#1
Which of the following financial statements shows the financial position of a company at a specific point in time?
Balance sheet
ExplanationIt presents assets, liabilities, and equity at a given date.
#2
Which financial statement reports a company's revenues and expenses over a specific period of time?
Income statement
ExplanationIt summarizes revenues and expenses to show profitability.
#3
Which of the following is an example of an operating expense?
Sales commissions
ExplanationIt's a cost related to a company's core business activities.
#4
Which of the following is considered a long-term liability?
Bond payable due in 5 years
ExplanationIt's a debt due for payment beyond one year.
#5
What is the purpose of the statement of retained earnings?
To reconcile the beginning and ending balances of retained earnings
ExplanationIt explains changes in retained earnings over a period.
#6
What is the primary purpose of depreciation in accounting?
To spread the cost of an asset over its useful life
ExplanationIt allocates the cost of assets over their expected useful lives.
#7
Which accounting principle requires that expenses be recorded in the same period as the revenue they help to generate?
Matching principle
ExplanationIt ensures recognition of expenses in the same period as related revenue.
#8
What does the term 'EBITDA' stand for in accounting?
Earnings Before Interest, Taxes, Depreciation, and Amortization
ExplanationIt represents a measure of a company's operating performance.
#9
What is the formula to calculate return on equity (ROE)?
Net Income / Total Equity
ExplanationIt measures the profitability of equity investment.
#10
What is the purpose of the Generally Accepted Accounting Principles (GAAP)?
To provide a framework for reporting financial information
ExplanationIt ensures consistency and comparability in financial reporting.
#11
What is the formula for calculating the current ratio?
Current Assets / Current Liabilities
ExplanationIt measures a company's liquidity and ability to pay short-term debts.
#12
Under which accounting method are revenues and expenses recognized only when cash is received or paid?
Cash basis accounting
ExplanationIt records transactions only when cash is exchanged.
#13
What does the term 'LIFO' stand for in accounting?
Last In, First Out
ExplanationIt's a method of inventory valuation.
#14
Which accounting principle states that assets should be recorded at their original cost?
Cost principle
ExplanationIt requires assets to be initially recorded at the amount paid.
#15
Which accounting method records revenues and expenses when they are earned or incurred, regardless of when cash is received or paid?
Accrual basis accounting
ExplanationIt recognizes transactions when they occur, not when cash is exchanged.
#16
Which financial statement reports the changes in a company's equity over a specific period?
Statement of changes in equity
ExplanationIt details the movement in shareholders' equity.