Accounting Principles and Financial Statements

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Questions and Answers

A company is deciding whether to expense the purchase of new laptops in the current year or depreciate them over their useful life. Which accounting principle is MOST relevant to this decision?

Matching principle (correct)
Revenue recognition principle
Historical cost principle
Full disclosure principle

Which activity is NOT included in the statement of cash flows?

Cash received from issuing bonds
Cash paid to purchase equipment
Cash paid for salaries to employees
Net income earned during the year (correct)

Under which of the following inventory valuation methods would a company report the highest net income during a period of rising inventory costs?

Specific identification
LIFO (Last-In, First-Out)
Weighted-average cost
FIFO (First-In, First-Out) (correct)

A company's current ratio is 1.5. Which of the following transactions would MOST likely decrease the current ratio?

Purchasing inventory on account (A) Signup and view all the answers

Which of the following is NOT a typical step in the accounting cycle?

Performing a market analysis (B) Signup and view all the answers

A company’s net profit margin has decreased from 15% to 10% year over year. Which of the following could LEAST explain this decrease?

A decrease in the effective income tax rate (B) Signup and view all the answers

When an auditor issues a(n) ______ opinion, they believe the financial statements are presented fairly in all material aspects.

Unqualified (B) Signup and view all the answers

Which of the following scenarios would violate the concept of 'consistency' in accounting?

Switching from FIFO to weighted-average for inventory valuation. (A) Signup and view all the answers

Which of the following best describes 'Accrual Accounting'?

Recognizing revenue when it is earned and expenses when they are incurred, regardless of cash flow. (D) Signup and view all the answers

Which of the following ratios is used to assess a company's ability to meet its short-term obligations?

Current ratio (D) Signup and view all the answers

Flashcards

Financial Accounting

The branch of accounting focused on preparing financial statements for external users, adhering to standards like IFRS or GAAP.

Balance Sheet

A financial statement presenting a company’s assets, liabilities, and equity at a specific point in time.

Income Statement

A financial statement reporting a company’s financial performance over a period, including revenues, expenses, and net income/loss.

Statement of Cash Flows

A financial statement tracking the movement of cash both into and out of a company during a period, categorized into operating, investing, and financing activities.