What is the primary purpose of financial accounting?
A) Record-keeping
B) Tax planning
C) Strategic management
D) Marketing analysis
Answer: A) Record-keeping
Which financial statement provides information about a company’s profitability?
A) Balance sheet
B) Income statement
C) Cash flow statement
D) Statement of retained earnings
Answer: B) Income statement
What does the term “GAAP” stand for in accounting?
A) Generally Accepted Accounting Principles
B) Generally Acknowledged Accounting Procedures
C) Generally Applied Accounting Protocols
D) Generally Analyzed Accounting Policies
Answer: A) Generally Accepted Accounting Principles
Which of the following is an asset account?
A) Accounts payable
B) Accounts receivable
C) Salaries expense
D) Interest revenue
Answer: B) Accounts receivable
What is the purpose of the statement of cash flows?
A) To show a company’s financial position at a specific point in time
B) To report the changes in a company’s equity during a period
C) To disclose a company’s sources and uses of cash during a period
D) To calculate a company’s net income or loss
Answer: C) To disclose a company’s sources and uses of cash during a period
Which accounting principle states that expenses should be recognized in the same period as the related revenues?
A) Matching principle
B) Revenue recognition principle
C) Conservatism principle
D) Materiality principle
Answer: A) Matching principle
What does the term “liquidity” refer to in finance?
A) A company’s ability to meet its short-term obligations
B) A company’s ability to generate profits
C) A company’s debt-to-equity ratio
D) A company’s long-term investment strategy
Answer: A) A company’s ability to meet its short-term obligations
Which financial statement provides information about a company’s assets, liabilities, and equity at a specific point in time?
A) Income statement
B) Statement of cash flows
C) Balance sheet
D) Statement of retained earnings
Answer: C) Balance sheet
What does the term “depreciation” refer to in accounting?
A) The process of increasing an asset’s value over time
B) The process of recording inventory purchases
C) The process of allocating the cost of an asset over its useful life
D) The process of valuing a company’s goodwill
Answer: C) The process of allocating the cost of an asset over its useful life
Which financial statement provides information about a company’s cash inflows and outflows from operating, investing, and financing activities?
A) Income statement
B) Statement of cash flows
C) Balance sheet
D) Statement of retained earnings
Answer: B) Statement of cash flows
What is the purpose of financial ratio analysis?
A) To assess a company’s financial performance
B) To prepare tax returns
C) To evaluate marketing strategies
D) To determine employee salaries
Answer: A) To assess a company’s financial performance
Which of the following is a current liability?
A) Long-term debt
B) Accounts payable
C) Property, plant, and equipment
D) Common stock
Answer: B) Accounts payable
What does the term “audit” refer to in accounting?
A) The process of preparing financial statements
B) The process of analyzing financial ratios
C) The process of examining and verifying financial records
D) The process of forecasting future cash flows
Answer: C) The process of examining and verifying financial records
Which of the following financial ratios measures a company’s ability to pay its short-term obligations with its current assets?
A) Debt-to-equity ratio
B) Current ratio
C) Return on investment
D) Gross profit margin
Answer: B) Current ratio
What does the term “net income” represent in accounting?
A) Total revenue minus total expenses
B) Total assets minus total liabilities
C) Cash inflows minus cash outflows
D) Long-term investments minus short-term investments
Answer: A) Total revenue minus total expenses
Which of the following financial statements is prepared first during the accounting cycle?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Trial balance
Answer: D) Trial balance
What does the term “accounts payable” represent in accounting?
A) Money owed to suppliers for goods or services purchased on credit
B) Money owed by customers for goods or services sold on credit
C) Money invested in long-term assets
D) Money received from issuing common stock
Answer: A) Money owed to suppliers for goods or services purchased on credit
Which of the following is an example of an intangible asset?
A) Inventory
B) Land
C) Equipment
D) Goodwill
Answer: D) Goodwill
What does the term “working capital” represent in finance?
A) The difference between current assets and current liabilities
B) The total assets of a company
C) The long-term investments of a company
D) The equity of a company
Answer: A) The difference between current assets and current liabilities
Which of the following financial ratios measures a company’s profitability relative to its equity?
A) Return on assets (ROA)
B) Return on equity (ROE)
C) Debt-to-equity ratio
D) Current ratio
Answer: B) Return on equity (ROE)
What does the term “cash flow” represent in finance?
A) The total revenue of a company
B) The total expenses of a company
C) The movement of money in and out of a company
D) The net income of a company
Answer: C) The movement of money in and out of a company
Which of the following is an example of an operating expense?
A) Purchase of long-term investments
B) Purchase of raw materials
C) Repayment of long-term debt
D) Purchase of land
Answer: B) Purchase of raw materials
What does the term “accrual accounting” mean?
A) Recording transactions only when cash is received or paid
B) Recording transactions when revenues are earned and expenses are incurred
C) Recording transactions at the end of the accounting period
D) Recording transactions based on historical cost
Answer: B) Recording transactions when revenues are earned and expenses are incurred
Which financial statement provides information about changes in a company’s equity during a period?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
Answer: D) Statement of retained earnings
What does the term “inventory turnover ratio” measure?
A) A company’s ability to pay its debts
B) A company’s ability to generate profits
C) How quickly inventory is sold or used
D) How effectively a company utilizes its assets
Answer: C) How quickly inventory is sold or used
Which of the following financial ratios measures a company’s ability to generate profits from its assets?
A) Debt-to-equity ratio
B) Return on assets (ROA)
C) Current ratio
D) Gross profit margin
Answer: B) Return on assets (ROA)
What does the term “dividend” refer to in finance?
A) Money borrowed by a company
B) Money owed to creditors
C) Money distributed to shareholders as a reward for owning stock
D) Money invested in long-term assets
Answer: C) Money distributed to shareholders as a reward for owning stock
Which of the following financial ratios measures a company’s ability to cover its interest expenses with its operating income?
A) Debt-to-equity ratio
B) Return on assets (ROA)
C) Earnings per share (EPS)
D) Interest coverage ratio
Answer: D) Interest coverage ratioWhat does the term “capital budgeting” refer to in finance?
A) Managing a company’s day-to-day expenses
B) Allocating funds for long-term investments
C) Calculating short-term cash flows
D) Analyzing financial statements
Answer: B) Allocating funds for long-term investments
Which of the following financial ratios measures a company’s ability to cover its short-term liabilities with its liquid assets?
A) Debt-to-equity ratio
B) Current ratio
C) Return on equity (ROE)
D) Gross profit margin
Answer: B) Current ratio
What does the term “asset allocation” refer to in finance?
A) Allocating resources for marketing activities
B) Allocating funds for inventory management
C) Allocating investments among different asset classes
D) Allocating funds for employee salaries
Answer: C) Allocating investments among different asset classes
Which of the following financial ratios measures a company’s ability to cover its long-term debt with its earnings before interest and taxes (EBIT)?
A) Debt-to-equity ratio
B) Return on assets (ROA)
C) Earnings per share (EPS)
D) Debt coverage ratio
Answer: D) Debt coverage ratio
What does the term “leverage” refer to in finance?
A) The amount of debt a company has relative to its equity
B) The amount of cash reserves a company has
C) The amount of revenue generated by a company
D) The amount of assets owned by a company
Answer: A) The amount of debt a company has relative to its equity
Which of the following financial ratios measures a company’s efficiency in managing its inventory?
A) Debt-to-equity ratio
B) Inventory turnover ratio
C) Return on investment (ROI)
D) Earnings per share (EPS)
Answer: B) Inventory turnover ratio
What does the term “cost of goods sold (COGS)” represent in accounting?
A) The total revenue of a company
B) The total expenses of a company
C) The direct costs associated with producing goods or services
D) The indirect costs associated with running a business
Answer: C) The direct costs associated with producing goods or services
Which of the following financial ratios measures a company’s efficiency in collecting its accounts receivable?
A) Debt-to-equity ratio
B) Days sales outstanding (DSO)
C) Gross profit margin
D) Return on equity (ROE)
Answer: B) Days sales outstanding (DSO)
What does the term “equity” represent in finance?
A) The total assets of a company
B) The total liabilities of a company
C) The difference between assets and liabilities
D) The revenue generated by a company
Answer: C) The difference between assets and liabilities
Which of the following financial ratios measures a company’s efficiency in using its assets to generate sales?
A) Debt-to-equity ratio
B) Return on assets (ROA)
C) Earnings per share (EPS)
D) Debt coverage ratio
Answer: B) Return on assets (ROA)
What does the term “shareholder equity” refer to in finance?
A) The total assets of a company
B) The total liabilities of a company
C) The difference between assets and liabilities
D) The revenue generated by a company
Answer: C) The difference between assets and liabilities
Which of the following financial ratios measures a company’s profitability on each dollar of sales?
A) Debt-to-equity ratio
B) Return on assets (ROA)
C) Gross profit margin
D) Debt coverage ratio
Answer: C) Gross profit margin
What does the term “cash flow statement” show in finance?
A) The revenue generated by a company
B) The expenses incurred by a company
C) The movement of cash in and out of a company during a specific period
D) The assets and liabilities of a company
Answer: C) The movement of cash in and out of a company during a specific period
Which of the following financial ratios measures a company’s ability to meet its long-term obligations?
A) Debt-to-equity ratio
B) Current ratio
C) Debt coverage ratio
D) Return on assets (ROA)
Answer: C) Debt coverage ratio
What does the term “accounts receivable turnover ratio” measure?
A) How quickly a company pays its creditors
B) How quickly a company collects cash from customers
C) How quickly a company turns its inventory into sales
D) How efficiently a company uses its assets
Answer: B) How quickly a company collects cash from customers
Which of the following financial ratios measures a company’s ability to cover its short-term obligations with its liquid assets, excluding inventory?
A) Quick ratio
B) Debt-to-equity ratio
C) Return on assets (ROA)
D) Gross profit margin
Answer: A) Quick ratio
What does the term “interest coverage ratio” measure?
A) How quickly a company collects cash from customers
B) How efficiently a company uses its assets to generate sales
C) How well a company can cover its interest expenses with its operating income
D) How quickly a company turns its inventory into sales
Answer: C) How well a company can cover its interest expenses with its operating income
Which of the following financial ratios measures a company’s efficiency in managing its working capital?
A) Debt-to-equity ratio
B) Return on assets (ROA)
C) Working capital turnover ratio
D) Debt coverage ratio
Answer: C) Working capital turnover ratio
What does the term “operating income” represent in finance?
A) The revenue generated by a company’s core business activities
B) The total expenses of a company
C) The net income of a company
D) The difference between assets and liabilities
Answer: A) The revenue generated by a company’s core business activities
Which of the following financial ratios measures a company’s ability to turn its inventory into sales?
A) Debt-to-equity ratio
B) Inventory turnover ratio
C) Return on equity (ROE)
D) Gross profit margin
Answer: B) Inventory turnover ratio
What does the term “retained earnings” represent in finance?
A) The revenue generated by a company’s core business activities
B) The net income of a company that is reinvested in the business
C) The total assets of a company
D) The total liabilities of a company
Answer: B) The net income of a company that is reinvested in the business
Which of the following financial ratios measures a company’s efficiency in managing its accounts payable?
A) Debt-to-equity ratio
B) Days payable outstanding (DPO)
C) Return on investment (ROI)
D) Earnings per share (EPS)
Answer: B) Days payable outstanding (DPO)