Financial Accounting Practice Questions

Section 1: Theoretical Questions (50 Questions)

1. Define financial accounting and explain its objectives.

2. What are the main users of financial statements?

3. Explain the difference between financial accounting and management accounting.

4. List and explain the basic accounting principles.

5. What is the accounting equation?

6. Define assets, liabilities, and equity.

7. What are current assets? Give examples.

8. Explain the concept of double-entry bookkeeping.

9. What is depreciation? Explain its importance.

10. Differentiate between capital expenditure and revenue expenditure.

11. Explain the matching principle in accounting.

12. Define accrual basis accounting.

13. What is a trial balance? Why is it prepared?

14. Explain the purpose of preparing financial statements.

15. What is goodwill in accounting?

16. Differentiate between accounts payable and accounts receivable.

17. Define journal entry.

18. What are adjusting entries?

19. Explain the term 'ledger'.

20. What is a balance sheet?

21. Differentiate between income statement and balance sheet.

22. Explain the term 'working capital'.

23. What is inventory valuation?

25. Explain the prudence concept in accounting.

26. Define fixed assets.

27. What is the purpose of bank reconciliation statements?

28. Differentiate between gross profit and net profit.

29. What are contingent liabilities?

30. Explain the term 'provision' in accounting.

31. What is meant by fair value accounting?

32. Define the term 'financial year'.

33. What is meant by 'fiscal policy' in financial reporting?

34. Explain the revenue recognition principle.

35. What are intangible assets? Give examples.

36. Define amortization.

37. Differentiate between direct and indirect expenses.

38. Explain the concept of materiality in accounting.

39. What is meant by 'chart of accounts'?

40. Define the going concern assumption.

41. What is horizontal analysis?

42. Explain vertical analysis in accounting.

43. Define the current ratio and explain its significance.

44. What is meant by consolidated financial statements?

45. Explain the significance of notes to financial statements.

46. Define retained earnings.

47. What is segment reporting?

48. Explain the difference between book value and market value.

49. What is meant by audit trail?

50. Explain the purpose of IFRS (International Financial Reporting Standards).

51. Prepare journal entries for the following transactions: (a) Started business with cash $10,000. (b)

Purchased goods for cash $2,000. (c) Sold goods for cash $3,000.

52. From the following information, prepare a trial balance: Cash $5,000, Accounts Receivable

$2,000, Accounts Payable $1,500, Capital $5,500.

53. Calculate the depreciation using straight-line method: Asset cost $50,000, Residual value

$5,000, Useful life 5 years.

54. Compute the working capital from the following: Current Assets $25,000, Current Liabilities

$15,000.

55. Calculate the gross profit: Sales $80,000, Cost of Goods Sold $50,000.

56. Prepare a balance sheet from the given data: Cash $3,000, Inventory $7,000, Equipment

$10,000, Accounts Payable $5,000, Capital $15,000.

57. Calculate net profit: Revenue $100,000, Expenses $70,000.

58. Calculate the current ratio: Current Assets $30,000, Current Liabilities $15,000.

59. Journalize the transaction: Paid rent $1,000 by cash.

60. Prepare a ledger account for Cash with the following: Opening balance $5,000, Received

$2,000, Paid $1,500.

61. Compute inventory turnover ratio: Cost of Goods Sold $60,000, Average Inventory $10,000.

62. Calculate return on equity: Net Income $12,000, Shareholder's Equity $60,000.

63. Compute earnings per share: Net Income $25,000, Number of Shares 5,000.

64. Calculate the acid-test ratio: Current Assets $40,000, Inventory $10,000, Current Liabilities

$20,000.

65. Prepare journal entries for: Bought furniture for $3,000 on credit.

66. Depreciation using declining balance method: Cost $10,000, Rate 20%.

67. Compute total assets: Liabilities $40,000, Equity $60,000.

68. Prepare income statement: Revenue $50,000, Expenses $30,000.

70. Calculate closing inventory using FIFO: Purchases 100 units at $10, 200 units at $12; Sold 150

units.

71. Calculate net cash flow: Cash Inflows $70,000, Cash Outflows $45,000.

72. Compute debt to equity ratio: Total Liabilities $50,000, Equity $100,000.

73. Prepare bank reconciliation statement with given data.

74. Calculate interest on loan: Principal $5,000, Rate 10%, Time 1 year.

75. Compute gross margin percentage: Gross Profit $30,000, Sales $100,000.

76. Journalize: Owner withdrew $2,000 cash for personal use.

77. Prepare a profit and loss account from given data.

78. Calculate total expenses: Salaries $8,000, Rent $2,000, Utilities $500.

79. Compute net working capital ratio.

80. Prepare a classified balance sheet.

81. Calculate percentage increase in sales: Previous Sales $80,000, Current Sales $100,000.

82. Journalize: Paid salaries $5,000.

83. Prepare cash flow statement from given inflow and outflow.

84. Calculate earnings before interest and tax (EBIT): Sales $150,000, COGS $90,000, Operating

Expenses $30,000.

85. Compute return on assets (ROA): Net Income $20,000, Total Assets $200,000.

86. Calculate stock turnover period.

87. Journal entry for purchased goods worth $1,200 on credit.

88. Calculate profit margin: Net Profit $10,000, Sales $50,000.

89. Prepare an adjusted trial balance.

90. Compute inventory using weighted average method.

91. Calculate operating cash flow.

92. Compute quick ratio.

93. Journal entry for received cash $500 from a debtor.

95. Compute dividend payout ratio: Dividends $5,000, Net Income $20,000.

96. Prepare statement of changes in equity.

97. Compute capital employed.

98. Calculate sales revenue required to achieve target profit.

99. Journal entry for interest income received $200.

100. Prepare horizontal analysis of income statement from given data.