Top Fundamental Financial Accounting Multiple Choice Questions and Answers for Effective Preparation

 

1. Which of the following is a characteristic of a liability? a. It is owed to the owners of the company. b. It represents the residual interest in the assets of the company. c. It arises from the sale of goods or services to customers. d. It represents a present obligation to pay a future amount.

Answer: d. It represents a present obligation to pay a future amount.

2. Which of the following is a contra account? a. Accumulated Depreciation. b. Prepaid Rent. c. Interest Income. d. Accounts Receivable.

Answer: a. Accumulated Depreciation.

3. Which financial statement reports the financial position of a company as of a specific date? a. Income statement. b. Statement of changes in equity. c. Statement of cash flows. d. Balance sheet.

Answer: d. Balance sheet.

4. Which of the following is not an accounting assumption? a. Going concern. b. Matching. c. Consistency. d. Materiality.

Answer: b. Matching.

5. Which of the following is a type of adjusting entry? a. Recording the purchase of inventory on credit. b. Recording the payment of salaries to employees. c. Recording the accrual of interest expense. d. Recording the receipt of cash from a customer.

Answer: c. Recording the accrual of interest expense.

6. Which of the following is the accounting equation? a. Assets + Liabilities = Owner's Equity. b. Assets = Liabilities - Owner's Equity. c. Assets - Liabilities = Owner's Equity. d. Assets + Liabilities + Owner's Equity = 0.

Answer: b. Assets = Liabilities - Owner's Equity.

7. Which of the following is an example of a current asset? a. Land. b. Building. c. Accounts Payable. d. Inventory.

Answer: d. Inventory.

8. Which of the following is an example of a long-term liability? a. Accounts Payable. b. Bank Overdraft. c. Short-term Loan. d. Bonds Payable.

Answer: d. Bonds Payable.

9. Which of the following financial ratios measures a company's ability to pay its short-term liabilities? a. Current ratio. b. Debt-to-equity ratio. c. Return on equity. d. Gross profit margin.

Answer: a. Current ratio.

10. Which of the following statements is true about a company's retained earnings? a. It is reported as an asset on the balance sheet. b. It represents the amount of cash available for distribution to shareholders. c. It is reduced by dividends declared. d. It is not affected by net income.

Answer: c. It is reduced by dividends declared

2nd Batch of questions:-

1. Which of the following financial statements reports a company's financial position at a point in time? A) Income Statement B) Statement of Cash Flows C) Balance Sheet D) Statement of Retained Earnings

Answer: C) Balance Sheet

2. Which of the following is considered an asset in accounting? A) Accounts Payable B) Accounts Receivable C) Salaries Payable D) Interest Expense

Answer: B) Accounts Receivable

3. What is the formula for calculating the current ratio? A) Current Assets / Total Assets B) Current Assets / Current Liabilities C) Total Liabilities / Total Assets D) Retained Earnings / Total Assets

Answer: B) Current Assets / Current Liabilities

4. Which of the following is an example of a noncurrent liability? A) Accounts Payable B) Salaries Payable C) Notes Payable (due in 3 years) D) Interest Expense

Answer: C) Notes Payable (due in 3 years)

5. What is the purpose of the statement of cash flows? A) To report a company's revenues and expenses over a period of time B) To report a company's financial position at a point in time C) To report a company's sources and uses of cash over a period of time D) To report a company's changes in equity over a period of time

Answer: C) To report a company's sources and uses of cash over a period of time

3rd batch of 9 questions:-

1. Which of the following is an example of a current liability? a. Accounts receivable b. Long-term debt c. Prepaid expenses d. Accounts payable Answer: d. Accounts payable

2. Which of the following is true about the accounting equation? a. Assets = Liabilities - Equity b. Assets + Equity = Liabilities c. Assets - Equity = Liabilities d. Assets = Liabilities + Equity Answer: d. Assets = Liabilities + Equity

3. What is the purpose of the income statement? a. To show the financial position of a company at a specific point in time b. To show the cash inflows and outflows of a company during a specific period c. To show the revenue and expenses of a company during a specific period d. To show the changes in equity of a company during a specific period Answer: c. To show the revenue and expenses of a company during a specific period

4. What is the purpose of the balance sheet? a. To show the financial position of a company at a specific point in time b. To show the cash inflows and outflows of a company during a specific period c. To show the revenue and expenses of a company during a specific period d. To show the changes in equity of a company during a specific period Answer: a. To show the financial position of a company at a specific point in time

5. Which of the following is an example of a long-term asset? a. Inventory b. Accounts receivable c. Property, plant, and equipment d. Prepaid expenses Answer: c. Property, plant, and equipment

6. Which financial statement would show the ending balance of retained earnings? a. Income statement b. Balance sheet c. Statement of retained earnings d. Cash flow statement Answer: c. Statement of retained earnings

7. What is the purpose of the cash flow statement? a. To show the financial position of a company at a specific point in time b. To show the cash inflows and outflows of a company during a specific period c. To show the revenue and expenses of a company during a specific period d. To show the changes in equity of a company during a specific period Answer: b. To show the cash inflows and outflows of a company during a specific period

8. What is the difference between accounts payable and accounts receivable? a. Accounts payable is money owed to the company, while accounts receivable is money the company owes to others b. Accounts payable is money the company owes to others, while accounts receivable is money owed to the company c. Accounts payable is a long-term liability, while accounts receivable is a long-term asset d. Accounts payable is a short-term liability, while accounts receivable is a short-term asset Answer: b. Accounts payable is money the company owes to others, while accounts receivable is money owed to the company

9. What is the purpose of the statement of cash flows? a. To show the financial position of a company at a specific point in time b. To show the cash inflows and outflows of a company during a specific period c. To show the revenue and expenses of a company during a specific period d. To show the changes in equity of a company during a specific period Answer: b. To show the cash inflows and outflows of a company during a specific period