#1
Which financial statement shows the overall financial performance of a company for a specific period?
Income Statement
ExplanationReports revenues, expenses, and net income for a given period.
#2
Which accounting method recognizes revenue and expenses when they are actually received or paid, rather than when they are incurred?
Cash Basis Accounting
ExplanationRecords transactions when cash is exchanged.
#3
What is the purpose of the International Financial Reporting Standards (IFRS) in accounting?
To harmonize global accounting standards
ExplanationPromotes consistency and comparability in financial reporting globally.
#4
Which financial ratio measures a company's profitability by expressing net income as a percentage of total revenue?
Net Profit Margin Ratio
ExplanationIndicates the portion of revenue retained as profit.
#5
Which accounting principle dictates that the accounting records and methods used by a business should be consistent over time?
Consistency Principle
ExplanationRequires stable application of accounting practices.
#6
What is the purpose of an adjusting journal entry in accounting?
To correct errors in previous transactions
ExplanationRectifies inaccuracies in recorded transactions.
#7
Which accounting principle requires recording expenses in the period in which they are incurred, rather than when they are paid?
Matching Principle
ExplanationEnsures expenses are matched with revenues in the same accounting period.
#8
What is the purpose of a trial balance in accounting?
To identify errors and ensure that debits equal credits
ExplanationVerifies the accuracy of accounting records.
#9
Which financial ratio measures a company's ability to meet its short-term obligations with its most liquid assets?
Current Ratio
ExplanationEvaluates liquidity by comparing current assets to current liabilities.
#10
In accounting, what does the term 'contra account' refer to?
An account with a balance opposite to that of its related account
ExplanationReduces the balance of a related account.
#11
Which financial statement reports the changes in equity of a company over a specific period?
Statement of Changes in Equity
ExplanationDetails changes in shareholders' equity over a period.
#12
What is the purpose of the 'double-entry' system in accounting?
To ensure accurate and complete recording of financial transactions
ExplanationMaintains balance by recording both debits and credits.
#13
In accounting, what does the term 'depreciation' refer to?
Decrease in the value of an asset over time
ExplanationReduction in an asset's value due to wear and tear or obsolescence.
#14
What is the primary purpose of the Sarbanes-Oxley Act (SOX) in the context of financial transactions?
To enhance corporate governance and financial reporting
ExplanationImproves transparency and accountability in financial reporting.
#15
In accounting, what does the term 'amortization' refer to?
Allocation of the cost of intangible assets over time
ExplanationSpreading the cost of intangible assets over their useful life.
#16
What is the purpose of the 'going concern' assumption in accounting?
To assume that the company will continue operating for the foreseeable future
ExplanationAssumes the company will remain operational indefinitely.
#17
In financial accounting, what does the term 'consolidation' refer to?
The process of combining financial statements of multiple entities into one
ExplanationMerges financial information from subsidiaries into one report.