Topic: Accounting & Auditing
1. Which of the following is a liability?
a) Accounts Receivable
b) Cash
c) Building
d) Accounts Payable
2. The accounting principle that requires revenue to be recognized when earned is the:
a) Cost Principle
b) Matching Principle
c) Revenue Recognition Principle
d) Economic Entity Principle
3. A trial balance will not balance if:
a) A $100 cash drawing by the owner is debited to the Owner's Capital account and credited to Cash.
b) A $500 payment of rent is debited to Rent Expense and credited to Cash.
c) A $200 purchase of supplies on credit is debited to Supplies and credited to Accounts Payable.
d) All of the above.
4. Which of the following is an intangible asset?
a) Land
b) Machinery
c) Goodwill
d) Inventory
5. Depreciation is the process of:
a) Valuing an asset's current worth.
b) Allocating the cost of tangible assets over its useful life.
c) Writing off bad debts.
d) Closing the books at year-end.
6. The primary objective of financial auditing is to:
a) Detect fraud.
b) Ensure compliance with tax laws.
c) Provide assurance that financial statements are free from material misstatement.
d) Assist in decision-making.
7. Which financial statement provides information about a company's financial position at a specific point in time?
a) Income Statement
b) Balance Sheet
c) Cash Flow Statement
d) Statement of Retained Earnings
Read More: Test No. 124
8. In a bank reconciliation, outstanding checks are:
a) Added to the bank statement balance.
b) Deducted from the bank statement balance.
c) Added to the book balance.
d) Deducted from the book balance.
9. The matching principle requires:
a) Assets to be matched with liabilities.
b) Expenses to be matched with revenues.
c) Revenues to be matched with assets.
d) None of the above.
10. The audit report opinion that suggests the financial statements are presented fairly in all material respects is:
a) Adverse opinion.
b) Disclaimer opinion.
c) Qualified opinion.
d) Unqualified opinion.
11. Gross profit is calculated as:
a) Sales - Cost of Goods Sold.
b) Sales - (Operating Expenses + Cost of Goods Sold).
c) Sales - Operating Expenses.
d) Sales + Cost of Goods Sold.
12. Accrual accounting requires:
a) Revenue and expenses to be recognized when cash is received or paid.
b) Revenue to be recognized when earned and expenses when incurred.
c) Revenue to be recognized when cash is received.
d) None of the above.
13. Retained earnings represent:
a) Cash set aside for future use.
b) Profits that have been distributed to shareholders.
c) Profits that have been reinvested in the business.
d) External equity.
14. The audit evidence hierarchy from highest to lowest quality is:
a) Physical examination, external confirmation, documentation, analytical procedures.
b) External confirmation, documentation, analytical procedures, physical examination.
c) Analytical procedures, documentation, physical examination, external confirmation.
d) Documentation, physical examination, external confirmation, analytical procedures.
15. A contra asset account is:
a) Accounts Payable.
b) Accumulated Depreciation.
c) Prepaid Rent.
d) Inventory.
16. The principle that suggests that transactions should be recorded at their historical cost is:
a) Cost Principle.
b) Revenue Recognition Principle.
c) Matching Principle.
d) Economic Entity Principle.
17. Which of the following is an example of a current liability?
a) Bonds payable.
b) Mortgage payable.
c) Accounts payable.
d) Equipment
18. In a perpetual inventory system, Cost of Goods Sold is determined:
a) At the end of the period.
b) When the physical inventory is done.
c) Each time a sale is made.
d) None of the above.
19. An independent external auditor's primary responsibility is to:
a) Detect fraud.
b) Serve the client's needs.
c) Ensure all transactions are recorded.
d) Express an opinion on the fairness of the financial statements.
20. The equation that represents the relationship between assets, liabilities, and equity is:
a) Assets = Liabilities + Equity.
b) Assets = Liabilities - Equity.
c) Assets + Liabilities = Equity.
d) Equity = Assets - Liabilities.