Financial accounting - Aleksandre Mikeladze Flashcards

(118 cards)

1
Q

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

A

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

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2
Q

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

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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3
Q

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

A

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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4
Q

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

A

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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5
Q

A loan payment generally consists of which two components?

A

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

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6
Q

Which of the following is a liquidity ratio?

A

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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7
Q

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

A

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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8
Q

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

A

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

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9
Q

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

A

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

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10
Q

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

A

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

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11
Q

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

A

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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12
Q

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

A

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

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13
Q

Cash flow from operating activities includes:

A

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

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14
Q

In the indirect cash flow method, depreciation is:

A

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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15
Q

Which ratio measures a company’s profitability?

A

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

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16
Q

The acid-test ratio is also known as:

A

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

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17
Q

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

A

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

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18
Q

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

A

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

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19
Q

Loan amortization schedules show:

A

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

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20
Q

A balloon payment refers to:

A

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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21
Q

The statement of retained earnings connects:

A

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

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22
Q

In which statement are dividends declared reported?

A

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

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23
Q

The direct write-off method records bad debts when:

A

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

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24
Q

An increase in the allowance for doubtful accounts results in:

A

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

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25
Which financial statement provides a snapshot of a company’s financial position?
C) Balance sheet
26
Net profit margin is calculated as:
A) Net income / Total revenue
27
Which inventory valuation method is based on the assumption that the oldest inventory is sold first?
A) FIFO
28
The lower of cost or market rule is applied to:
B) Inventory valuation
29
What impact does an overstatement of ending inventory have on net income?
A) Overstated net income
30
Which of the following is considered a financing activity in the cash flow statement?
A) Issuing bonds
31
Which cash flow section includes cash payments for rent and utilities?
A) Operating activities
32
Which section of the cash flow statement reports changes in working capital?
B) Operating activities
33
The debt-to-equity ratio measures:
C) Solvency
34
Return on equity (ROE) measures:
A) A company’s profitability relative to shareholder equity
35
Which ratio measures a company’s ability to cover short-term obligations without selling inventory?
B) Quick ratio
36
Which depreciation method varies with the asset’s usage?
C) Units of production
37
The useful life of an asset affects:
A) Depreciation expense
38
Which depreciation method results in equal expenses over the asset’s life?
A) Straight-line
39
Loan principal repayment is classified under which section in the cash flow statement?
C) Financing activities
40
Interest expense on loans appears in the:
B) Income statement
41
A mortgage is an example of:
B) A long-term liability
42
Which statement shows revenues and expenses over a period of time?
B) Income statement
43
The fundamental accounting equation is:
A) Assets = Liabilities + Equity
44
Retained earnings are part of:
C) Equity
45
Which accounting concept requires expenses to be recognized when they are incurred?
B) Matching principle
46
Which financial statement reports cash received and paid during a period?
A) Cash flow statement
47
When does the accrual basis of accounting recognize revenue?
B) Goods are delivered or services are performed
48
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.
49
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.
50
The aging method for estimating bad debts focuses on?
A) The length of time receivables have been outstanding
51
An increase in bad debts expense affects which financial statement?
A) Income statement
52
Which of the following is an example of a perpetual inventory system?
B) Real-time tracking of inventory levels
53
In a periodic inventory system, inventory is updated?
D) At the end of the accounting period
54
Which of the following is a secured loan?
B) Mortgage loan
55
A loan repayment schedule includes?
B) Principal and interest amounts
56
Which of the following is an example of a non-cash item in the cash flow statement?
B) Depreciation
57
Which section of the cash flow statement includes dividends received?
B) Investing activities
58
Which of the following ratios measures efficiency in managing assets?
B) Asset turnover ratio
59
If the accounts receivable turnover increases, what does this indicate?
A) Improved cash collections
60
Which depreciation method results in lower taxable income in the early years?
B) Double declining balance
61
The salvage value of an asset is?
B) The estimated value at the end of its useful life
62
In which financial statement are liabilities reported?
B) Balance sheet
63
The matching principle in accounting ensures?
B) Expenses are recorded when incurred to match revenues
64
Accrued expenses are recorded when?
B) Expenses are incurred but not yet paid
65
The term ‘book value’ of an asset refers to?
B) Asset cost minus accumulated depreciation
66
Which of the following is an example of a deferred expense?
B) Prepaid insurance
67
When revenue is earned but not yet received, it is recorded as:
A) Accrued revenue
68
The aging method for estimating bad debts focuses on:
A) The length of time receivables have been outstanding
69
An increase in bad debts expense affects which financial statement?
A) Income statement
70
Which of the following is an example of a perpetual inventory system?
B) Real-time tracking of inventory levels
71
In a periodic inventory system, inventory is updated:
D) At the end of the accounting period
72
Which of the following is a secured loan?
B) Mortgage loan
73
A loan repayment schedule includes:
B) Principal and interest amounts
74
Which of the following is an example of a non-cash item in the cash flow statement?
B) Depreciation
75
Which section of the cash flow statement includes dividends received?
B) Investing activities
76
Which of the following ratios measures efficiency in managing assets?
B) Asset turnover ratio
77
If the accounts receivable turnover increases, what does this indicate?
A) Improved cash collections
78
Which depreciation method results in lower taxable income in the early years?
B) Double declining balance
79
The salvage value of an asset is:
B) The estimated value at the end of its useful life
80
In which financial statement are liabilities reported?
B) Balance sheet
81
The matching principle in accounting ensures:
B) Expenses are recorded when incurred to match revenues
82
Accrued expenses are recorded when:
B) Expenses are incurred but not yet paid
83
The term ‘book value’ of an asset refers to:
B) Asset cost minus accumulated depreciation
84
Which of the following is an example of accrued revenue?
A) Interest earned but not yet received
85
Prepaid rent is classified as:
A) A current asset
86
What happens when an account previously written off is collected?
C) Reversal of bad debt expense and recognition of cash
87
The direct write-off method violates which accounting principle?
A) Matching principle
88
Which inventory costing method results in the highest ending inventory during periods of falling prices?
B) LIFO
89
If inventory is understated at year-end, what is the impact on net income?
A) Understated net income
90
What is the impact of a loan payment on the financial statements?
A) Decrease in liabilities and cash
91
Interest expense on a loan is classified under:
C) Operating activities
92
If accounts receivable increases, what is the impact on cash flow from operations?
A) Decrease
93
Which of the following transactions is classified as an investing activity?
A) Purchase of equipment
94
Which ratio measures a company’s short-term liquidity position?
C) Current ratio
95
A company’s working capital is calculated as:
B) Current Assets - Current Liabilities
96
Which depreciation method uses the highest depreciation expense in the early years?
B) Double declining balance
97
An increase in accumulated depreciation results in:
Decrease in netbook value of assets
98
where are dividends declared, but not yet paid reported
Current liabilities
99
The primary purpose of an income statement is to report?
Profitability over a period
100
The double entry counting system requires:
Every transaction to affect at least two accounts
101
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
102
what is the purpose of a trial balance?
To check arithmetic accuracy of accounts
103
what financial statement is prepared first
Income statment
104
Which of the following is affected when recording accrued expense?
Expenses payable
105
which principal requires expenses to be matched with related revenues?
Matching principal
106
if bad debts expense is under stated what is the impact of net income?
Overstated overstated
107
the aging of accounts receivable method helps to
Estimate doubtful accounts
108
which of the following cost is not included in inventory valuation
Administrative salaries
109
inventory turnover is calculated
Cost of goods sold/ average inventory
110
what happens to interest expense when making loan payment?
Reduces cash and increases expense
111
loan principal repayment, which financial statement
Cash flow statetment
112
which activity is not classified under operating
Sale of fixed assets
113
a decrease in accounts payable affect cash flow by
Decreasing cash
114
which financial ratio measures the profitability of a company
Return on equity
115
high inventory turnover ratio indicates
Efficient inventory management
116
which method of depreciation allocates higher costs in earlier years
Double declining balance
117
when a fully depreciated asset is still in use how should it be reported?
Original with accumulated depreciation
118
what is the primary objective of financial accounting?
Providing financial information to stakeholders