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Quizzes > Quizzes for Business > Finance

Take the Financial Accounting Knowledge Test

Assess Your Financial Bookkeeping Skills Effectively

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting elements related to a Financial Accounting Knowledge Test quiz.

Whether you're preparing for an exam or honing your expertise, this financial accounting practice quiz challenges you with real-world scenarios. Dive into the Financial Accounting Knowledge Quiz to sharpen your reporting and ratio analysis skills. Need a refresher on basics? Try our Financial Accounting Fundamentals Quiz for targeted review. Each quiz is fully editable in our editor and you can explore more quizzes to customize your learning path.

What is the primary purpose of the balance sheet?
To present a snapshot of an entity's financial position at a point in time
To detail changes in shareholders' equity during a period
To show the cash inflows and outflows for a period
To report a company's revenues and expenses over a period
The balance sheet provides a snapshot of assets, liabilities, and equity at a specific date. It summarizes the financial position rather than performance or equity changes.
Which principle requires expenses to be recognized in the same period as the revenues they help generate?
Cost principle
Matching principle
Revenue recognition principle
Full disclosure principle
The matching principle states that expenses should be recorded in the same period as the related revenues. This ensures accurate measurement of profitability for a period.
Which of the following is classified as a non-current asset on the balance sheet?
Cash
Inventory
Equipment
Accounts receivable
Non-current assets are long-term resources not expected to convert to cash within a year. Equipment is a long-term asset used in operations beyond one year.
What financial statement summarizes cash inflows and outflows?
Balance sheet
Income statement
Statement of changes in equity
Cash flow statement
The cash flow statement reports cash receipts and payments classified into operating, investing, and financing activities. It is the primary source for analyzing cash movements.
In a journal entry for cash received from a customer for services performed, which account is credited?
Unearned Revenue
Cash
Service Revenue
Accounts Receivable
Revenue accounts increase with a credit. When cash is received for services performed, Service Revenue is credited to reflect earned revenue.
What is the current ratio if current assets are $150,000 and current liabilities are $75,000?
1.50
3.00
0.50
2.00
Current ratio equals current assets divided by current liabilities. Here, 150,000 ÷ 75,000 equals 2.0, indicating twice as many assets as near-term obligations.
What is the debt to equity ratio if total liabilities are $200,000 and total equity is $100,000?
3.00
1.00
0.50
2.00
Debt to equity ratio measures financial leverage by dividing total liabilities by total equity. $200,000 ÷ $100,000 equals 2.0, showing twice as much debt as equity.
Under the historical cost principle, assets are recorded at:
Fair value
Original purchase price
Replacement cost
Their current market value
The historical cost principle requires recording assets at their original purchase price. This provides verifiable, objective values for financial reporting.
To accrue wages of $5,000 at period end, the correct journal entry is:
Debit Wages Payable $5,000; Credit Wage Expense $5,000
Debit Wage Expense $5,000; Credit Wages Payable $5,000
Debit Cash $5,000; Credit Wage Expense $5,000
Debit Wage Expense $5,000; Credit Cash $5,000
Accruing wages requires debiting Wage Expense to recognize the cost and crediting Wages Payable to record the liability until payment.
A bond payable due in 10 years is classified on the balance sheet as:
Equity
Non-current liability
Current liability
Operating expense
Liabilities due beyond one year are classified as non-current. A 10-year bond payable is a long-term obligation, hence a non-current liability.
Which of the following is classified as an investing activity in the statement of cash flows?
Purchase of equipment
Sale of goods
Issuance of common stock
Payment of dividends
Investing activities include transactions involving long-term assets. Purchasing equipment is an investing cash outflow.
Under IFRS revenue recognition, revenue is recognized when:
Cash is received
The goods are shipped
The contract is signed
The performance obligation is satisfied
IFRS 15 states revenue is recognized when control of goods or services transfers to the customer, satisfying performance obligations.
Using the indirect method, net income is $50,000, depreciation $5,000, accounts receivable increase $2,000, and accounts payable decrease $3,000. Net cash from operating activities is:
$50,000
$53,000
$52,000
$60,000
Adjust net income for non-cash depreciation (+5,000), subtract AR increase (−2,000), and subtract AP decrease (−3,000). Result: $50,000 + 5,000 − 2,000 − 3,000 = $50,000? Actually that equals $50,000. Correction: It equals $50,000. But the intended answer is $50,000.
Using the DuPont formula, what is the return on equity if profit margin is 10%, asset turnover is 1.5, and equity multiplier is 2?
25%
30%
20%
15%
DuPont: ROE = profit margin × asset turnover × equity multiplier. Thus 10% × 1.5 × 2 = 30%.
Under IFRS, an upward revaluation of property, plant, and equipment of $50,000 is recorded by:
Debiting PPE and crediting Revaluation Surplus in equity
Debiting PPE and crediting Gain on Asset Revaluation in income
Debiting Revaluation Surplus and crediting PPE
Debiting Expense and crediting PPE
IFRS allows revaluation to increase PPE to fair value by debiting the asset account and crediting a Revaluation Surplus within equity (OCI).
Under the percentage-of-completion method, if costs incurred are $500,000, total estimated costs are $2,000,000, and total contract revenue is $3,500,000, revenue recognized to date is:
$875,000
$1,500,000
$500,000
$2,000,000
Percentage-of-completion revenue = (costs incurred ÷ total estimated costs) × total revenue. So (500,000 ÷ 2,000,000) × 3,500,000 = 875,000.
A finance lease has an initial liability of $100,000, cash payment of $12,000, and interest expense of $3,000 for the period. The reduction in liability is:
$12,000
$3,000
$15,000
$9,000
Lease liability reduction equals cash payment minus interest expense. $12,000 − $3,000 = $9,000 reduction to the liability.
An asset costs $500,000, has a residual value of $50,000, and a 5-year life. Using double-declining balance, depreciation in the second year is:
$140,000
$100,000
$200,000
$120,000
Double-declining rate is 40%. First-year depreciation: 500,000 × 40% = 200,000. Book value at start of year two: 300,000. Second-year: 300,000 × 40% = 120,000.
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Learning Outcomes

  1. Analyse balance sheets, income statements, and cash flow statements.
  2. Identify key accounting principles and standards (e.g., GAAP, IFRS).
  3. Apply journal entry rules for common transactions.
  4. Demonstrate correct classification of assets, liabilities, and equity.
  5. Evaluate financial ratios to assess organizational health.
  6. Master revenue recognition and expense matching concepts.

Cheat Sheet

  1. Understand the three core financial statements - Imagine the balance sheet, income statement, and cash flow statement as your financial superhero trio. The balance sheet shows what a company owns and owes, the income statement reveals its profit or loss over a period, and the cash flow statement tracks the real cash coming in and out. Mastering how they connect gives you a 360° view of any business's health. Corporate Finance Institute: Three Financial Statements
  2. Grasp fundamental accounting principles - Think of principles like accrual, matching, and revenue recognition as the rulebook that keeps financial reports fair and consistent. They ensure every transaction is recorded in the right period and every expense is matched with its related revenue. With these guidelines, you'll build bulletproof financial statements. Investopedia: Accounting Principles Overview
  3. Learn the differences between GAAP and IFRS - GAAP is like a detailed recipe with strict instructions, while IFRS is a flexible cooking method you can adapt around the globe. GAAP reigns in the U.S. with precise rules, and IFRS serves as the international standard built on broader principles. Knowing both prepares you for any accounting battlefield. Pearson: GAAP vs IFRS Recording Differences
  4. Master journal entries for common transactions - Every journal entry is a balancing act: debits on one side, credits on the other, and they must always sum to zero. Practice entries for sales, purchases, and adjustments to nail the double-entry system - and watch errors disappear. Pearson: GAAP vs IFRS Recording Differences
  5. Accurately classify assets, liabilities, and equity - The golden rule of the balance sheet is Assets = Liabilities + Equity. Sorting items into their proper categories gives you a clear snapshot of a company's financial footing at any moment. Get this right, and you'll decode balance sheets like a pro. Investopedia: Balance Sheet vs Cash Flow Statement
  6. Calculate and interpret key financial ratios - Ratios such as the current ratio or debt-to-equity act like health check tools for businesses. Crunch these numbers to spot strengths, weaknesses, and red flags before they become full-blown crises. It's like having a stethoscope for company finances! Corporate Finance Institute: Three Financial Statements
  7. Understand the revenue recognition principle - Revenue is recorded when it's earned, not when cash lands in the bank. This principle stops companies from inflating earnings by waiting to recognize money until it shows up. Stay sharp - this rule keeps profit reports honest. Investopedia: Revenue Recognition Principle
  8. Apply the matching principle - Expenses should stick with the revenues they help generate, like peanut butter with jelly. Aligning expense reporting with related income ensures profit is measured accurately in each period. It's the secret sauce for clear-cut financial results. Investopedia: Matching Principle
  9. Differentiate operating, investing, and financing activities - The cash flow statement splits cash movement into three camps: operating (day-to-day business), investing (long-term assets), and financing (loans and equity). Understanding each section helps you track exactly where the money's coming from and where it's going. Wikipedia: Cash Flow Statement
  10. Recognize the significance of the full disclosure principle - Transparency wins in finance! Companies must reveal all material information in their statements so investors can make informed decisions. This principle is your guarantee that nothing important is hidden in the fine print. Investopedia: Full Disclosure Principle
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