Financial accounting - Aleksandre Mikeladze Flashcards by Elene Davitadze

Which of the following is an example of an accrued expense?

C) Interest payable: Accrued expenses are those that have been incurred but
not yet paid, such as interest payable.

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If a company buys machinery for $50,000 with a useful life of 10 years and a salvage value of $5,000, what is the annual depreciation expense using the straight-line method?

A) $4,500 Explanation: ($50,000 - $5,000) ÷ 10 years = $4,500 per year.

($50,000 - $5,000) ÷ 10 years = $4,500 per year.

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Which of the following best describes the purpose of the allowance for doubtful accounts?

B) To estimate uncollectible accounts The allowance for doubtful accounts is a contra-asset
account used to estimate future bad debts.

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Under the allowance method, how is bad debt expense recorded?

B) As an estimate based on credit sales or aging of accounts receivable Explanation: The allowance method estimates bad debts to match
expenses with revenue in the correct period.

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A loan payment generally consists of which two components?

B) Principal and interest Loan payments consist of principal (amount borrowed) and
interest (cost of borrowing).

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Which of the following is a liquidity ratio?

C) Current ratio
Explanation: The current ratio measures a company’s ability to pay
short-term obligations (Current Assets / Current Liabilities).

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Which inventory valuation method results in the lowest ending inventory value during inflation?

B) LIFO
Explanation: LIFO (Last In, First Out) assumes the latest inventory costs
are expensed first, leaving older, lower-cost items in inventory.

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Which of the following activities is classified under investing activities in the statement of cash flows?

C) Purchasing new equipment Explanation: Investing activities include the purchase and sale of long-
term assets such as equipment.

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Which of the following is not part of the statement of financial position (balance sheet)?

C) Revenue
Revenue is part of the income statement, not the statement
of financial position.

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Under the accrual basis of accounting, revenues should be recognized when:

B) Goods are delivered or services are performed The accrual basis recognizes revenue when earned, not
when cash is received.

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What is the formula to calculate the cost of goods sold (COGS)?

A) Beginning Inventory + Purchases - Ending Inventory Explanation: This formula accounts for all inventory used during a
period.

This formula accounts for all inventory used during a period.

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Which inventory valuation method results in the lowest taxable income during inflation?

B) LIFO LIFO uses recent higher-cost inventory, leading to
higher expenses and lower taxable income.

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Cash flow from operating activities includes:

C) Accounts receivable collections
Explanation: Operating cash flows include cash collected from
customers.

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In the indirect cash flow method, depreciation is:

A) Added back to net income
Explanation: Depreciation is a non-cash expense and must be
added back to net income.

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Which ratio measures a company’s profitability?

C) Return on assets Explanation: Return on assets (ROA) measures how efficiently a
company uses its assets to generate profit.

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The acid-test ratio is also known as:

B) Quick ratio Explanation: The quick ratio measures a company’s ability to meet
short-term obligations excluding inventory.

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Under which depreciation method does an asset’s value decline faster in earlier years?

B) Double declining balance Explanation: This method accelerates depreciation expenses
earlier in the asset’s life.

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Accumulated depreciation is reported in which section of the balance sheet?

B) Fixed assets Explanation: Accumulated depreciation reduces the book value of
fixed assets.

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Loan amortization schedules show:

A) Outstanding loan balance over time Explanation: Amortization schedules show principal and interest
payments over the loan term.

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A balloon payment refers to:

B) A large payment due at the end of a loan term
* Explanation: A balloon payment is a large, lump-sum payment due
at the end of a loan’s term.

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The statement of retained earnings connects:

B) Income statement and balance sheet Explanation: It shows how net income impacts retained earnings in
the equity section.

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In which statement are dividends declared reported?

B) Statement of retained earnings Explanation: Dividends declared are deducted from retained
earnings.

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The direct write-off method records bad debts when:

C) The account is deemed uncollectible this method recognizes bad debts only when accounts are actually written off

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An increase in the allowance for doubtful accounts results in:

A) Lower net income increasing the allowance for doubtful accounts increases expenses, reducing net income

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Which financial statement provides a snapshot of a company’s financial position?

C) Balance sheet

Net profit margin is calculated as:

A) Net income / Total revenue

Which inventory valuation method is based on the assumption that the oldest inventory is sold first?

A) FIFO

The lower of cost or market rule is applied to:

B) Inventory valuation

What impact does an overstatement of ending inventory have on net income?

A) Overstated net income

Which of the following is considered a financing activity in the cash flow statement?

A) Issuing bonds

Which cash flow section includes cash payments for rent and utilities?

A) Operating activities

Which section of the cash flow statement reports changes in working capital?

B) Operating activities

The debt-to-equity ratio measures:

C) Solvency

Return on equity (ROE) measures:

A) A company’s profitability relative to shareholder equity

Which ratio measures a company’s ability to cover short-term obligations without selling inventory?

B) Quick ratio

Which depreciation method varies with the asset’s usage?

C) Units of production

The useful life of an asset affects:

A) Depreciation expense

Which depreciation method results in equal expenses over the asset’s life?

A) Straight-line

Loan principal repayment is classified under which section in the cash flow statement?

C) Financing activities

Interest expense on loans appears in the:

B) Income statement

A mortgage is an example of:

B) A long-term liability

Which statement shows revenues and expenses over a period of time?

B) Income statement

The fundamental accounting equation is:

A) Assets = Liabilities + Equity

Retained earnings are part of:

C) Equity

Which accounting concept requires expenses to be recognized when they are incurred?

B) Matching principle

Which financial statement reports cash received and paid during a period?

A) Cash flow statement

When does the accrual basis of accounting recognize revenue?

B) Goods are delivered or services are performed

Which of the following is an example of a deferred expense?

B) Prepaid insurance ## Footnote Deferred expenses, such as prepaid insurance, are paid in advance but recognized later.

When revenue is earned but not yet received, it is recorded as?

A) Accrued revenue ## Footnote Accrued revenue is recognized when earned, even if cash is not yet received.

The aging method for estimating bad debts focuses on?

A) The length of time receivables have been outstanding

An increase in bad debts expense affects which financial statement?

A) Income statement

Which of the following is an example of a perpetual inventory system?

B) Real-time tracking of inventory levels

In a periodic inventory system, inventory is updated?

D) At the end of the accounting period

Which of the following is a secured loan?

B) Mortgage loan

A loan repayment schedule includes?

B) Principal and interest amounts

Which of the following is an example of a non-cash item in the cash flow statement?

B) Depreciation

Which section of the cash flow statement includes dividends received?

B) Investing activities

Which of the following ratios measures efficiency in managing assets?

B) Asset turnover ratio

If the accounts receivable turnover increases, what does this indicate?

A) Improved cash collections

Which depreciation method results in lower taxable income in the early years?

B) Double declining balance

The salvage value of an asset is?

B) The estimated value at the end of its useful life

In which financial statement are liabilities reported?

B) Balance sheet

The matching principle in accounting ensures?

B) Expenses are recorded when incurred to match revenues

Accrued expenses are recorded when?

B) Expenses are incurred but not yet paid

The term ‘book value’ of an asset refers to?

B) Asset cost minus accumulated depreciation

Which of the following is an example of a deferred expense?

B) Prepaid insurance

When revenue is earned but not yet received, it is recorded as:

A) Accrued revenue

The aging method for estimating bad debts focuses on:

A) The length of time receivables have been outstanding

An increase in bad debts expense affects which financial statement?

A) Income statement

Which of the following is an example of a perpetual inventory system?

B) Real-time tracking of inventory levels

In a periodic inventory system, inventory is updated:

D) At the end of the accounting period

Which of the following is a secured loan?

B) Mortgage loan

A loan repayment schedule includes:

B) Principal and interest amounts

Which of the following is an example of a non-cash item in the cash flow statement?

B) Depreciation

Which section of the cash flow statement includes dividends received?

B) Investing activities

Which of the following ratios measures efficiency in managing assets?

B) Asset turnover ratio

If the accounts receivable turnover increases, what does this indicate?

A) Improved cash collections

Which depreciation method results in lower taxable income in the early years?

B) Double declining balance

The salvage value of an asset is:

B) The estimated value at the end of its useful life

In which financial statement are liabilities reported?

B) Balance sheet

The matching principle in accounting ensures:

B) Expenses are recorded when incurred to match revenues

Accrued expenses are recorded when:

B) Expenses are incurred but not yet paid

The term ‘book value’ of an asset refers to:

B) Asset cost minus accumulated depreciation

Which of the following is an example of accrued revenue?

A) Interest earned but not yet received

Prepaid rent is classified as:

A) A current asset

What happens when an account previously written off is collected?

C) Reversal of bad debt expense and recognition of cash

The direct write-off method violates which accounting principle?

A) Matching principle

Which inventory costing method results in the highest ending inventory during periods of falling prices?

B) LIFO

If inventory is understated at year-end, what is the impact on net income?

A) Understated net income

What is the impact of a loan payment on the financial statements?

A) Decrease in liabilities and cash

Interest expense on a loan is classified under:

C) Operating activities

If accounts receivable increases, what is the impact on cash flow from operations?

A) Decrease

Which of the following transactions is classified as an investing activity?

A) Purchase of equipment

Which ratio measures a company’s short-term liquidity position?

C) Current ratio

A company’s working capital is calculated as:

B) Current Assets - Current Liabilities

Which depreciation method uses the highest depreciation expense in the early years?

B) Double declining balance

An increase in accumulated depreciation results in:

Decrease in netbook value of assets

where are dividends declared, but not yet paid reported

Current liabilities

The primary purpose of an income statement is to report?

Profitability over a period

The double entry counting system requires:

Every transaction to affect at least two accounts

Which accounting assumption assumes the business will continue to operate indefinitely

Going concern( meaning that the company has a resources needed to continue operating in indefinitely

what is the purpose of a trial balance?

To check arithmetic accuracy of accounts

what financial statement is prepared first

Income statment

Which of the following is affected when recording accrued expense?

Expenses payable

which principal requires expenses to be matched with related revenues?

Matching principal

if bad debts expense is under stated what is the impact of net income?

Overstated overstated

the aging of accounts receivable method helps to

Estimate doubtful accounts

which of the following cost is not included in inventory valuation

Administrative salaries

inventory turnover is calculated

Cost of goods sold/ average inventory

what happens to interest expense when making loan payment?

Reduces cash and increases expense

loan principal repayment, which financial statement

Cash flow statetment

which activity is not classified under operating

Sale of fixed assets

a decrease in accounts payable affect cash flow by

Decreasing cash

which financial ratio measures the profitability of a company

Return on equity

high inventory turnover ratio indicates

Efficient inventory management

which method of depreciation allocates higher costs in earlier years

Double declining balance

when a fully depreciated asset is still in use how should it be reported?

Original with accumulated depreciation

what is the primary objective of financial accounting?

Providing financial information to stakeholders

Financial accounting - Aleksandre Mikeladze Flashcards

(118 cards)