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.
Accounting & Auditing
Accounting Principles and Concepts
A source document mainly provides:
A. Evidence of a transaction
B. Future market prices
C. Audit opinion
D. Dividend policy
Correct Answer: A
Invoices, receipts and similar documents provide documentary evidence for accounting entries.
Accounting & Auditing
Accounting Principles and Concepts
Which concept is violated if owner's household electricity is recorded as business electricity expense?
A. Business entity concept
B. Going concern concept
C. Consistency concept
D. Matching concept
Correct Answer: A
Personal expenditure of the owner must be separated from business expenditure.
Accounting & Auditing
Accounting Principles and Concepts
Revenue expenditure is normally charged to:
A. Statement of profit or loss for the period
B. Share capital
C. Revaluation reserve only
D. Owner's drawings
Correct Answer: A
Revenue expenditure relates to current-period operations and is normally expensed.