferable.
c. The electronic transfer of cash and the automated controls over cash are such that if
errors are built into computer programs, they will be repeated on a large volume of
transactions.
d. Cash can be easily manipulated.
e. All of these.
E
Which of the following questions would be relevant for an inherent risk analysis
questionnaire related to cash?
a. Does the company have significant cash flow problems in meeting its current
obligations on a timely basis?
b. Are cash transactions properly authorized?
c. Are bank reconciliations performed on a timely basis by personnel independent of
processing?
d. Does the internal audit department conduct timely reviews of the cash management
and cash-handling process?
e. All of these.
A
Which of the following terms best defines this scenario?
The employee steals a payment from Customer X. To cover the theft, the employee
applies a payment from Customer Y to Customer X's account. Before Customer Y has
time to notice that its account has not been appropriately credited, the employee applies
a payment from Customer Z to Customer Y's account.
a. Lapping.
b. Kiting.
c. Skimming.
d. Collateralizing.
A
Affirmative answers to which of the following questions would lead the auditor to assess
fraud risk at a higher level for cash?
a. Is an individual with access to cash or its recording experiencing financial or personal
distress?
b. Is an individual with access to cash or its recording being compensated at an amount
that he or she might consider low?
c. Is the company in potential violation of its debt covenants?
d. Two of the three narrative answered choices given.
e. All of these.
E
Skimming most likely results in a violation of which of the following management
assertions?
a. Existence.
b. Completeness.
d. Valuation.
e. All of these.
B
Which of the following is not a type of common control over cash?
a. Segregation of duties.
b. Restrictive endorsements of customer checks.
c. Bank reconciliations by employees who handle cash.
d. Prenumbered cash receipt documents and turnaround documents.
e. Any two of these narrative answers given.
C
The first step in performing planning analytical procedures is to develop an expectation
of the account balance. Which of the following does not typically represent a likely
expected relationship for cash accounts?
a. The company reports consistent profits over several years, but operating cash flows
are declining.
b. No unusual large cash or other liquid asset transactions are found.
c. Operating cash flow is not significantly different from that of the prior year.
d. Investment income is consistent with the level of and returns expected from the
investments.
e. All of these represent likely expected relationships.
A
Which of these is a common example of trend analysis of accounts and ratios that the
auditor might consider for cash accounts?
a. Compare monthly cash balances with past years and budgets.
b. Identify unexpected spikes or lows in cash during the year.
c. Compute trends in interest returns on investments.
d. All of these.
D
Which mix of evidence would be most appropriate for the following scenario?
This is a client where the auditor has assessed the risk of material misstatement related
to the existence and completeness of cash at high. This client has incentives to
overstate cash in order to meet debt covenants. Further, the client has relatively weak
controls to prevent theft of cash.
a. 100% tests of details.
b. 70% tests of details, 10% analytics, 20% tests of controls.
c. 20% tests of details, 40% analytics, 40% tests of controls.
d. 50% tests of details, 10% analytics, 40% tests of controls.
A
Which mix of evidence would be most appropriate for the following scenario?
This is a client where the auditor has assessed the risk of material misstatement related
to the existence and completeness of cash as low, and believes that the client has
implemented effective controls in this area.
a. 20% tests of details, 40% analytics, 40% tests of controls.
b. 100% tests of details.
c. 50% tests of details, 10% analytics, 40% tests of controls.
d. 70% tests of details, 10% analytics, 20% tests of controls.
C
Refer to Exhibit 10.6. Which of the following represents a reasonable test of controls for
cash receipts?
a. Document internal controls over cash by completing the internal control questionnaire
or by flowcharting the process.
b. Segregation of duties between those handling cash and those recording cash
transactions.
c. Obtain a bank confirmation.
d. Obtain a bank cutoff statement.
e. All of these.
B
Which of the following represents a control related to cash that an auditor might test?
a. Reviews of reconciliations of reported cash receipts with remittances prepared by
independent parties.
b. Reviews of cash budgets and comparison of them with actual cash balances.
c. Reviews of discrepancies in cash balances.
d. All of these.
D
Which of the following statements regarding reperformance of bank reconciliations is
true?
a. The auditor's reperformance of a reconciliation of the client's bank accounts provides
evidence as to the accuracy of the year-end cash balance.
b. The process reconciles the balance per the bank statements with the balance per the
books.
c. Reperformance of the bank reconciliation is ineffective in detecting major errors, such
as those that might be covered up by omitting or underfooting outstanding checks.
d. Two of the statements are true.
e. All of the statements are true.
D
A bank confirmation contains which of the following two parts?
A part that seeks information on the client's deposit balances, the existence of loans,
due dates of the loans, interest rates, dates through which interest has been paid, and
collateral for loans outstanding.
A part that contains a listing of the last checks issued near year-end.
A part that seeks information about any loan guarantees.
A part that lists all transfers between the company's bank accounts for a short period of
time before and after year-end.
a. 2 & 4.
b. 2 & 3.
c. 1 & 3.
d. 3 & 4.
e. 1 & 2.
C
Refer to Exhibit 10.15. Which of the following assertions is relevant to whether the
marketable securities balances include all securities transactions that have taken place
during the period?
b. Completeness.
e. All of these.
B
Refer to Exhibit 10.15. Which of the following assertions is relevant to the audit
procedure for marketable securities that requires the auditor to examine selected
documents to identify any restrictions on the securities?
b. Completeness.
e. All of these.
C
An audit client has invested heavily in new equity and debt securities. Which of the
following would not constitute an appropriate role for the organization's board of
directors or others charged with governance?
a. Receive and review periodic reports by the internal audit function on compliance with
the organization's investment policies and procedures.
b. Periodically review the risks inherent in the portfolio of marketable securities to
determine whether the risk is within parameters deemed acceptable by the board.
c. Review and approve written policies and guidelines for investments in marketable
securities.
d. Approve all new investments prior to reviewing their risks.
D
Which of the following is a risk associated with complex financial instruments?
a. Management's objective for entering into such transactions may relate to misstating
the financial statements.
b. Most of these financial instruments have a high volume of activity and relate to deep
capital markets.
c. Most management teams today have the necessary sophistication to invest in
complex financial instruments with relatively little downside risk.
d. All of these are risks.
A
Electronic authorization privileges for cash transactions may be best assigned to
individuals based on which of the following?
a. The principle of "absolute knowledge."
b. Identification cards with picture identification.
c. Roles and activities falling within appropriate segregation of duties.
d. Encrypted passwords memorized by employees.
C
The auditor will send a standard bank confirmation to which of the following?
a. Financial institutions with which the client has transacted during the year.
b. Financial institutions used by significant shareholders.
c. Financial institutions for which the client has a balance greater than $0 at the end of
the year.
d. Financial institutions of customers using the lockbox.
A
Assume that an auditor notes a large series of checks that does not clear the bank for
an unusually long time after period end. Which of the following would the auditor likely
suspect from this observation?
a. The presence of held checks at period-end.
b. Cash does not exist.
c. Vendors are eager to get their payments.
d. The reconciliation is accurate.
A
Which of the following situations would normally be discovered by testing the bank
reconciliation?
a. Failure to include a deposit in transit on the bank reconciliation.
b. Duplicate payment of a vendor's invoice.
c. Failure to bill a customer.
d. Payment to an employee for more hours than she worked.
A
When auditing marketable securities, the auditor will do which of the following?
a. Examine broker's advices evidencing purchase of securities.
b. Recompute income.
c. Foot schedule.
d. Both A and B.
e. All of the above.
E
The emphasis in verifying petty cash is normally on which of the following?
a. Year-end balance.
b. Balance sheet classification.
c. Controls over petty cash.
d. Transactions for the period.
C
Which one of the following risks is not a risk associated with cash?
a. Complex valuation issues.
b. Easy to manipulate.
c. Importance of meeting debt covenants.
d. Large volume of transactions.
A
Which assertion related to investments is tested when the auditor examines the
documents for any restrictions?
a. Existence.
b. Rights.
c. Valuation.
d. Completeness.
B
Which of the following is the primary reason the auditor obtains and reviews a cutoff
bank statement?
a. Verify the reconciling items on the year-end bank reconciliation.
b. Foot the cutoff bank statement for completeness.
c. Verify the balance of cash per the bank's general ledger at the balance sheet date.
d. Test for intentional lapping of bank transfers.
A
The cash account is significant to the auditor for which of the following reasons?
a. Automated systems do not possess the capability to maintain strong internal controls
over cash.
b. The cash account balance is the culmination of a large volume of transactions.
c. Cash is the only account that provides opportunity for fraud.
d. The cash account is not as susceptible to fraud as most other accounts.
B
A fake cash problem relates to management's cash
valuation assertion.
a. True
b. False
B
Short selling enables managers to get away with
perpetrating fraud undetected and undeterred.
a. True
b. False
B
The volume of activity in cash accounts makes cash
accounts less susceptible to error than most other
accounts.
a. True
b. False
B
The electronic transfer of cash and the automated
controls over cash are such that if errors are built into
computer programs, they could be repeated on a large
volume of transactions.
a. True
b. False
A
Skimming occurs when an employee purchases
merchandise and records the sale at an unauthorized
discounted price.
a. True
b. False
B
In assessing fraud risk related to cash, auditors engage in
brainstorming to consider incentives, opportunities to
commit fraud, and rationalization about risks relating to
cash.
a. True
b. False
A
Controls for completeness of cash are important because
they help to provide reasonable assurance that the cash
exists.
a. True
b. False
B
Because a primary concern is that cash will be stolen and
thus understated, the auditor is not usually concerned
about overstatements of cash.
a. True
b. False
B
Planning analytical procedures for cash balances are
highly effective because of the generally stable
relationship with past cash levels and the fact that cash is
a managed account.
a. True
b. False
B
If the auditor observes that the company reports
consistent profits over several years while cash inflows
are decreasing, the auditor should likely assess a
heightened risk of fraud in cash.
a. True
b. False
A
The relative percentage of substantive analytics that an
auditor will use as evidence in the audit of cash will be
somewhat limited regardless of the riskiness of the client.
a. True
b. False
A
When auditing cash, the auditor will perform a relatively
larger percentage of tests of details for a high-risk client
compared to a low-risk client.
a. True
b. False
A
An example of a monitoring control in cash would include
a review of cash budgets and a comparison of them with
actual cash balances, with appropriate follow-up.
a. True
b. False
A
Because of the level of inherent risk associated with cash
accounts, auditors are required to test the controls over
cash accounts.
a. True
b. False
B
Because cash balances are usually relatively low at year-
end, auditing standards encourage auditors to send bank
confirmations on a sample basis.
a. True
b. False
B
A typical bank statement prepared at an interim agreed-
upon date and sent directly to the auditor is a bank
transfer statement.
a. True
b. False
B
The following is an inherent risk that is particularly
applicable to owning stock in a company like Genie
Energy: Risk of sudden market declines, which would
adversely affect the valuation of securities.
a. True
b. False
A
The following is a reasonable test of control over
marketable securities: Inquire of management about its
process for establishing valuation of marketable
securities and review related documentation.
a. True
b. False
A
When there is a ready market for financial instruments,
the audit procedures related to valuation and disclosures
are more straightforward than when the instrument is
not readily marketable.
a. True
b. False
A
Auditor expertise is critically important in evaluating the
validity of the valuation of complex financial instruments.
a. True
b. False
A
A risk of fraud is not associated with petty cash funds because of the small amounts of
money involved.
a. True
b. False
B
In auditing cash accounts, auditors typically focus primarily on the existence/occurrence
and completeness assertions.
a. True
b. False
A
Planning analytical procedures for cash balances typically include trend analysis and
ratios for comparison with the auditor's expectations.
a. True
b. False
A
The existence of debt covenants with restrictions related to cash or working capital
increase the risks of material misstatement in cash accounts.
a. True
b. False
A
The existence or occurrence assertion as related to cash is concerned with proper
classification on the balance sheet.
a. True
b. False
A
Cash and cash equivalents reported on the balance sheet may include debt securities
that mature less than six months from the balance sheet date.
a. True
b. False
B
Because substantive audit procedures are largely ineffective for cash accounts, auditors
typically focus on tests of controls when the risk of material misstatement is assessed at
a high level.
a. True
b. False
B
Electronic funds transfers have controls built into the process and do not require further
reconciliation by the client.
a. True
b. False
B
The auditor's performance of an independent reconciliation of the client's bank accounts
provides evidence as to the rights and obligations of the year-end cash balances.
a. True
b. False
B
Customer checks received at the client company should be restrictively endorsed within
one week of receipt.
a. True
b. False
B
A turnaround document is an effective control because it contains information useful for
further processing of a payment received from a customer.
a. True
b. False
A
Auditors usually perform relatively limited substantive analytical procedures for cash
accounts and instead focus on substantive tests of details.
a. True
b. False
A
Client management's review of monthly bank reconciliations prepared by employees is
an example of a control over the accuracy of cash balances that the auditor might test.
a. True
b. False
A
Periodic bank reconciliations should be performed by the individual who makes the
client's bank deposits.
a. True
b. False
B
Kiting is an example of a technique used to intentionally overstate cash.
a. True
b. False
A
The standard bank confirmation should be sent to all banks used by the client during the
year except those banks holding client accounts with a zero balance at year-end.
a. True
b. False
B
The auditor may discover evidence of kiting by preparing an interbank transfer
schedule.
a. True
b. False
A
Money laundering is designed to create the appearance that large sums of cash
obtained from criminal activities, such as drug trafficking, originated from legitimate
business sources.
a. True
b. False
A
The cutoff statement is mailed to the client for an agreed-upon date and then copied for
the audit files.
a. True
b. False
B
Testing debt securities and commercial paper would typically include an analysis of
interest income.
a. True
b. False
A
Gains and losses are not considered by auditors in testing marketable securities, as
they do not need to be disclosed.
a. True
b. False
B
All marketable securities are carried at fair market value on the balance sheet.
a. True
b. False
B
Thinly traded securities have a greater inherent risk related to valuation.
a. True
b. False
A
Effective internal control over the cash account requires that the person responsible for
making the bank deposit does not post the increase to cash in the accounting system.
a. True
b. False
A
When auditing financial hedges, the auditor should understand the product, identify
relevant risks and controls, and understand the appropriate accounting.
a. True
b. False
A
Many financial instruments offer a potentially higher return for investors along with a
reduced level of risk.
a. True
b. False
B
Under which of the following circumstances would the valuation assertion for cash most
likely have an increased level of inherent risk?
a. Client has cash holdings in foreign currency in a politically unstable country.
b. Client has cash holdings in multiple U.S. financial institutions over a wide geographic
area.
c. Client holds investments in complex financial instruments.
d. All of the above.
A
Which of the following is not a normal edit test as part of computerized control for
checks?
a. Cross-references.
b. Field checks.
c. Self-checking digits.
d. Reasonableness tests.
A
Which one of the following is not a fundamental internal control the auditor would expect
to find in place for a cash processing system?
a. Periodic internal audits.
b. Authorization of transactions.
c. Segregation of duties.
d. Electronic payments.
D
During the testing of a year-end bank reconciliation, an auditor noticed that the majority
of checks listed as outstanding at year-end did not clear the bank until the middle of the
subsequent month. Which of the following is a likely explanation?
a. The year-end cash disbursements records had been closed prior to year-end.
b. A high probability of lapping.
c. Checks were issued before year-end but not mailed until the subsequent period.
d. A high probability of kiting.
C
As cash processing systems become more automated and integrated, which of the
following is true about the general concept of segregation of duties?
a. Segregation of duties becomes less important.
b. The importance of segregation of duties does not change.
c. Segregation of duties becomes more important.
d. Segregation of duties becomes completely computerized without human involvement.
B
Which of the following controls would be most successful in mitigating the theft of
customer checks received in the mail?
a. Restrictive endorsements placed on checks as soon as they arrive.
b. Reconciliation of bank accounts each month.
c. Weekly deposits to a secure bank.
d. Custody of receipts by the accounts receivable manager.
A
Which of the following controls over cash would an auditor expect to observe?
a. Reconciliation of the general ledger to the subsidiary ledger.
b. Internal audits of marketable securities held in the company's lockbox.
c. Checks permanently marked "for deposit only" with the proper routing information.
d. Authorization privileges given only to those employees using the accounting system.
C
What form of evidence is used by the auditor to verify bank reconciliation items?
a. General ledger.
b. Cutoff statement.
c. Cash counting observation.
d. Bank confirmation
B
Which of the following describes documents that accompany customer payments to
help the clerk identify the payments?
a. Turnaround documents such as remittance advices.
b. Checks stamped with restrictive endorsements such as customer signatures.
c. Receipts such as register tapes.
d. Accommodation certificates such as authenticated customer tokens.
A
Which of the following best describes kiting?
a. Manipulation of financial reporting by increasing both cash and debt by the same
amount.
b. Theft of cash for personal use and cover-up using the bank statement.
c. Colluding to steal cash by wiring money to a fictional vendor and concealing it with
customer payments.
d. A fraudulent scheme to overstate cash at year-end by manipulating year-end
transfers between bank accounts.
D
Which of the following represents a typical substantive audit procedure for cash
balances?
a. Review cash confirmations received by the client from the bank.
b. Perform kiting techniques to transfer cash between two client accounts.
c. Verify material deposits in transit to subsequent statements.
d. Foot cutoff bank statements provided by the financial institutions.
C
How will the auditor most likely utilize the bank reconciliation as evidence in the audit of
cash?
a. The auditor sends the reconciliation to the bank for independent verification.
b. The auditor traces the book balance of the reconciliation to the cutoff bank statement.
c. The auditor performs the reconciliation for the client to record the proper cash
balance.
d. The auditor tests deposits in transit and outstanding items to other corroborating
evidence.
D
The ease with which cash can be stolen is most related to which of the following risks?
a. Control risk.
b. Detection risk.
c. Liquidity risk.
d. Inherent risk.
D
Which of the following best describes a fraudulent scheme to overstate cash assets at
year-end by recording deposits in transit in both the account from which the cash is
withdrawn and the account to which it is transferred?
a. Kiting of cash.
b. Lapping of cash.
c. Embezzlement of cash.
d. Restrictive endorsements of cash.
A
The reported fair market value of securities held by the client can be verified by the
auditor through which of the following procedures?
a. Comparing the fair values with the fair values of similar securities.
b. Comparing the fair values to credible publications and websites.
c. Comparing the values to those securities held by the auditing firm.
d. Confirming the fair values with the client as of the close of the year.
B
Which of the following items would not normally appear on bank reconciliations?
a. Balance per bank.
b. Balance per books.
c. Outstanding checks list.
d. Outstanding deposits list.
D
Investments in securities are classified as which of the following?
a. Held-to-maturity.
b. Trading securities.
c. Available-for-sale securities.
d. All of the above.
D
We have an expert-written solution to this problem!
Which of the following is the most relevant assertion with regards to the audit of cash?
a. Rights and obligations.
b. Presentation and disclosure.
c. Existence
d. Valuation and allocation.
C
Which of the following would not be used as part of analytical procedures for marketable
securities?
a. Develop expectations about the level of amounts in ending balances.
b. Verify ending balances prior to calculating the percent change.
c. Develop expectations about the relationship between the balances.
d. Review changes in the balances, risk composition, and classification types.
B
Which of the following would the auditor use to test the existence of investments?
a. Reviewing a schedule of investments sold during the year.
b. Recomputing interest and/or gains and losses.
c. Confirming or examining recorded investments.
d. Footing the schedule of recorded investments.
C
Which of the following types of securities is valued at amortized cost, subject to an
impairment test?
a. Cash equivalent securities.
b. Trading securities.
c. Available-for-sale securities.
d. Held-to-maturity securities.
D
Which of the following procedures does the auditor typically perform when testing the
existence of cash?
a. Sending a standard bank confirmation.
b. Tracing the bank reconciliation to the general ledger.
c. Counting cash at the depository institution.
d. Inquiry of management.
A
When testing cash balances at the balance sheet date, the auditor foots the bank
reconciliation and traces its reported book balance to the trial balance and its bank
balance to the standard confirmation. Which of the following assertions is being tested
with these procedures?
a. Rights.
b. Valuation.
c. All of the above.
d. Existence.
C
The standard bank confirmation includes a designated place for the financial institution
to report which of the following?
a. A reconciliation of the lockbox.
b. Maturity dates for certificates of deposit.
c. Loans and collateral.
d. Cash held on consignment.
C
Present Value of a Single Amount MCQs (1-10)
1. Assume that the interest rate is greater than zero. Which of the following cash-
inflow streams totaling $1, 500 would you prefer? The cash flows are listed in order
for Year 1, Year 2, and Year 3 respectively?
(a) $700; $500 and $300
(b) $300; $500 and $700
(c) $500; $500 and $500
(d) Any of the above, since they each sum to $1,500
Correct!
2. The higher the Future Value (FV) of the payment, the higher will be the?
(a) Discount rate
(b) Liquidity
(c) Present value
(d) Cost of borrowing
Correct!
3. Present value of a single amount is simply termed as current value of?
(a) Present payment
(b) Future payment
(c) Annuity payment
(d) Discount payment
Correct!
4. ________ means current value of a future amount of money evaluated at a given
interest rate?
(a) Compounding
(b) Discounting
(c) Nominal rate
(d) Continuous rate
Correct!
5. What does net present value give?
(a) Future values of present cash flows
(b) Present value of present cash flow
(c) Present value of future cash flows
(d) Future values of future cash flows
Correct!
6. What is the present value of $8, 000 to be paid at the end of three years if
interest rate is 11%?
(a) $6,015
(b) $4, 872
(c) $6, 725
(d) $1, 842
Correct!
7. What is the present value of a stream of $2,500 semiannual payments received at
the end of each period for the next 10 years? The APR is 6%?
(a) $35,810
(b) $38,310
(c) $37,194
(d) $36,885
Correct!
8. What is the present value of $1,000 to be paid at the end of 5 years if the correct
risk adjusted interest rate is 8%?
(a) $714
(b) $1,462
(c) $322.69
(d) $401.98
Correct!
9. To increase a given future value, the discount rate should be adjusted ________?
(a) Downward
(b) Upward
(c) First upward and then downward
(d) None
Correct!
10. You are to receive cash flows of $10,000,000 in 4 years’ time and $11,000,000 in
8 years’ time. Your discount rate is 9% per year. What is the present value of the
cash flows?
(a) $9,531,412
(b) $9,784,598
(c) $10,453,025
(d) $12,604,781
Correct!
https://www.accountancyknowledge.com/wp_quiz/finance-basics-mcqs-11-20/
Finance Basics MCQs

1. In finance, we refer to the market where new securities are bought and sold for
the first time ?
(a) Money market
(b) Capital market
(c) Primary market
(d) Secondary market
Correct!
2. Which one of the following can issue the corporate bond?
(a) Individuals
(b) Government
(c) Public limited companies
(d) All of before
Correct!
3. Which is the treasurer’s responsibility for managing the firm’s cash and
marketable securities?
(a) Planning its capital structure
(b) Overseeing the corporate pension fund
(c) Selling stocks and bonds to raise capital
(d) All of the above
Wrong!
4. Which of the following is the activity which finance people are involved?
(a) Investing decisions
(b) Marketing decisions
(c) Promotion decisions
(d) Non of Above
Correct!
5. What should be the long term focal point of financial management in a firm?
(a) The number and types of products or services provided by the firm
(b) The creation of value for shareholders
(c) The minimization of the amount of taxes paid by the firm
(d) The profits earned by the firm
Correct!
6. Financing decision determines?
(a) Current asset
(b) Fix asset
(c) Equity
(d) Mix of finance
Wrong!
7. Profit maximization is a?
(a) Long term concept
(b) Short term concept
(c) Both a & b
(d) None
Wrong!
8. What are the three interrelated areas of finance?
(a) Financial markets, option and forwards
(b) Banking, financial institutions and swap currency
(c) Investment, Financial management and Financial market & Financial institution
(d) All of above
Correct!
9. Which of the following is not normally a responsibility of the controller of the
modern corporation?
(a) Budgets and forecasts
(b) Asset management
(c) Financial reporting
(d) Cost accounting
Correct!
10. Financial decisions are concerned with which of the following?
(a) Making investment decisions that optimize economic value
(b) Making asset management decisions that optimize economic wealth
(c) Raising capital that is needed for growth
Wrong!
Finance Basics MCQs (1-10)
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MCQs 11-20
11. The goal of fundamental analysts is to find securities?

(a) Whose intrinsic value exceeds market price
(b) With a positive present value of growth opportunities
(c) With high market capitalization rates
Wrong!
12. The combination of two or more firm, the resulting firm maintains the identity of
one of the firm usually the larger?
(a) Joint venture
(b) Partnership
(c) Merger
(d) Consolidation
Wrong!
13. If an investor were to sell 100 shares of Microsoft stock to another investor in
the securities market, this would be referred to as what type of transaction?
(a) It is primary market transaction
(b) A secondary market transaction
(c) A money market transaction
(d) A futures market transaction
Wrong!
14. A Financial institution that underwrites new securities for resale?
(a) Financial intermediaries
(b) Mortgage Banker
(c) Investment Banker
(d) None
Wrong!
15. Which of the following statements always apply to corporations?
(a) Limited life
(b) Limited liability
(c) Single taxation
(d) None
Correct!
16. The purpose of financial markets is to?
(a) Increase the price of common stocks
(b) Lower the yield on bonds
(c) Allocate savings efficiently
(d) Control inflation
Wrong!
17. Which of the following is a depository financial institution?
(a) A savings bank
(b) An investment bank
(c) A finance company
(d) A pension fund
Wrong!
18. Among the pairs given below select a (n) example of a principal and a (n)
example of an agent respectively?
(a) Shareholder; manager
(b) Manager; owner
(c) Accountant; bondholder
(d) Shareholder; bondholder
Correct!
19. What is potentially the biggest advantage of a small partnership over a sole
proprietorship?
(a) Unlimited liability
(b) Single tax filing
(c) Difficult ownership resale
(d) Raising capital
Correct!
20. Which of the following statements is most correct?
(a) One of the way in which firm can mitigate or reduce agency problems between bondholders
and stockholders is by increasing the amount of debt in the capital structure
(b) Managerial compensation can be structured to reduce agency problems between stockholders
& managers
(c) All of above statements are incorrect
(d) All of the statements above are correct
Wrong!
If demand in units is 18000, relevant ordering cost for each

year is $150 and an order quantity is 1500, then annual relevant
ordering cost would be
A. $200
B. $190
C. $160
D. $180
Answer: Option D
Solution(By Examveda Team)
Annual relevant ordering cost

= (18000 ÷ (1500/150 × 100)) = $180
Question
Calculate the amount of bills receivable during the year.
Rs
Opening balance of bills receivable 75,000
Bill dishonoured 25,000
Bills collected (honoured) 1,30,000
Bills receivable endorsed to creditors 15,000
Closing balance of bills receivable 65,000
Solution
Bills Receivable Account
Dr. Cr.
Amount Amount
Particulars Rs Particulars Rs
Balance b/d 75,000 Debtors (B/R dishonoured) 25,000
Cash/Bank (honoured) 1,30,000
Creditors (endorsed) 15,000
Debtors (B/R received) 1,60,000 Balance c/d 65,000
(Balancing figure)
2,35,000 2,35,000
Bills receivable received from Debtors Rs 1,60,000.
1. Which of the following does not describe accounting?

(a) Language of business
(b) Useful for decision making
(c) Is an end rather than a mean to an end?
(d) Financial accounting and accounting systems
Correct!
2. The two most common specialized fields of accounting in practice are?
(a) Environmental accounting and financial accounting
(b) Managerial accounting and financial accounting
(c) Managerial accounting and tax accounting
(d) Financial accounting and accounting systems
Correct!
3. Which of the following user groups required the most detailed financial
information?
(a) Lenders
(b) Investor and potential investors
(c) Government agencies
(d) The management
Wrong!
4. AAA stands for?
(a) American accounting agency
(b) American accounting association
(c) Asian accounting association
(d) Australian accounting association
Wrong!
5. Which one of the following statement completely and correctly describes
accounting?
(a) Recording, classifying and summarizing economic activities in systematic way
(b) Recording, classifying and summarizing all activities in useful manner
(c) Accounting is the systematic process of recording social activities only
(d) Recording, classifying and summarizing economic activities in informal manner
Correct!
6. Which of the following provides information about the financial information’s,
obligations and activities on the economic entity that is intended for use primarily
by external decision makers?
(a) Management accounting
(b) Financial accounting
(c) Tax accounting
(d) Environmental accounting
Correct!
7. Which of the following statement is true about purpose of accounting?
(a) The purpose of accounting provide information to manager
(b) Accounting purpose gives quantitative information to economic decision makers
(c) Provision of base for decision making is purpose of accounting
(d) All of above statement are true regarding purpose of accounting
Correct!
8. External reporting is the result of?
(a) Financial accounting
(b) Management accounting
(c) Cost accounting
(d) Social accounting
Wrong!
9. How many approaches accounting has?
(a) One
(b) Two
(c) Three
(d) None
Correct!
10. Accounting is the language of?
(a) Proprietor
(b) School
(c) Business
(d) Management
Correct!
11. To understand and use accounting information in making economic decisions,

you must understand?
(a) The nature of economic activities that accounting information describes
(b) The assumptions and measurement techniques involved in developing accounting
information
(c) Which information is relevant for a particular type of decision that is being made?
(d) All of Above
Wrong!
12. The controller's responsibilities are primarily in nature, while the treasurer's
responsibilities are primarily related to?
(a) Operational; Financial accounting
(b) Accounting; Financial management
(c) Financial management; Operations
(d) Financial management; Accounting
Wrong!
13. The outcome of financial accounting is to?
(a) Record all transactions in the books of accounts
(b) Provide management with detailed analyses of costs
(c) Present the financial results to the organization by means of recognized financial statements
(d) Calculate profit
Correct!
14. Internal users of accounting information include all of the following except?
(a) Store manager
(b) Creditor
(c) Chief executive officer
(d) Chief financial officer
Correct!
15. Accounting is an information and measurement system that does all of the
following except?
(a) Analyze transactions
(b) Handle routine book-keeping tasks
(c) Structure information
(d) Recording social activities
Wrong!
16. External users of accounting information include all of the following except?
(a) Investors
(b) Labor Union
(c) Line Manager
(d) General Public
Wrong!
17. Which of the following groups use financial accounting information?
(a) Management, employees, shareholders and lenders
(b) Suppliers, customers and competitors
(c) Tax authorities, government and general public
Wrong!
18. Which of the following persons are most likely to use accounting information?
(a) Business owners
(b) Lending institutions
(c) All of the above
(d) None of the above
Correct!
19. Someone who uses accounting information is?
(a) A user
(b) An external user
(c) An internal user
(d) A manager
Correct!
20. External users include all of the following except?
(a) Lenders
(b) Customers
(c) Officers
(d) Employees
Correct!
1. Mr. Free has $100 dollars income this year and zero income next year. The market
interest rate is 10% per year. If Mr. Free consumes $30 this year and invests the rest in
the market, what will be his consumption next year?
a. $100
b. $50 Consumption next year = (100 − 30) × (1.1) = 77.
c. $77
d. $55
A firm's investment decision is also called its:

A. financing decision.
b. leasing decision. d. capital budgeting decision.
c. Liquidity decision.
d. capital budgeting decision..
Which of the following statements always apply to corporations? (Select all that apply.)
a. Unlimited liability
b. Limited life
c. Ownership can be transferred without affecting operations
d. Managers can be fired with no effect on ownership
C. Ownership can be transferred without affecting operations
D. Managers can be fired with no effect on ownership
Which of the following is an important function of financial markets?

I) providing financing; II) providing liquidity; III) reducing risk; IV) providing information
ALL
In the principal-agent framework:

shareholders are the principals, managers are the agents.
The sale of financial assets by a corporation is also referred to as the:

financing decision. Which of the following are real assets and which are financial?
Real: Trademark, factory, undeveloped land, experienced and hardworking sales force
Financial: share of stock, personal IOU, balance in the firm's checking account,
corporate bond
We can imagine the financial manager doing several things on behalf of the firm's
stockholders. But in well-functioning capital markets, shareholders will vote for only one
of these goals. Which one?
Make shareholders as wealthy as possible by investing in real assets.
The following groups are some of the claimants to a firm's income stream:
I) shareholders; II) bondholders; III) employees; IV) management; V) government

ALL
Mr. Bird has $100 income this year and zero income next year. The market interest rate
is 10% per year. Mr. Bird also has an investment opportunity in which he can invest $50
today and receive $80 next year. Suppose Mr. Bird consumes $30 this year and invests
in the project. What will be his consumption next year?
Consumption next year = (100 - 30 - 50) × 1.1 + 80 = 102.
The financial goal of a corporation is to:

maximize the value of the firm for the shareholders
Companies usually buy ___ assets. These include both tangible assets such as ____
and intangible assets such as ____. To pay for these assets, they sell ___ assets such
as ___. The decision about which assets to buy is usually termed the ____ or _____
decision. The decision about how to raise the money is usually termed the ___ decision.
real
executive airplanes
brand names
financial
bonds
investment
capital budgeting
financing
The choice of the proper mixture of debt and equity, used to finance a corporation, is
also referred to as the:
a. Capital budgeting decision
b. Investment decision
c. Capital structure decision
d. Liquidity decision
Capital structure decision
The firm's purchase of real assets is also referred to as the:

investment decision
Ms. Venus has $100 income this year and $110 next year. The market interest rate is
10% per year. Suppose Ms. Venus consumes $60 this year. What will be her
consumption next year?
Consumption next year = (100-60)*1.1 + 110 = 154
Which of the following types of assets are intangible?

a. Factories
b. Office equipment
c. Trademarks
d. Production machinery
C. Trademarks
Generally, a corporation is owned by its:

I) managers; II) board of directors; III) shareholders
III. shareholders
MCQs on Capital Structure

Capital Structure is a combination of financial instruments like equity shares, preference shares,
long-term loans, debentures, bonds or retained earnings that a business uses to raise funds for its
operations. These long-term options help firms carry out their economic activities to generate
profits.
Below are some multiple-choice questions and answers on Capital Structure to help students
understand the topic:
1. Which of these is not a part of Capital Structure?

a. Equity Shares
b. Debentures
c. Short-term borrowings
d. Bonds
Answer: c
2. Capital Structure refers to which of the following options:

a. Current assets and current liabilities
b. Shareholders equity
c. Long term debt, preferred stock and common stock options
d. None of the above
Answer: c
3. The main aim of capital structure is to:

a. Maximise owner’s return and minimise the cost of capital
b. Maximise owner’s return and maximise the cost of capital
c. Minimise owner’s return and minimise the cost of capital
d. Minimise owner’s return and maximise the cost of capital
Answer: a
4. The process of financing the assets of a business is known as:

a. Asset Structure
b. Owners Structure
c. Financial Structure
d. Capital Structure
Answer: c
5. Capital Structure is an optimal mix of which one of the following options:

a. Sales and profits
b. Debt and equity
c. Current assets and fixed assets
Answer: b
6. Capital structure ______________ financial structure

a. Is a part of
b. Is not a part of
c. Is the same as
d. Is different from
Answer: a
7. To get a broad idea of the risk profile of a business, one should look at their ________
a. Capital structure
b. Dividend policy
c. Profit and loss statement
Answer: a
8. Capital Structure is a part of ___________:

a. The asset side of a balance sheet
b. The liability side of a balance sheet
c. The Trial Balance
Answer: b
9. Which of the following options is a part of the Capital Structure of a company?

a. Short-term borrowings
b. Accounts payable
c. Equity shares
Answer: c
10. Which of the above factors helps to determine the capital structure of a firm?
a. Government policies
b. Degree of Control
c. Cost of capital
d. All of the above
Answer: d
11. In an organisation, the shareholders’ wealth is represented by:

a. The salary paid to employees
b. The market price of a share
c. The book value of a firm’s assets
Answer: b
12. The market price of an equity share is determined by:

a. The president of a company
b. The board of directors
c. Buyers and sellers of those shares
d. The stock exchange where those shares are getting traded
Answer: c
13. The price at which a bond gets traded at a stock exchange is known as:
a. Maturity Value
b. Market Value
c. Face Value
d. Redemption Value
Answer: b
14. ___________ and ____________ are two financial instruments that carry a fixed rate of interest
and they have to be paid off regardless of whether the firm earns revenue or not.
a. Equity Shares, Preference Shares
b. Equity Shares, Debentures
c. Bonds, Debentures
d. Equity Shares, Bonds
Answer: c
15. Which of the following methods should a company use to improve (lower) its debt to equity
ratio?
a. Buy common stock
b. Shift long-term debt to short term debt
c. Borrow more
d. Shift short-term debt to long-term debt
Answer: a
16. The claims by preferred shareholders on a firm’s assets and income come ________ those of
ordinary shareholders and ________ those of creditors.
a. Before; also before
b. After; after
c. Before; after
d. After; before
Answer: c
17. Which of the following options is an example of marketable securities?

a. Long-term equity securities
b. Long-term debt instruments
c. Short-term debt instruments
d. Short-term equity securities
Answer: c
18. Which of the following options is false?

a. The cost of equity capital is lower than the cost of debt before taxes
b. The cost of equity capital is very difficult to estimate
c. The cost of equity capital is the minimum rate that a business should earn on the part of
investment financed by equity
Answer: a
19. The equity shares of a company must give a higher return than debt because:
a. Bonds require a market premium
b. Demand for equity shares is greater than bonds
c. Demand for equity shares is lesser than bonds
d. Equity shares involve more systematic risk
Answer: d
20. Which of these options, apart from cash, are instruments to distribute profits to shareholders?
a. Stock purchase
b. Bonus shares
c. Stock split
d. All of the above
Answer: d

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Accounting and Finance MCQs Test 1

2.Why is the general journal used to correct errors in the ledger?

The correct answer is option 3.

The correct answer is option 1.

Cash banked $30

Check drawn for cash $70

What is the balance on the cash account at the end of March?

The correct answer is option 4.

Unpresented checks $942

Checks banked $865

What was the balance on the bank statement on 31 March?

Awesome! Your answer is correct.

 Credit Discount Allowed Account ($229)Credit Discount Received Account

 Debit drawings, credit purchases

The correct answer is option 1.

 Brown has paid $450 to the business

Your answer is correct.

 A check of $420 received from a customer was debited to his account

The correct answer is option 1.

 No effect (Income Statement)No effect (Balance Sheet)

 Gross profit is understated

. The correct answer is option 4.

 P and Q (Purchase)- (Rent)

Your answer is incorrect. The Correct answer is (option 1).

 Transferred to the trading section of the income statement

your answer is correct.

Your answer is correct.

 Debit Smith's account $30, credit suspense account $30

Your answer is correct.

20.Which item would not appear in a sales ledger control account?

Your answer is incorrect. The correct answer is option 3.

21.What is the purpose of control accounts?

 to calculate the sales and purchases

Awesome! your answer is correct.

Your answer is incorrect. The Correct answer is (option 4).

24.A Trial Balance showed:

The Provision is to be maintained at 5% of Trade receivables. How would the Provision be

26.How is an invoice for an expense owing shown in the Balance Sheet?

Your answer is incorrect. The Correct answer is (option 2).

27.How are non-current assets normally recorded in a balance sheet?

The Correct answer is (option 1).

The Correct answer is (option 1).

Awesome! your answer is correct.

 Bill $26,000, Ben $26,OOO

Your answer is incorrect. The Correct answer is (option 3).

31.Which of the following is similar to a club's receipts and payments account?

The Correct answer is (option 2).

The Correct answer is (option 1).

33.What is a limited company's authorized capital?

The Correct answer is (option 1).

34.What is the main reason for preparing a manufacturing account?

 to calculate the cost of overheads

your answer is correct.

The Correct answer is (option 3).

 prime cost, $20 000

Awesome! your answer is correct.

Correct answer is (option 2).

The Correct answer is (option 4).