#1
Which of the following is an example of a financial asset?
A government bond
ExplanationFinancial assets include securities like government bonds that represent ownership or claims on real assets.
#2
Which financial statement provides an overview of a company's financial position at a specific point in time?
Balance sheet
ExplanationThe balance sheet summarizes assets, liabilities, and equity at a specific moment, reflecting the company's financial position.
#3
What is the primary purpose of the Securities and Exchange Commission (SEC) in the United States?
To enforce securities laws and protect investors
ExplanationThe SEC oversees financial markets, enforces securities laws, and safeguards investors' interests.
#4
Which financial statement shows the profitability of a company over a specific period of time?
Income statement
ExplanationThe income statement reveals a company's financial performance by summarizing revenues, expenses, and profits over a specific time frame.
#5
Which of the following is a characteristic of a sole proprietorship?
Simplest form of business organization
ExplanationA sole proprietorship is the simplest form of business organization, where a single individual owns and manages the business.
#6
What is the purpose of double-entry bookkeeping?
To ensure accuracy in recording financial transactions
ExplanationDouble-entry bookkeeping ensures accuracy by recording each financial transaction with equal debits and credits.
#7
What is the formula for calculating Return on Investment (ROI)?
ROI = (Net Profit / Cost of Investment) x 100
ExplanationROI measures the profitability of an investment by dividing net profit by the cost of investment.
#8
What is the purpose of depreciation in accounting?
To record the decrease in value of assets over time
ExplanationDepreciation reflects the gradual reduction in the value of assets over their useful life, helping accurately represent their worth.
#9
Which financial ratio measures a company's ability to meet its short-term obligations with its most liquid assets?
Current ratio
ExplanationThe current ratio gauges a company's short-term liquidity by comparing its current assets to current liabilities.
#10
What does the term 'liquidity' refer to in finance?
The ease of converting assets into cash without significant loss
ExplanationLiquidity measures how easily assets can be converted to cash without substantial loss, reflecting financial flexibility.
#11
What is the purpose of a general ledger?
To record all financial transactions in chronological order
ExplanationThe general ledger chronologically records all financial transactions, serving as the foundation for financial statements.
#12
In double-entry bookkeeping, what does a credit entry indicate?
An increase in liabilities
ExplanationA credit entry in double-entry bookkeeping indicates an increase in liabilities or a decrease in assets.