#1
Which accounting principle states that an entity should record its expenses in the period in which they are incurred?
Matching principle
ExplanationExpenses should be matched with the revenues they helped to generate.
#2
What is the purpose of the Generally Accepted Accounting Principles (GAAP)?
To provide a standardized framework for financial reporting
ExplanationIt ensures consistency and comparability in financial reporting.
#3
Which accounting principle emphasizes that financial statements should be based on verifiable evidence?
Objectivity principle
ExplanationIt requires accounting records to be supported by reliable evidence.
#4
What is the primary purpose of the International Financial Reporting Standards (IFRS)?
To provide a standardized framework for financial reporting globally
ExplanationIt harmonizes accounting practices across different countries.
#5
What is the primary purpose of the balance sheet?
To show the financial position at a specific point in time
ExplanationIt presents assets, liabilities, and equity at a particular moment.
#6
Which accounting method records revenue when it is earned, regardless of when the payment is received?
Accrual basis accounting
ExplanationRevenue is recognized when earned, not when cash is received.
#7
In financial accounting, what does the term 'depreciation' refer to?
Decrease in the value of an asset over time
ExplanationIt reflects the gradual loss of an asset's value.
#8
What is the primary purpose of the income statement?
To report revenues and expenses over a period of time
ExplanationIt shows a company's profitability during a specific period.
#9
What is the purpose of the Statement of Retained Earnings?
To explain changes in the retained earnings account
ExplanationIt shows how retained earnings have changed over a period.
#10
What is the purpose of the statement of cash flows?
To show the company's cash inflows and outflows
ExplanationIt details how cash comes in and goes out of the company.
#11
Under the double-entry accounting system, what happens when a company receives cash from a customer?
The revenue and cash both increase
ExplanationBoth revenue and cash accounts are increased.
#12
What is the formula for calculating the return on equity (ROE)?
Net Income / Shareholder's Equity
ExplanationIt measures how efficiently a company is using shareholders' equity to generate profit.
#13
Under which financial statement would you find information about a company's dividends paid to shareholders?
Statement of Cash Flows
ExplanationIt includes cash flows related to dividends.
#14
What is the purpose of the trial balance in accounting?
To identify errors in the accounting records
ExplanationIt ensures debits equal credits, aiding error detection.