Financial Accounting Solved MCQs | Part One
1. Accounting provides information on
A. Cost and income for managers
B. Company's tax liability for a particular year
C. Financial conditions of an institutions
D. All of the above
Answer D
Solution: Accounting provides information on Cost and income for managers, Company's tax liability for a particular year and Financial conditions of an institutions.
2. The long term assets that have no physical existence but are rights that have value is known as
A. Current assets
B. Fixed assets
C. Intangible assets
D. Investments
Answer Option C
Solution: The long-term assets that have no physical existence but are rights that have value is known as Intangible assets. An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets.
3. The assets that can be converted into cash within a short period (i.e. 1 year or less) are known as
A. Current assets
B. Fixed assets
C. Intangible assets
D. Investments
Answer: Option A
Solution: The assets that can be converted into cash within a short period (i.e. 1 year or less) are known as Current assets. Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets.
4. Patents, Copyrights and Trademarks are
A. Current assets
B. Fixed assets
C. Intangible assets
D. Investments
Answer: Option C
Solution: Patents, Copyrights and Trademarks are Intangible assets. An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets.
5. The debts which are to be repaid within a short period (year or less) are known as
A. Current liabilities
B. Fixed liabilities
C. Contingent liabilities
D. All of the above
Answer: Option A
Solution: The debts that are to be repaid within a short period (year or less) are known as Current liabilities. Current liabilities are a company's debts or obligations that are due within one year or within a normal operating cycle.
6. The sales income (Credit and Cash) of a business during a given period is called
A. Transactions
B. Sales Returns
C. Turnover
D. Purchase Returns
Answer: Option C
Solution: The sales income (Credit and Cash) of a business during a given period is called Turnover. In the investment industry, turnover is defined as the percentage of a portfolio that is sold in a particular month or year.
7. Any written evidence in support of a business transaction is called
A. Journal
B. Ledger
C. Ledger posting
D. Voucher
Answer: Option D
Solution: Any written evidence in support of a business transaction is called Voucher. Vouchers are the primary evidence of business transactions having taken place.
8. The account that records expenses, gains and losses is
A. Personal account
B. Real account
C. Nominal account
D. None of the above
Answer: Option C
Solution: The account that records expenses, gains and losses is Nominal account. A nominal account is an account in which accounting transactions are stored for one fiscal year.
9. Real account records
A. Dealings with creditors or debtors
B. Dealings in commodities
C. Gains and losses
D. All of the above
Answer: Option B
Solution: Real accounts record Dealers in commodities.
10. In Journal, business transactions are recorded
A. Same day
B. Next day
C. Once in a week
D. Once in a month
Answer: Option A
Solution: In Journal, the business transaction is recorded Same day. A journal, which is also known as a book of original entry, is the first place that a transaction is written in accounting records.
11. The following is (are) the type(s) of Journal
A. Purchase Journal
B. Sales Journal
C. Cash Journal
D. All of the above
Answer: Option D
Solution: The following are the types of Journal: Purchase Journal, Sales Journal and Cash Journal.
12. The process of entering all transactions from the Journal to Ledger is called
A. Posting
B. Entry
C. Accounting
D. None of the above
Answer: Option A
Solution: The process of entering all transactions from the Journal to Ledger is called Posting. Posting refers to the process of transferring entries in the journal into the accounts in the ledger. Posting to the ledger is the classifying phase of accounting.
13. The following is a statement showing the company's financial status at any given time.
A. Trading account
B. Profit & Loss statement
C. Balance Sheet
D. Cash Book
Answer: Option C
Solution: A Balance Sheet is a statement showing the company's financial status at any given time. The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements.
14. The following is a statement of revenues and expenses for a specific period.
A. Trading account
B. Trial Balance
C. Profit & Loss statements
D. Balance Sheet
Answer: Option C
Solution: A profit & Loss statement is a statement of revenues and expenses for a specific period of time, usually a fiscal quarter or year.
15. A balance sheet is a statement of
A. Assets
B. Liabilities
C. Capital
D. All of the above
Answer: Option D
Solution: The balance sheet is a statement of Assets, Liabilities and Capital.
16. Balance sheets are prepared
A. Daily
B. Weekly.
C. Monthly
D. Annually
Answer: Option D
Solution: Balance sheets are prepared annually. It lists the current and fixed assets on the left side of the sheet and liabilities and owner's equity (capital) on the right.
17. The ratios that refer to the ability of the firm to meet the short-term obligations out of its short-term resources
A. Liquidity ratio
B. Leverage ratio
C. Activity ratio
D. Profitability ratio
Answer: Option A
Solution: The ratios that refer to the ability of the firm to meet the short-term obligations out of its short-term resources is known as the Liquidity ratio.
18. The measure of how efficiently the firm employs the assets resources is called
A. Liquidity ratio
B. Leverage ratio
C. Activity ratio
D. Profitability ratio
Answer: Option C
Solution: The measure of how efficiently the firm employs the assets resources is called the Activity ratio. Activity ratios are a category of financial ratios that measure a firm's ability to convert different accounts within its balance sheets into cash or sales.
19. The following is (are) the current liability (ies)
A. Bills payable
B. Outstanding expenses
C. Bank Overdraft
D. All of the above
Answer: Option D
Solution: Bills payable, Outstanding expenses and Bank Overdrafts are the current liabilities.
20. Current ratio = Quick assets/Current liabilities
21. Liquid or Quick assets =
A. Current assets - (Stock + Work in progress)
B. Current assets + Stock + Work in progress
C. (Current assets + Stock) + Work in progress
D. (Current assets + Work in progress) - Stock
Answer: Option A
Solution: Liquid or Quick assets = Current assets - (Stock + Work in progress).
22. Lower the Debt Equity ratio
A. Lower the protection to creditors
B. Higher the protection for creditors
C. It does not affect the creditors
D. None of the above
Answer: Option B
Solution: Lowering the Debt Equity ratio higher is the protection to creditors. Creditors usually like a low debt-to-equity ratio because a low ratio (less than 1) is an indication of greater security to their money.
23. A higher inventory ratio indicates
A. Better inventory management
B. Quicker turnover
C. Both A and B
D. None of the above
Answer: Option C
Solution: A higher inventory ratio indicates better inventory management and quicker turnover.
24. Return on Investment Ratio (ROI) =
A. (Gross profit / Net sales) x 100
B. (Gross profit x Sales / Fixed assets) x 100
C. (Net profit / Sales) x 100
D. (Net profit / Total assets) x 100
Answer: Option D
Solution: Return on Investment Ratio (ROI) = (Net profit / Total assets) x 100. Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments.
25. A low Return on Investment Ratio (ROI) indicates
A. Improper utilization of resources
B. Overinvestment in assets
C. Both A and B
D. None of the above
Answer: Option C
Solution: A low Return on Investment Ratio (ROI) indicates Improper utilization of resources and Over-investment in assets.
