Accounting & Auditing
Introduction to Accounting
Notes to financial statements are important because they:
A. Replace all primary statements
B. Contain only marketing material
C. Provide additional explanations and details supporting the main statements
D. Are never part of financial reporting
Correct Answer: C
Notes explain accounting policies, breakdowns, uncertainties and other information needed to understand the statements.
Accounting & Auditing
Introduction to Accounting
Financial statements are described as 'general purpose' when they are designed to:
A. Serve only one manager
B. Meet common information needs of a wide range of users
C. Contain only tax information
D. Avoid external users
Correct Answer: B
General-purpose financial statements serve users who cannot demand individually tailored reports.
Accounting & Auditing
Introduction to Accounting
Which financial statement focuses on cash inflows and outflows?
A. Statement of Cash Flows
B. Statement of Financial Position only
C. Trial balance only
D. Sales ledger only
Correct Answer: A
The cash flow statement classifies cash movements into operating, investing and financing activities.
Accounting & Auditing
Introduction to Accounting
Which statement primarily reports revenues and expenses for a period?
A. Statement of Financial Position
B. Purchase order
C. Bank deposit slip
D. Income Statement
Correct Answer: D
The income statement reports performance by matching revenues and expenses for a period.
Accounting & Auditing
Introduction to Accounting
Which financial statement primarily reports financial position at a point in time?
A. Income Statement only
B. Statement of Cash Flows only
C. Statement of Financial Position
D. Sales invoice
Correct Answer: C
The Statement of Financial Position presents assets, liabilities and equity at a specific date.
Accounting & Auditing
Introduction to Accounting
Computerized accounting systems change the method of processing, but the basic need to:
A. Use no controls
B. Identify, record, process and report transactions remains
C. Ignore source evidence
D. Avoid financial statements
Correct Answer: B
Technology automates processes, but fundamental accounting objectives and information requirements remain.
Accounting & Auditing
Introduction to Accounting
An audit trail means:
A. A traceable path from financial reports back to underlying records and documents
B. A physical road to an audit office
C. A list of marketing campaigns
D. A schedule of employee leave
Correct Answer: A
An audit trail enables transactions and balances to be traced through the accounting system to supporting evidence.
Accounting & Auditing
Introduction to Accounting
Why are source documents retained?
A. To replace all accounting policies
B. To guarantee sales growth
C. To avoid recording transactions
D. To support accuracy, accountability and audit trails
Correct Answer: D
Supporting documents provide evidence, facilitate verification and strengthen the audit trail.
Accounting & Auditing
Introduction to Accounting
The accounting cycle is repeated:
A. Only once in the lifetime of a business
B. Only when a company closes
C. For each accounting period
D. Only when tax authorities request it
Correct Answer: C
Recording, adjustment, reporting and closing processes recur for successive accounting periods.
Accounting & Auditing
Introduction to Accounting
Which document would normally support a cash purchase?
A. Employee appraisal
B. Receipt
C. Product advertisement
D. Organization chart
Correct Answer: B
A receipt is documentary evidence that cash was paid for a purchase.
Accounting & Auditing
Introduction to Accounting
The end product of the accounting process commonly includes:
A. Financial statements and reports
B. Only source documents
C. Only receipts
D. Only purchase orders
Correct Answer: A
Accounting culminates in summarized reports used by stakeholders.
Accounting & Auditing
Introduction to Accounting
Grouping similar transactions under account headings is called:
A. Verification
B. Liquidation
C. Forecasting
D. Classification
Correct Answer: D
Classification organizes transactions into accounts such as cash, sales, wages and rent.
Accounting & Auditing
Introduction to Accounting
After identifying a valid financial transaction, the next broad accounting step is to:
A. Ignore it
B. Advertise it
C. Record it
D. Destroy the evidence
Correct Answer: C
Once a transaction is identified and measured, it is recorded in the accounting system.
Accounting & Auditing
Introduction to Accounting
Which is an example of a source document?
A. Company slogan
B. Sales invoice
C. Employee nickname
D. Office map
Correct Answer: B
A sales invoice documents a sale and is a common accounting source document.
Accounting & Auditing
Introduction to Accounting
A source document is important because it provides:
A. Evidence of a business transaction
B. A guarantee of profit
C. A substitute for all financial statements
D. A marketing strategy
Correct Answer: A
Invoices, receipts, bank documents and similar records provide evidence supporting recorded transactions.
Accounting & Auditing
Introduction to Accounting
Which assumption most directly supports valuing assets on a basis other than immediate liquidation values?
A. Materiality
B. Comparability
C. Timeliness
D. Going concern
Correct Answer: D
If an entity is expected to continue, many assets are measured and used on a continuing-operation basis rather than forced-sale values.
Accounting & Auditing
Introduction to Accounting
The accounting period concept supports preparation of:
A. Only lifetime reports
B. Only tax invoices
C. Periodic financial statements
D. Only bank statements
Correct Answer: C
By dividing time into periods, accounting can report performance and position regularly.
Accounting & Auditing
Introduction to Accounting
The entity concept is especially important for a sole proprietorship because:
A. The business has no transactions
B. Legally and economically the owner may be closely connected, but accounting separates business records
C. Owners cannot withdraw cash
D. The owner is an external auditor
Correct Answer: B
Accounting treats the proprietorship as a separate reporting unit even though legal separation may differ from a corporation.
Accounting & Auditing
Introduction to Accounting
Which is a limitation of the money measurement concept?
A. Important non-monetary factors may not be recorded
B. Cash transactions cannot be recorded
C. Financial statements cannot be prepared
D. Assets cannot be measured
Correct Answer: A
Qualities such as employee skill, reputation or morale may be important but difficult to recognize if not reliably measurable in money.
Accounting & Auditing
Introduction to Accounting
The monetary unit assumption facilitates accounting by:
A. Eliminating inflation completely
B. Recording all non-financial qualities
C. Preventing estimates
D. Providing a common unit for measuring diverse transactions
Correct Answer: D
Money provides a common denominator that allows different economic items to be aggregated.