Financial Accounting Test For W.A.S.S.C.E & N.E.C.0 Candidates (40 Questions) Trials

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Question 1: Which of the following is considered a contra account?

a) Accounts Payable b) Inventory c) Accumulated Depreciation d) Prepaid Rent

Question 2: A company receives cash in advance from a customer for services to be rendered in the future. What account should be debited?

a) Cash b) Unearned Revenue c) Accounts Receivable d) Service Revenue

Question 3: Which of the following financial statements shows the company's financial position at a specific point in time?

a) Income Statement b) Statement of Cash Flows c) Balance Sheet d) Statement of Retained Earnings

Question 4: A company purchases equipment for $10,000 cash. Which accounts are affected by this transaction?

a) Equipment and Cash b) Equipment and Accounts Payable c) Equipment and Accounts Receivable d) Equipment and Inventory

Question 5: If a company's current ratio is 2.5, what does it indicate about the company's liquidity?

a) The company is highly liquid. b) The company is facing liquidity problems. c) The company's liquidity cannot be determined from the current ratio. d) The company has a strong profit margin.

Question 6: Which accounting principle states that expenses should be recognized in the same period as the revenues they help generate?

a) Going Concern Principle b) Matching Principle c) Conservatism Principle d) Materiality Principle

Question 7: What is the formula for calculating Return on Assets (ROA)?

a) Net Income / Total Equity b) Net Income / Total Liabilities c) Net Income / Average Total Assets d) Total Assets / Net Income

Question 8: When using the periodic inventory system, which account is credited to record the cost of goods sold?

a) Inventory b) Purchases c) Cost of Goods Sold d) Accounts Payable

Question 9: How are dividends typically classified on the income statement?

a) Operating expenses b) Non-operating expenses c) Financing activities d) Investing activities

Question 10: Under the straight-line method of depreciation, how is the depreciation expense calculated?

a) (Cost - Salvage Value) / Useful Life b) (Cost - Accumulated Depreciation) / Useful Life c) (Cost + Salvage Value) / Useful Life d) Cost / Useful Life

Question 11: A company purchases inventory on credit. How does this transaction affect the company's current ratio?

a) The current ratio increases. b) The current ratio decreases. c) The current ratio remains unchanged. d) The current ratio becomes negative.

Question 12: Which financial statement presents a summary of a company's revenues and expenses over a specific period of time?

a) Balance Sheet b) Statement of Cash Flows c) Income Statement d) Statement of Retained Earnings

Question 13: How is the debt-to-equity ratio calculated?

a) Total Debt / Total Equity b) Total Equity / Total Assets c) Total Debt / Net Income d) Total Assets / Total Debt

Question 14: Which accounting principle requires that the financial statements of a company are prepared assuming that the company will continue to operate indefinitely?

a) Going Concern Principle b) Conservatism Principle c) Matching Principle d) Revenue Recognition Principle

Question 15: When does revenue get recognized under the accrual basis of accounting?

a) When cash is received b) When goods or services are delivered c) When the order is placed by the customer d) When an invoice is sent to the customer

Question 16: What is the purpose of the statement of cash flows?

a) To show a company's financial position at a specific point in time b) To report a company's revenues and expenses for a specific period c) To present a summary of a company's cash inflows and outflows d) To disclose changes in a company's equity over time

Question 17: Which of the following is a non-current liability?

a) Accounts Payable b) Salaries Payable c) Notes Payable (due in 3 years) d) Unearned Revenue

Question 18: Which type of account would normally have a credit balance?

a) Assets b) Expenses c) Liabilities d) Equity

Question 19: If the acid-test (quick) ratio is 0.8, what does it suggest about a company's short-term liquidity?

a) The company is highly liquid. b) The company is facing liquidity problems. c) The company's liquidity cannot be determined from the quick ratio. d) The company's liquidity is satisfactory.

Question 20: What is the purpose of the double-entry accounting system?

a) To increase the complexity of financial transactions b) To ensure that every transaction is recorded in at least two accounts c) To make financial statements easier to prepare d) To eliminate the need for trial balances

Question 21: Which financial statement would you find information about a company's owner's equity?

a) Income Statement b) Statement of Cash Flows c) Balance Sheet d) Statement of Retained Earnings

Question 22: A company issues bonds to raise funds for expansion. How does this transaction affect the company's debt-to-equity ratio?

a) The debt-to-equity ratio increases. b) The debt-to-equity ratio decreases. c) The debt-to-equity ratio remains unchanged. d) The debt-to-equity ratio becomes negative.

Question 23: How are gains and losses from the sale of investments typically classified on the income statement?

a) Operating gains and losses b) Non-operating gains and losses c) Financing gains and losses d) Investing gains and losses

Question 24: Which of the following is a characteristic of a current liability?

a) Maturity longer than one year b) Expected to be settled within one year c) Associated with non-current assets d) Represents ownership interest

Question 25: How is the quick ratio calculated?

a) (Current Assets - Inventory) / Current Liabilities b) Current Assets / Current Liabilities c) (Cash + Marketable Securities) / Current Liabilities d) Current Assets + Current Liabilities

Question 26: What is the main purpose of the Sarbanes-Oxley Act (SOX)?

a) To regulate international trade b) To combat money laundering c) To establish ethical business practices d) To enhance corporate governance and financial reporting

Question 27: A company's accounts receivable turnover is 8 times. What does this indicate about the company's efficiency?

a) The company is collecting receivables too quickly. b) The company is facing difficulties in collecting its receivables. c) The company is not extending credit to customers. d) The company's turnover rate cannot be determined from the information given.

Question 28: Under the indirect method of preparing the statement of cash flows, how is depreciation expense treated?

a) Added to net income b) Subtracted from net income c) Not included in the statement of cash flows d) Reported as a financing activity

Question 29: How is the present value of a future cash flow calculated?

a) Future Value / (1 + Interest Rate)^Number of Periods b) Future Value * (1 + Interest Rate)^Number of Periods c) Future Value / Interest Rate d) Future Value * Interest Rate

Question 30: What is the purpose of the trial balance?

a) To summarize a company's financial position b) To prepare financial statements c) To ensure that debits equal credits after all transactions have been recorded d) To determine the company's net income

Question 31: A company purchases inventory on credit. How does this transaction affect the company's current ratio?

a) The current ratio increases. b) The current ratio decreases. c) The current ratio remains unchanged. d) The current ratio becomes negative.

Question 32: How is the working capital of a company calculated?

a) Current Assets - Current Liabilities b) Current Liabilities - Current Assets c) Total Assets - Total Liabilities d) Total Liabilities - Total Assets

Question 33: Which of the following financial statements would include information about a company's dividends paid to shareholders?

a) Balance Sheet b) Income Statement c) Statement of Cash Flows d) Statement of Retained Earnings

Question 34: Which accounting principle suggests that you should choose the accounting methods that will present a more conservative picture of the company's financial position?

a) Matching Principle b) Materiality Principle c) Conservatism Principle d) Consistency Principle

Question 35: How does the straight-line method of depreciation affect a company's net income over time?

a) Increases net income in the early years, decreases it in later years b) Decreases net income in the early years, increases it in later years c) Has no impact on net income d) Increases net income consistently over time

Question 36: How is the debt ratio calculated?

a) Total Debt / Total Equity b) Total Equity / Total Assets c) Total Debt / Total Assets d) Total Assets / Total Debt

Question 37: Which financial statement provides information about a company's cash flows from operating, investing, and financing activities?

a) Balance Sheet b) Income Statement c) Statement of Cash Flows d) Statement of Retained Earnings

Question 38: A company records an expense in the current period but pays for it in the next period. How does this affect the company's current ratio?

a) The current ratio increases. b) The current ratio decreases. c) The current ratio remains unchanged. d) The current ratio becomes negative.

Question 39: What is the formula for calculating the current ratio?

a) Current Assets / Current Liabilities b) Current Liabilities / Current Assets c) Total Assets / Total Liabilities d) Total Liabilities / Total Assets

Question 40: How is the profitability ratio Return on Equity (ROE) calculated?

a) Net Income / Total Equity b) Net Income / Total Assets c) Total Equity / Net Income d) Total Assets / Net Income