Sample Quizzes For Preparation: Financial Statements

A2 Level Accounting – 3.1.1 Financial Statements

Question 1

What is the main purpose of the income statement?
A. To show the value of assets and liabilities
B. To measure the cash flow of a business
C. To calculate net profit or loss for a period
D. To record capital contributions from owners

Question 2

Which of the following is a non-current asset?
A. Cash
B. Accounts receivable
C. Inventory
D. Buildings

Question 3

Which accounting principle ensures revenue and expenses are recorded in the correct time period?
A. Going concern
B. Matching
C. Prudence
D. Consistency

Question 4

In a partnership, what is the purpose of the appropriation account?
A. To calculate the cost of goods sold
B. To divide profits among partners
C. To adjust non-current assets
D. To determine depreciation

Question 5

Which statement shows the financial position of a business on a specific date?
A. Income statement
B. Statement of cash flows
C. Statement of financial position
D. Statement of retained earnings

Question 6

What is included under equity in the statement of financial position?
A. Bank loans
B. Trade payables
C. Retained earnings
D. Inventory

Question 7

Which document is specifically prepared by non-profit organisations to record cash transactions?
A. Receipts and payments account
B. Income statement
C. Appropriation account
D. Manufacturing account

Question 8

Which of the following is true for depreciation?
A. It increases the value of assets
B. It reduces capital
C. It spreads the cost of an asset over its useful life
D. It appears only in the statement of changes in equity

Question 9

Which is a liability?
A. Trade receivables
B. Motor vehicles
C. Inventory
D. Bank overdraft

Question 10

In a manufacturing account, prime cost includes:
A. Direct materials and factory rent
B. Direct materials, direct labour, and direct expenses
C. Indirect labour and direct materials
D. Factory overheads and depreciation

Question 11

Which term refers to money earned before deducting any expenses?
A. Net income
B. Retained earnings
C. Gross profit
D. Revenue

Question 12

Which statement is NOT prepared by a sole trader?
A. Statement of changes in equity
B. Statement of financial position
C. Income statement
D. Cash flow statement

Question 13

The account used to record capital invested and drawings in a partnership is called:
A. Income account
B. Capital account
C. Appropriation account
D. Trading account

Question 14

Which concept assumes that a business will continue to operate in the foreseeable future?
A. Accrual
B. Consistency
C. Going concern
D. Prudence

Question 15

Which of the following appears in the manufacturing account?
A. Dividends
B. Factory wages
C. Interest expense
D. Selling expenses

Question 16

Which of the following is considered part of cost of sales?
A. Gross profit
B. Opening inventory + purchases – closing inventory
C. Rent
D. Trade receivables

Question 17

What is the role of notes to the financial statements?
A. To decorate the report
B. To hide key figures
C. To provide additional explanation and accounting policies
D. To show unrelated transactions

Question 18

In the income statement, interest received is recorded as:
A. Operating expense
B. Other income
C. Revenue
D. Capital

Question 19

Which of the following is an example of a current liability?
A. Bank loan repayable in 5 years
B. Land and buildings
C. Trade payables
D. Motor vehicle

Question 20

Which term best describes the profit after all expenses, interest, and tax?
A. Operating profit
B. Net profit
C. Gross profit
D. Contribution margin

Question 21

What does the statement of changes in equity show?
A. Only dividends paid
B. Movements in the bank account
C. Changes in owner’s capital and retained earnings
D. Changes in asset value

Question 22

In a club’s financial statements, subscriptions received in advance are shown as:
A. Expense
B. Income
C. Liability
D. Asset

Question 23

Which financial statement would contain accumulated depreciation?
A. Statement of changes in equity
B. Statement of financial position
C. Income statement
D. Appropriation account

Question 24

Why is consistency in accounting treatment important?
A. So accountants can try new methods
B. So users can compare over time
C. To reduce tax liability
D. To maximize profits

Question 25

Which of the following is NOT an indirect cost?
A. Factory rent
B. Direct materials
C. Supervisors’ salaries
D. Depreciation on factory equipment

Question 26

Closing inventory is recorded in:
A. Income statement only
B. Statement of financial position only
C. Both income statement and statement of financial position
D. Statement of changes in equity

Question 27

Which account would show the calculation of retained earnings?
A. Manufacturing account
B. Statement of cash flows
C. Statement of changes in equity
D. Receipts and payments account

Question 28

Bad debts written off appear in:
A. Assets
B. Liabilities
C. Expenses
D. Capital

Question 29

What is a key feature of the partnership current account?
A. It shows assets purchased
B. It reflects running transactions like drawings and interest
C. It records capital only
D. It calculates net profit

Question 30

In a non-profit organisation, what replaces net profit in the income and expenditure account?
A. Trading surplus
B. Deficit
C. Surplus or deficit
D. Appropriation

Marking Key and Explanations