Accounting & Auditing
Accounting Principles and Concepts
The double-entry system requires that total debits:
A. Equal total credits for each transaction
B. Always exceed credits
C. Equal total assets
D. Equal cash receipts only
Correct Answer: A
Every transaction is recorded with equal debit and credit effects.
Accounting & Auditing
Accounting Principles and Concepts
Which is an example of a current liability?
A. Trade payables
B. Land
C. Share premium
D. Sales
Correct Answer: A
Trade payables are normally obligations settled in the operating cycle or near term.
Accounting & Auditing
Accounting Principles and Concepts
Which is an example of a current asset?
A. Trade receivables
B. Share capital
C. Long-term loan payable
D. Sales revenue
Correct Answer: A
Trade receivables are generally expected to be realized in the operating cycle or within the relevant current period.
Accounting & Auditing
Accounting Principles and Concepts
Understandability means information should be:
A. Classified and presented clearly for reasonably knowledgeable users
B. Simplified by omitting material facts
C. Limited to accountants
D. Prepared without technical matters
Correct Answer: A
Clear classification and presentation enhance understandability without omitting relevant complexity.
Accounting & Auditing
Accounting Principles and Concepts
Timeliness means financial information should be:
A. Available in time to influence decisions
B. Published only after ten years
C. Always unaudited
D. Prepared without estimates
Correct Answer: A
Information loses usefulness if it is not available when decisions are made.
Accounting & Auditing
Accounting Principles and Concepts
Which characteristic allows users to identify similarities and differences between items?
A. Comparability
B. Prudence
C. Accrual
D. Going concern
Correct Answer: A
Comparability helps users compare information across periods and entities.
Accounting & Auditing
Accounting Principles and Concepts
The principle of full disclosure supports:
A. Providing information necessary for users to understand the statements
B. Hiding contingent matters
C. Reporting only cash transactions
D. Omitting accounting policies
Correct Answer: A
Relevant material information and accounting policies should be disclosed appropriately.
Accounting & Auditing
Accounting Principles and Concepts
Payment to a trade creditor causes:
A. Cash and payable to decrease
B. Cash and revenue to increase
C. Expense and capital to increase
D. Inventory and sales to decrease
Correct Answer: A
Cash decreases and the liability to the supplier decreases.
Accounting & Auditing
Accounting Principles and Concepts
Purchase of inventory on credit causes:
A. Assets and liabilities to increase
B. Assets and equity to decrease
C. Only equity to increase
D. Revenue to decrease
Correct Answer: A
Inventory increases and a payable is created.
Accounting & Auditing
Accounting Principles and Concepts
Purchase of equipment for cash causes:
A. One asset to increase and another asset to decrease
B. Assets and liabilities both increase
C. Equity and liabilities decrease
D. Revenue to increase
Correct Answer: A
Equipment increases while cash decreases; total assets may remain unchanged.
Accounting & Auditing
Accounting Principles and Concepts
Which account normally has a credit balance?
A. Expense
B. Drawings
C. Revenue
D. Asset
Correct Answer: C
Revenue normally has a credit balance.
Accounting & Auditing
Accounting Principles and Concepts
Which account normally has a debit balance?
A. Asset
B. Revenue
C. Capital
D. Liability
Correct Answer: A
Assets normally carry debit balances under double-entry bookkeeping.
Accounting & Auditing
Accounting Principles and Concepts
Equity is best described as:
A. Residual interest in assets after deducting liabilities
B. Total cash receipts
C. Total expenses
D. Current liabilities only
Correct Answer: A
Equity is the residual interest after liabilities are deducted from assets.
Accounting & Auditing
Accounting Principles and Concepts
A liability generally represents:
A. A present obligation of the entity
B. Owner's personal wealth
C. Future sales target
D. Only bank loans
Correct Answer: A
Liabilities are present obligations arising from past events; they are not limited to loans.
Accounting & Auditing
Accounting Principles and Concepts
Assets are resources:
A. Controlled by an entity as a result of past events
B. Owned only if paid in cash
C. Always tangible
D. Always current
Correct Answer: A
An asset is an economic resource controlled by the entity as a result of past events.
Accounting & Auditing
Accounting Principles and Concepts
Which statement primarily reports income and expenses for a period?
A. Statement of profit or loss
B. Statement of financial position
C. Bank statement
D. Purchase order
Correct Answer: A
Profit or loss summarizes income and expenses over a reporting period.
Accounting & Auditing
Accounting Principles and Concepts
Which statement reports financial position at a point in time?
A. Statement of financial position
B. Statement of profit or loss
C. Cash budget
D. Sales day book
Correct Answer: A
The statement of financial position presents assets, liabilities and equity at a reporting date.
Accounting & Auditing
Accounting Principles and Concepts
Accounting is broader than bookkeeping because accounting includes:
A. Only recording
B. Recording, classifying, summarizing, analyzing and interpreting
C. Only auditing
D. Only taxation
Correct Answer: B
Accounting extends beyond recording to classification, summarization, analysis and interpretation.
Accounting & Auditing
Accounting Principles and Concepts
Bookkeeping primarily involves:
A. Recording financial transactions
B. Expressing audit opinion
C. Making national budgets
D. Determining tax law
Correct Answer: A
Bookkeeping is the systematic recording of financial transactions.
Accounting & Auditing
Accounting Principles and Concepts
The main purpose of financial accounting is to:
A. Provide useful financial information to users
B. Guarantee profit
C. Eliminate all business risk
D. Set market prices
Correct Answer: A
Financial accounting communicates financial performance and position to users.