Final Exam

Which of the following is an example of a liability?

A car owned by a company
Money owed to a supplier
A computer used for business purposes
Revenue earned from the sale of products

Which financial statement shows a company’s financial performance over a period of time?

Income statement
Balance sheet
Cash flow statemen
Statement of equity

What is the difference between revenue and gross profit?

Revenue is the money a company earns from the sale of goods or services, while gross profit is revenue minus the cost of goods sold.
Revenue is the money a company earns from investments, while gross profit is revenue minus expenses.
Revenue is the total income of a company, while gross profit is the profit after taxes.
Revenue and gross profit are the same thing.

What is the purpose of the cash flow statement?

To show a company's financial performance over a period of time.
To show the assets, liabilities, and equity of a company at a specific point in time.
To show the movement of cash into and out of a company.
To show the profit or loss of a company after all expenses have been deducted from revenue.

Which of the following is not a major principle of GAAP?

The Cost Principle
The Matching Principle
The Revenue Recognition Principle
The Supply and Demand Principle

Which IFRS principle requires financial statements to include all information necessary for a user to understand the financial position, performance and cash flows of an entity?

Comparability
Completeness
Materiality
Neutrality

Which IFRS principle requires financial statements to be free from material errors and to be presented fairly in accordance with the requirements of the IFRS framework?

Fair presentation and compliance with IFRS
Accrual basis of accounting
Offsetting
Prudence (conservatism)

When should expenses be recorded under GAAP and IFRS?

When they are incurred, regardless of when they are paid
When they are paid, regardless of when they are incurred
Only when they are both incurred and paid in the same period
Expenses are not recognized under GAAP and IFRS

Which of the following financial statements is based on accrual accounting?

Income statement
Balance sheet
Cash flow statement
None of the above

Which of the following statements is true regarding the use of accrual accounting and cash accounting for tax purposes?

Accrual accounting is always used for tax purposes, regardless of the size of the business
Small businesses are always required to use accrual accounting for tax purposes
Some small businesses may be allowed to use cash accounting for tax purposes in certain jurisdictions
Cash accounting is always recommended for tax purposes

Which of the following best describes the difference between cash accounting and accrual accounting?

Cash accounting records revenue and expenses when they are earned or incurred, while accrual accounting records them when cash is received or paid.
Cash accounting provides a more accurate representation of a company's financial performance over a given period of time, while accrual accounting is simpler and easier to manage.
Cash accounting records revenue and expenses only when cash is received or paid, while accrual accounting records them when they are earned or incurred.
Cash accounting is generally required for larger businesses, while accrual accounting is allowed for small businesses.

In cash accounting, when are revenue and expenses recorded?

When they are earned or incurred
When cash is received or paid
When the company's financial performance is accurately reflected
When the company's cash flow is positive

How does a decrease in liabilities affect the accounting equation?

Increases equity
Decreases equity
Has no effect on equity
Decreases assets

If a company receives $10,000 cash from a customer, how does this transaction affect the accounting equation?

Assets increase by $10,000, liabilities decrease by $10,000
Assets increase by $10,000, equity increases by $10,000
Liabilities decrease by $10,000, equity increases by $10,000
Liabilities increase by $10,000, equity increases by $10,000

What is the difference between a fixed asset and a current asset?

Fixed assets are more liquid than current assets.
Fixed assets are used in the production of goods and services, while current assets are held for sale or conversion into cash.
Current assets are depreciated over time, while fixed assets are not.
Fixed assets are owned by the company for a short period of time, while current assets are owned for a longer period of time.

Which of the following is an example of a natural resource?

Machinery
Land
Patents
Accounts receivable

Which of the following is an example of a fixed liability?

Accounts payable
Accrued expenses
Long-term loans
Short-term loans

If a company issues new shares of common stock, how does this affect the company’s equity?

Increases equity
Decreases equity
Has no effect on equity
Increases liabilities

If a company pays $5,000 cash for rent expense, how does this transaction affect the accounting equation under double-entry accounting?

Assets decrease by $5,000, equity decreases by $5,000
Assets decrease by $5,000, liabilities decrease by $5,000
Assets decrease by $5,000, equity increases by $5,000
Assets increase by $5,000, liabilities increase by $5,000

What is the purpose of reconciling accounts in bookkeeping?

To identify errors and discrepancies
To prepare financial statements
To record financial transactions
To monitor cash flow

What does the term “equity” mean on a balance sheet?

The total amount of assets owned by a company
The total amount of liabilities owed by a company
The total amount of money a company has in the bank
The residual value of assets after liabilities have been paid

Which of the following is an example of revenue on an income statement?

Salaries and wages
Rent expense
Sales
Insurance expense

Which of the following financial statements is used to determine whether a company is profitable or not?

Balance Sheet
Income Statement
Cash Flow Statement
All of the above

What does the current ratio measure?

The company's ability to generate profits
The company's liquidity and ability to pay its short-term debts
The company's efficiency in managing its assets
The company's ability to pay its long-term debts

What does the return on assets (ROA) ratio measure?

The company's liquidity and ability to pay its short-term debts
The company's efficiency in managing its assets
The company's profitability relative to its total assets
The company's ability to pay its long-term debts

What is the formula for calculating the current ratio?

Total current assets / Total current liabilities
Total assets / Total liabilities
Net income / Total assets
Net income / Total equity

Which of the following ratios indicates the profitability of a company?

Debt-to-equity ratio
Asset turnover ratio
Return on equity (ROE) ratio
Quick ratio

A company has total liabilities of $1,500,000 and total equity of $500,000. What is the debt to equity ratio for the company?

1.0
2.0
3.0
4.0

Why is trend analysis important for companies?

It helps companies understand their current financial position.
It helps companies identify areas of strength and weakness in their financial performance.
It helps companies compare their financial performance to industry benchmarks.
It helps companies identify potential acquisition targets.

Which of the following is an advantage of using common-size analysis?

It provides detailed information on a company's liquidity position
It allows for comparison of financial statements across different companies in different industries
It highlights trends and changes in a company's financial performance over time
It provides a measure of a company's profitability

A company has a net income of $50,000 and net sales of $200,000. What is the company’s profit margin?

20%
25%
50%
75%

Why do companies use budgets?

To create more work for employees
To track performance against goals and objectives
To reduce employee salaries
To create obstacles for the company to overcome

What is the main difference between top-down and bottom-up budgeting?

Who creates the budget
The level of detail in the budget
The amount of money in the budget
The time frame for the budget

What is the purpose of variance analysis?

To identify areas where the company is over budget and needs to cut expenses
To identify areas where the company is under budget and needs to increase spending
To identify areas where actual results differ from budgeted results and to take corrective action if necessary
To calculate the company's profitability

What is the main purpose of financial markets?

To provide individuals with a place to buy and sell goods
To allow businesses to borrow money from banks
To enable the buying and selling of financial assets like stocks and bonds
To facilitate international trade and commerce

What is a potential disadvantage of financial markets?

They offer low liquidity for investors
They do not provide any opportunity for diversification
They can be volatile and subject to sudden changes
They have high transaction costs for investors

What is a bull market?

A market where stock prices are decreasing
A market where stock prices are increasing
A market where stock prices remain stagnant
A market where stock prices are unpredictable

What can companies do to prepare for a bear market?

Invest heavily in stocks
Reduce debt and build up cash reserves
Offer large bonuses to executives
Ignore the market and continue with business as usual

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