Accounting MCQ Questions With Answers

1. What purpose does the accounting cycle serve?

1. To chronologically record financial transactions
2. To summarize financial transactions for a specific period of time
3. Create financial statements for a given time period.
4. To analyze the company's financial performance over a period of time.

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2. What distinguishes an income statement from a balance sheet?

1. A balance sheet shows the company's financial situation at a specific time, but an income statement shows the company's financial achievement over time.
2. A balance sheet shows the company's financial performance throughout time, while an income statement shows the company's financial status at a certain point in time.
3. A balance sheet and an income statement are the same thing.
4. A balance sheet and an income statement are two examples of financial statements.

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3. What does the double-entry accounting system serve?

1. To chronologically record financial transactions
2. To prevent errors in the accounting records
3. For the specified time period, create financial statements.
4. To list all financial transactions during a certain time period

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4. What is the purpose of the cash flow statement in accounting?

1. To display the evolution of the company's retained earnings balance over time.
2. To demonstrate the evolution of the company's cash position over time.
3. To determine the business's net income
4. To display the company's financial standing at a particular time.

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5. What function does the trial balance serve in accounting?

1. To summarize all financial transactions for a specific period of time
2. In order to find accounting record errors
3. Create financial statements for a given time period.
4. To chronologically record financial transactions

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6. Which of the following is not an expense account?

1. Salaries Expense
2. Rent Expense
3. Depreciation Expense
4. Accounts Receivable

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7. What is the accounting equation?

1. Assets + Liabilities = Equity
2. Equity = Assets - Liabilities
3. Liabilities + Equity = Assets
4. Assets - Equity = Liabilities

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8. Which of the above statements is not a financial statement?

1. Balance Sheet
2. Income Statement
3. Statement of Cash Flows
4. Statement of Work

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9. What is the method used to determine net income?

1. Net Income = Revenues - Expenses
2. Net Income = Assets - Liabilities
3. Net Income = Equity - Liabilities
4. Net Income = Cash Flow from Operating Activities - Cash Flow from Investing Activities

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10. What is the method used to determine gross profit?

1. Gross Profit = Revenues - Expenses
2. Gross Profit = Sales - Cost of Goods Sold
3. Gross Profit = Assets - Liabilities
4. Gross Profit = Cash Flow from Operating Activities - Cash Flow from Investing Activities

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11. What is the return on equity (ROE) calculation formula?

1. ROE = Net Income / Total Assets
2. ROE = Net Income / Average Equity
3. ROE = Net Income / Sales
4. ROE = Net Income / Cost of Goods Sold

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12. What is the equation to determine current ratio?

1. Current Ratio = Current Assets / Current Liabilities
2. Current Ratio = Total Assets / Total Liabilities
3. Current Ratio = Gross Profit / Total Revenue
4. Current Ratio = Net Income / Total Equity

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13. What is the debt-to-equity ratio calculation formula?

1. Debt-to-Equity Ratio = Total Liabilities / Total Assets
2. Debt-to-Equity Ratio = Total Assets / Total Liabilities
3. Debt-to-Equity Ratio = Total Liabilities / Total Equity
4. Debt-to-Equity Ratio = Total Equity / Total Liabilities

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14. What is the formula for calculating net profit margin?

1. Net Profit Margin = Net Income / Sales
2. Net Profit Margin = Sales - Cost of Goods Sold
3. Net Profit Margin = Gross Profit / Sales
4. Net Profit Margin = Total Expenses / Sales

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15. What is the formula for calculating quick ratio?

1. Quick Ratio = (Current Assets - Inventory) / Current Liabilities
2. Quick Ratio = Current Assets / Current Liabilities
3. Quick Ratio = Total Assets / Total Liabilities
4. Quick Ratio = Gross Profit / Total Revenue

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16. According to which accounting principle, costs must be recorded in the period they are incurred, regardless of when they are paid?

1. Principle of Revenue Recognition
2. Coordinating Principle
3. Time Period Principle
4. Principle of Expense Recognition

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17. According to which accounting rule, regardless of when payment is received, revenue must be recognised in the period in which it is earned?

1. Principle of Revenue Recognition
2. Coordinating Principle
3. Time Period Principle
4. Principle of Expense Recognition

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18. Which accounting rule mandates that expenses be equal to the income they contributed to?

1. Principle of Revenue Recognition
2. Coordinating Principle
3. Time Period Principle
4. Principle of Expense Recognition

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19. Which financial statement depicts a company's earnings and outlays over time?

1. Account Statement
2. Revenue Statement
3. Cash Flow Statement
4. Statement of Equity Changes

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20. What does a trial balance serve?

1. To make certain that all transactions have been accurately documented
2. To determine the business's net income
3. To display the company's financial standing at a particular time.
4. To keep track of the business's cash transactions

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21. What distinguishes accounts receivable from accounts payable?

1. Accounts payable are sums owed to the business, whereas accounts receivable are sums owing by the business to third parties.
2. Accounts payable are sums that the business owes to third parties, whereas accounts receivable are sums that the business is owed.
3. Accounts payable and accounts receivable are the same thing.
4. Accounts payable and accounts receivable refer to different types of expenses.

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22. A cash flow statement has what purpose?

1. To show the company's financial situation at a specific moment.
2. To determine the business's net income
3. To keep track of the business's cash transactions
4. To demonstrate the evolution of the company's cash position over time.

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23. What is the purpose of the accounting equation (assets = liabilities + equity)?

1. To display the business's net income
2. To determine the stock turnover ratio for the business
3. To keep track of business transactions
4. To display the company's financial standing at a particular time.

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24. Which one of the following is a liability?

1. Cash
2. Inventory
3. Accounts Payable
4. Land

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25. Of the following, which is not a liability?

1. Accounts Payable
2. Notes Payable
3. Common Stock
4. Accrued Expenses

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26. Which of the following is not an account for revenue?

1. Sales
2. Interest Income
3. Cost of Goods Sold
4. Rent Income

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27. What is the formula for calculating price-to-earnings (P/E) ratio?

1. P/E Ratio = Market Price per Share / EPS
2. P/E Ratio = EPS / Market Price per Share
3. P/E Ratio = Total Market Value / Total Assets
4. P/E Ratio = Net Income / Total Equity

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28. What is the formula for calculating return on investment (ROI)?

1. ROI = Net Income / Total Assets
2. ROI = Net Income / Average Equity
3. ROI = Net Income / Sales
4. ROI = (Gain from Investment - Cost of Investment) / Cost of Investment

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29. What do accounting adjusting entries serve?

1. To document transactions that took place in the past but weren't documented at the time
2. In order to fix financial statement inaccuracies
3. To create the necessary financial statements for the upcoming accounting period
4. To update account balances for transactions that span multiple accounting periods

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30. What distinguishes a revenue expenditure from a capital expenditure?

1. Capital expenditures are long-term investments in assets, while revenue expenditures are short-term expenses.
2. Capital expenditures are recorded as expenses, while revenue expenditures are recorded as assets.
3. Capital expenditures increase the value of an asset, while revenue expenditures do not.
4. Capital expenditures are tax deductible, while revenue expenditures are not.

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31. The declaration of retained earnings serves what purpose?

1. To show how the company's cash balance changed over a period of time
2. To calculate the company's net income
3. To display the evolution of the company's retained earnings balance over time.
4. To display the company's financial standing at a particular time.

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31. What is the purpose of a general ledger in accounting?

1. To chronologically list all financial transactions
2. To summarize all financial transactions for a specific period of time
3. To document transactions in the business's cash account
4. To record transactions in the company's accounts payable account

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33. What distinguishes an expense from a liability in accounting?

1. Liabilities represent obligations the company owes to others, while expenses represent the cost of goods or services consumed by the company.
2. Liabilities represent the cost of goods or services consumed by the company, while expenses represent obligations the company owes to others.
3. Liabilities and expenses are the same thing.
4. Liabilities and expenses refer to different types of revenues.

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34. What distinguishes a debit from a credit in accounting?

1. Debits represent decreases in account balances, while credits represent increases in account balances.
2. Debits represent increases in account balances, while credits represent decreases in account balances.
3. Credits and debits are interchangeable terms.
4. Debits and credits refer to different types of financial statements.

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35. What use does the accounting chart of accounts serve?

1. To summarize all financial transactions for a specific period of time
2. To chronologically record financial transactions
3. To classify and organize financial transactions for reporting purposes
4. For the specified time period, create financial statements.

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36. What is the difference between an account payable and an account receivable in accounting?

1. Accounts payable and accounts receivable both indicate money that the company owes to other parties.
2. Money owed to the firm is represented by accounts payable, and money that the company owes to others is represented by accounts receivable.
3. Accounts payable and accounts receivable are the same thing.
4. Financial statements of different forms are referred to as accounts payable and accounts receivable.

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37. What distinguishes accrual basis accounting from cash basis accounting?

1. While accrual basis accounting records revenue and expenses as they are earned or incurred, cash basis accounting records them as they are received or paid.
2. While accrual basis accounting records revenue and expenses as they are received or paid, cash basis accounting records them as they are earned or incurred.
3. Cash basis accounting and accrual basis accounting are the same thing.
4. Cash basis accounting and accrual basis accounting refer to different types of financial statements.

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38. What distinguishes a profit from a revenue in accounting?

1. Profits are the sum of money left over after all expenditures have been covered, whereas revenue is the total amount of money made via sales.
2. Revenue is the amount of money made after all costs have been paid, whereas profits are the total amount of money made through sales.
3. Profits and revenue are the same thing.
4. Profits and revenue refer to different types of financial statements.

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39. What is the formula for calculating return on assets (ROA)?

1. ROA = Net Income / Total Assets
2. ROA = Net Income / Average Equity
3. ROA = Net Income / Sales
4. ROA = Net Income / Cost of Goods Sold

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40. What is the formula for calculating inventory turnover ratio?

1. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
2. Inventory Turnover Ratio = Total Inventory / Total Sales
3. Inventory Turnover Ratio = Total Sales / Total Inventory
4. Inventory Turnover Ratio = Average Inventory / Cost of Goods Sold

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41. What is the formula for calculating earnings per share (EPS)?

1. EPS = Net Income / Total Equity
2. EPS = Net Income / Total Assets
3. EPS = Net Income / Average Shares Outstanding
4. EPS = Net Income / Total Liabilities

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42. What is the formula for calculating gross margin?

1. Gross Margin = Sales - Cost of Goods Sold
2. Gross Margin = Sales / Cost of Goods Sold
3. Gross Margin = Cost of Goods Sold / Sales
4. Gross Margin = Net Income / Sales

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43. What use does the accounting income statement serve?

1. To show how the company's cash balance changed over a period of time
2. To calculate the company's net income
3. To display the evolution of the company's retained earnings balance over time.
4. To display the company's financial standing at a particular time.

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44. What is the difference between a current asset and a fixed asset in accounting?

1. Current assets are long-term investments in assets, while fixed assets are short-term expenses.
2. Fixed assets are long-term investments in assets, whereas current assets are assets that are anticipated to be transformed into cash within a year.
3. While fixed assets are listed as assets, current assets are expenses.
4. Financial statements of different categories are referred to as current assets and fixed assets.

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45. What function does the balance sheet serve in accounting?

1. To show how the company's cash balance changed over a period of time
2. To calculate the company's net income
3. To display the evolution of the company's retained earnings balance over time.
4. To display the company's financial standing at a particular time.

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46. What is the difference between a liability and an asset in accounting?

1. Liabilities represent ownership in the company, while assets represent debts owed by the company.
2. Liabilities represent debts owed by the company, while assets represent ownership in the company.
3. Liabilities and assets are the same thing.
4. Liabilities and assets refer to different types of financial statements.

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47. What function does the general ledger serve in accounting?

1. To summarize all financial transactions for a specific period of time
2. To chronologically record financial transactions
3. To classify and organize financial transactions for reporting purposes
4. For the specified time period, create financial statements.

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