Sample Quiz For Preparation: The Purpose of Accounting

O Level Accounting — Quiz
Chapter 1.1: The Purpose of Accounting

Q1.
Which of the following best describes the primary difference between book-keeping and accounting?

A) Book-keeping involves interpretation, while accounting only involves recording
B) Book-keeping deals with budgeting, accounting deals with tax filing
C) Book-keeping records data; accounting analyses and interprets it
D) Accounting is for small businesses, while book-keeping is for large companies

Answer: C
Explanation:
Book-keeping is limited to recording financial data, such as daily transactions.
Accounting includes analysis, interpretation, and reporting, allowing stakeholders to make decisions.

Q2.
Which of the following is NOT a primary purpose of measuring profit and loss?

A) To evaluate the performance of the business
B) To determine the market share in an industry
C) To make decisions about investment and expansion
D) To calculate tax liabilities

Answer: B
Explanation:
Measuring profit and loss provides financial performance, investment guidance, and tax calculations, but market share is typically assessed through marketing and industry analysis, not directly from accounting.

Q3.
Which stakeholder would be most interested in the business’s ability to repay its short-term debts?

A) Government
B) Owner
C) Supplier (Creditor)
D) Customer

Answer: C
Explanation:
Suppliers or creditors need to assess liquidity and ability to pay back on time.
They rely on accounting reports like cash flow statements and balance sheets.

Q4.
Which of the following is an example of information that accounting provides for monitoring business performance?

A) Business slogans used in marketing
B) Increase in customer satisfaction ratings
C) Changes in gross profit margin over months
D) Number of employees hired in a month

Answer: C
Explanation:
Gross profit margin is a financial metric from the income statement.
Tracking its variation over time helps assess cost control and sales efficiency.

Q5.
Which of the following is an example of qualitative information not recorded in accounting?

A) Cash inflow from customers
B) The cost of acquiring a delivery van
C) Staff morale and team motivation
D) Total electricity expense for the month

Answer: C
Explanation:
Accounting focuses on quantitative, monetary data.
Qualitative aspects like staff morale are not recorded, though they affect business performance.

Q6.
Which function is least likely to be part of a book-keeper’s role?

A) Posting entries in ledger accounts
B) Preparing income statements and analyzing trends
C) Recording receipts and payments
D) Updating the sales journal

Answer: B
Explanation:
Preparing income statements and trend analysis is the role of an accountant, not a book-keeper.
Book-keeping focuses on initial recording tasks.

Q7.
A business reports a gross profit of $25,000 and total expenses of $30,000. What is the net profit or loss?

A) $5,000 profit
B) $5,000 loss
C) $55,000 profit
D) $30,000 loss

Answer: B
Explanation:
Net Profit = Gross Profit – Expenses = 25,000 – 30,000 = -5,000 → Loss
Negative value indicates a net loss of $5,000.

Q8.
Why is accounting essential for decision-making?

A) It shows company logos and designs
B) It keeps all company emails safe
C) It provides structured financial data for evaluation
D) It calculates employee moods

Answer: C
Explanation:
Accounting provides structured financial data to help owners and managers decide on budgeting, cost-cutting, investment, etc.

Q9.
Which document would be MOST useful for an investor deciding whether to invest in a business?

A) Bank reconciliation statement
B) Marketing poster
C) Statement of Financial Position
D) Internal memo about staff schedules

Answer: C
Explanation:
The Statement of Financial Position (Balance Sheet) shows assets, liabilities, and equity, helping investors assess financial health and stability.

Q10.
In the context of accounting, which statement is FALSE?

A) Accounting helps compare business performance over time
B) Book-keeping requires analysing trends in data
C) Accounting supports tax calculation and legal compliance
D) Accounting information is used by external stakeholders

Answer: B
Explanation:
Book-keeping does NOT involve analysis or trend evaluation.
That is part of accounting. Options A, C, and D are correct.