Accounting Practices
Final Test Solutions
Course Introduction
Accounting Practices introduces students to the fundamental principles, procedures, and concepts essential for accurate financial record-keeping and reporting within organizations. The course covers key topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the application of generally accepted accounting principles (GAAP). Students will learn practical skills in maintaining ledgers, journalizing transactions, reconciling accounts, and interpreting financial information for decision-making. Emphasis is also placed on ethics in accounting, internal controls, and the use of accounting software, equipping students with a solid foundation for further studies or entry-level positions in the field of accounting.
Recommended Textbook
Accounting Understanding and Practice 4th Edition by Danny Leiwy
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19 Chapters
492 Verified Questions
492 Flashcards
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Chapter 1: The Statement of Financial Position Balance
Sheetand What It Tells Us
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30 Verified Questions
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Sample Questions
Q1) Non-current assets include inventories and trade receivables.
A)True
B)False
Answer: False
Q2) The accounting equation can be stated as:
A) Assets = Liabilities + Owner's Equity
B) Assets + Liabilities = Owner's Equity
C) Liabilities = Owner's Equity + Assets
D) Assets = Liabilities - Owner's Equity
Answer: A
Q3) Which of the following statements is correct?
A) The "net book value" or "Carrying amount" of a non-current asset reflects the market value of the asset.
B) The "net book value" or "Carrying amount" of a non-current asset is the cost of the asset, minus accumulated depreciation
C) The "net book value" or "Carrying amount" is the original cost of the asset
D) The "net book value" or "Carrying amount" cannot be calculated from a published Statement of Financial Position
Answer: B
Page 3
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Chapter 2: The Income Statement Profit and Loss Account
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Sample Questions
Q1) Which of the following statements is correct? For a business that buys raw materials and manufactures a product:
A) "Revenue" or "Turnover" or "Sales" is all money that comes into the business, including items such as bank interest received.
B) "Revenue" or "Turnover" or "Sales" is money that is left over once the cost of the raw materials is taken off.
C) "Revenue" or "Turnover" or "Sales" is the money that has actually been received from people buying goods.
D) "Revenue" or "Turnover" or "Sales" is the sales value of the goods that have been sold in the financial year.
Answer: D
Q2) If opening stock is £2,000,purchases for the year £12,000 and closing inventory
£3,000,what is the cost of goods sold?
A) £13,000
B) £7,000
C) £11,000
D) £17,000
Answer: C
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Chapter 3: The Development of Financial Reporting
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Sample Questions
Q1) Public financial statements are produced specifically in order to satisfy the requirements of HM Revenue and Customs
A)True
B)False
Answer: False
Q2) Which of the following statements is false?
A) Lenders are often provided with more information than is included on the financial statements of a company
B) It would be impractical to expand financial statements to include all the information that different user groups want
C) It is a legal requirement for companies to provide relevant financial accounting information to each of the user groups defined by the IASB
D) Shareholders and lenders want to know about the future prospects of a company Answer: C
Q3) Companies are allowed to pay dividends out of capital
A)True
B)False
Answer: False
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Chapter 4: Ratios and Interpretation: a Straightforward Introduction
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Sample Questions
Q1) If a company reported a profit for the year of £90m,share capital of £200m and a share price of £9.00 - what is the earnings per share (EPS)?
A) 20p per share
B) 10p per share
C) 45p per share
D) 22p per share
Q2) If a company was interested in calculating how long it takes to receive payment from customers,which of the calculations would they make?
A) Trade receivables/sales revenue x 365
B) Sales revenue/trade receivables x 365
C) Trade payables/cost of sales x 365
D) Cost of sales/trade payables x 365
Q3) One way of assessing if debt is too high is to compare it with equity
A)True
B)False
Q4) One way to improve return on capital employed (ROCE)is to reduce costs and increase sales
A)True
B)False
6
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Chapter 5: How the Stock Market Assesses Company Performance
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Sample Questions
Q1) A high price/earnings (P/E)ratio indicates that a company is profitable
A)True
B)False
Q2) Which of the following statements is correct?
A) A bull market is when share prices are rising
B) A bull market is when share prices are falling
C) A bear market is when share prices are rising
D) Statements B and C are both correct
Q3) Which of the following statements is false?
A) When the price of a company's shares is too high, demand for those shares will fall
B) The price of a company's shares is determined by the company itself
C) If a company's shares are not in demand, the share price will fall until some investors decide the shares are good value
D) All of the above statements are false
Q4) Dividend per share expressed as a % of current share price is known as:
A) Dividend cover
B) Price/earnings ratio
C) Dividend yield
D) Earnings per share
Page 7
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Chapter 6: Cash Flow Statements: Understanding and Preparation
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Sample Questions
Q1) Generating lots of cash is a definite sign of success
A)True
B)False
Q2) Which of the following statements is false?
A) Not all revenues are receipts of cash
B) Some receipts of cash do not add to profits
C) Not all expenses are payments of cash
D) All payments of cash are expenses
Q3) The annual depreciation expense is an outflow of cash
A)True
B)False
Q4) Which of the following statements is false?
A) Payment for inventory not sold until the next period, is an example of a payment of cash which is not an expense
B) Borrowing money is an example of a receipt of cash which is not revenue
C) Discount allowed to customers for prompt payment, is an expense that is treated as a payment of cash
D) Depreciation is an expense which is not a payment of cash
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Chapter 7: Advanced Interpretation of Company and Group Accounts
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Sample Questions
Q1) Which of the following z-scores would suggest a company was likely to fail?
A) 1.86
B) 2.99
C) 1.72
D) 1.90
Q2) A company with interest cover of 10 is less safe than a company with interest cover of 2
A)True
B)False
Q3) Which of the following would you associate with the Director's report?
A) Cash flow statement
B) Five year summary
C) Business review
D) Balance sheet
Q4) If one company buys another for less than the net book value of its assets,this is regarded as "negative goodwill" and does not require that the assets and liabilites be revalued at "fair value"
A)True
B)False
Page 9
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Chapter 8: Current Issues in Financial Reporting
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Sample Questions
Q1) Which of the following statements about The Corporate Report (1975)is false?
A) The Corporate Report recommended a statement of value-added
B) The Corporate Report recommended an employment report
C) The Corporate Report recommended a Corporate Social Responsibility report
D) The Corporate Report recommended a statement of future objectives
Q2) The term "creative accounting" is used to describe the development of accounting techniques which more accurately reflect the economic reality of a company
A)True
B)False
Q3) It is easier to generate "fictitious" cash flow figures than to produce "fictitious" profit figures
A)True
B)False
Q4) Depreciation and inventories of unsold goods are areas of financial accounting where the accounting rules allow little flexibility,and there is little scope for personal judgment or manipulation
A)True
B)False
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Chapter 9: Bookkeeping to Trial Balance
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Sample Questions
Q1) Which of the following statements about double-entry bookkeeping is correct?
A) Recording a transaction on the left hand side of an account is called debiting it
B) Recording a transaction on the right hand side is debiting it
C) If an account has more debited to it than credited to it, it is said to have a credit balance
D) If an account has more credited to it than debited to it, it is said to have a debit balance
Q2) Sales made on credit are shown on the left-hand side of the sales account and on the right hand side of the trade receivables account
A)True
B)False
Q3) Which of the following is expected to have a debit balance?
A) Trade payables
B) Trade receivables
C) Sales
D) All of the above
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11
Chapter 10: Trial Balance to Final Accounts
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Sample Questions
Q1) The following information is available from the trial balance of Valentines company as at 31 Dec Year 3:
\[\begin{array} { l c c }
& \text { Debit } & \text { Credit } \\ & £ & £ \\
\text { Sales revenue } & & 110,000\\
\text { Inventory at 31st Dec Year 1 } & 7,000 \\
\text { Purchases } & 18,750 & \end{array}\]
Closing inventory as at 31st Dec year 3 is £5,250.Calculate the cost of goods sold.
A) £31,000
B) £20,500
C) £25,750
D) £20,750
Q2) Where there is an increase in an accrual,the amount of the increase is included as a revenue on the income statement
A)True
B)False
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Chapter 11: Financing a Business
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Sample Questions
Q1) Which of the following statements is correct?
A) The value of a company's share will decrease unless a dividend is paid every year
B) The value of a company's share will increase if a regular dividend is paid
C) If a company can earn a better rate of return, by investing retained profits, than shareholders can earn themselves, then dividends should be paid
D) If a company can earn a better rate of return, by investing retained profits, than shareholders can earn themselves, then there is a case for dividends not to be paid
Q2) Large company agrees to pay £1,750,000 to take over small company.Large company's shares have a market value of £1.75.The £1,750,0000 is paid by the issue of 1 million £1 shares.
What additional share capital will Large report?
A) £1,750,000
B) £1,000,000
C) £750,000
D) £0
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13
Chapter 12: Management of Working Capital
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Sample Questions
Q1) Which of the following statements is correct?
A) Economic order quantity is the quantity at which the annual inventory holding cost is equal to the annual ordering cost
B) Economic order quantity is the quantity at which annual inventory holding cost has been maximized
C) Economic order quantity is the quantity at which annual inventory ordering costs is minimized
D) Economic order quantity is the amount at which inventory costs are offset by sales
Q2) It always makes sense to hold as much inventory as possible,"just in case" the inventory is needed and it is cost free
A)True
B)False
Q3) The definition of "Working Capital" is:
A) Non-Current Assets - Non-Current Liabilities
B) Bank + Cash
C) Non-Current Assets + Current Assets - Current Liabilities
D) Current Assets - Current Liabilities
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Chapter 13: Introduction to Management Accounting
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Sample Questions
Q1) Prime costs include which of the following?
A) Distribution costs
B) Administrative expenses
C) Direct labour
D) Interest payable
Q2) A company rents warehouses for storage.Each warehouse is capable of storing up to 400 units,and costs £500 per month.For 250 units,the cost would be £500.For 500 units,the cost would be £1,000.
This is an example of:
A) A Fixed Cost
B) A variable cost
C) A semi-variable cost
D) A stepped cost
Q3) Knowing the cost of producing a product helps determine the price to be charged for it
A)True
B)False
Q4) A small or new business can cope without management accounting
A)True
B)False
15
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Chapter 14: Investment Appraisal
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Sample Questions
Q1) Which of the following is correct?
A) The internal rate of return (IRR) is technically flawed and can lead to incorrect decisions
B) The internal rate of return (IRR) involves less calculations than other investment appraisal methods
C) The internal rate of return (IRR) can deal with mutually exclusive projects
D) The internal rate of return (IRR) can distinguish between projects involving investment from those requiring borrowing
Q2) A project with a high IRR might have a lower NPV
A)True
B)False
Q3) In order to convert a future cash flow into a present value,you need to:
A) Divide by a discount factor
B) Divide by the current investment rate
C) Multiply by a discount factor
D) Multiply by the current investment rate
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Chapter 15: Budgetary Planning and Control
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Sample Questions
Q1) Budgetary control includes all of the following except:
A) The development and implementation of a budget by one key individual
B) The continuous comparison of actual with budget results
C) Providing a basis for revising the budget
D) Establishing the responsibilities of executives
Q2) Which of the following is not an advantage of zero-based budgeting?
A) Easy to apply
B) Helps identify inefficient operations
C) Can increase staff motivation towards greater efficiency
D) Ensures alternatives, such as outsourcing, are considered
Q3) A fixed budget is most practical where levels of production and sales fluctuate
A)True
B)False
Q4) The starting point of producing the master budget is to produce the budgets for direct materials and direct labour
A)True
B)False
Q5) A cash budget includes receipts that don't appear in the income statement
A)True
B)False
17
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Chapter 16: Absorption Costing
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Sample Questions
Q1) The manufacturing plant at Daydream plc has three departments.The budgets for each department are shown below:
\[\begin{array} { l c c c }
& \text { A } & \text { B } & \text { C } \\
\text { Production Overheads } & £ 3 \mathrm {~m} & £ 6 \mathrm {~m} & £ 30 \mathrm {~m} \\
\text { Hours worked } & 1 \mathrm {~m} & 1 \mathrm {~m} & 1 \mathrm {~m} \\
\text { Direct wages } & £ 12 \mathrm {~m} & £ 16 \mathrm {~m} & £ 20 \mathrm {~m} \end{array}\]
If product ABC takes 20 direct labour hours (10 hours department A,5 hours department B and 5 hours from department C),calculate the production overhead for product ABC using the production overhead rate.
A) £30 per hour
B) £29 per hour
C) £14 per hour
D) £39 per hour
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Chapter 17: Marginal Costing and Decision-Making
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Sample Questions
Q1) The break-even point can be expressed as:
A) Fixed costs/contribution per unit
B) Fixed costs-variable costs/contribution
C) Fixed costs - variable costs
D) Contribution/fixed costs
Q2) Which of the following is not an assumption associated with marginal costing and break-even analysis?
A) In marginal costing and break-even analysis it is assumed that cost behaviour is linear
B) In marginal costing and break-even analysis it is assumed that not all costs can be classified as fixed or variable
C) In marginal costing and break-even analysis it is assumed that variable costs per unit remain constant
D) In marginal costing and break-even analysis it is assumed that fixed costs remain constant
Q3) Marginal costing information can only be presented for business as a whole and not for each product
A)True
B)False
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Page 19
Chapter 18: Standard Costing and Variance Analysis
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Sample Questions
Q1) Which of the following would lead to a materials price variance?
A) More materials have been used than standard
B) More labour hours have been worked than standard
C) The price of materials was higher than standard
D) Direct labour rate was higher than standard
Q2) Direct materials usage variance can be expressed as:
A) Actual quantity x (standard price - actual quantity)
B) Actual quantity x (standard price x standard quantity)
C) Standard price x (actual quantity x standard quantity)
D) Standard price x (actual quantity - standard quantity)
Q3) The direct labour rate variance can be expressed as:
A) Actual hours x (actual rate - standard rate)
B) Standard rate x (actual hours - standard hours)
C) Actual hours x (standard rate x standard hours)
D) Standard rate x (actual hours/standard hours)
Q4) The sales margin volume variance measures the effect of a change in sales price
A)True
B)False
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Page 20
Chapter 19: Incomplete Records
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Sample Questions
Q1) It is essential that every business keeps a complete record of ALL transactions
A)True
B)False
Q2) The assets and liabilities of Angus & Co.at 31st Dec were as follows:
\[\begin{array} { l c }
\text { Inventory } & 110,950 \\
\text { Trade receivables } & 12,600 \\
\text { Trade payables } & 18,000 \\
\text { Accruals } & 750 \\
\text { Prepayments } & 850 \\
\text { Bank balance } & £ 8,000
\end{array}\]
What is the capital at 31st December
A) £151,150
B) £151,250
C) £113,650
D) £113,450
Q3) Debits are increases to assets and expenses
A)True
B)False
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