Tag: analysis of financial statements

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Questions Related to analysis of financial statements

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Withdrawals by proprietor would.

  1. Reduce both Assets and Owner's Equity

  2. Reduce Assets and increase Liabilities

  3. Reduce Owner's Equity and increase Liabilities

  4. Have no affect on the Balance Sheet
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Withdrawals represent the owner taking assets (usually cash) out of the business. This reduces the business's total assets and simultaneously reduces the owner's equity in the business.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Financial analysis is used only by the creditors. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial statement analysis is used by internal and external stakeholders to evaluate business performance and value. Financial accounting calls for all companies to create a balance sheet, income statement, and cash flow statement which form the basis for financial statement analysis.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Cash purchases _________.

  1. Increases assets

  2. Results in no change in the total assets

  3. Decreases assets

  4. Increases liability
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Every business transaction gives two affects because financial accounting is based on double entry system of accounting. 


Cash purchases will affect two account i.e. purchases and cash. 

Accounting entry will be done as under:

Purchases A/c      Dr.
    To Cash A/c. 

Cash is a current assets which gets reduced. Hence it decreases the assets.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Recording of all business transactions is based on ________.

  1. Sales journal

  2. Accounting equation

  3. Formula

  4. Policies
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. Hence, recording of all business transactions is based on accounting equation.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Accounting equation is a _______.

  1. Formula

  2. Theory

  3. Rule

  4. Procedure
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accounting equation states that assets is equal to equity. Equity consists of liabilities and shareholder's capital. Hence, it is a formula .i.e. Assets = Equity.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Which one of the following statements is correct?

  1. Increases in liabilities are credits and decreases are debits.

  2. Increases in assets are credits and decreases are debits.

  3. Increases in capital are debits and decreases are credits.

  4. Increases in expenses are credits and decreases are debits.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, numbers in two accounts are recorded, where the debit column is on the left side and the credit column id on the right side.

1. A debit is an accounting entry that either increase an asset or expense account, or decreases a liability or equity account. It is positioned on the left in an accounting entry.
2. A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Payment received from debtor _____________.

  1. Decreases the total assets

  2. Increases the total assets

  3. Results in no change in total assets

  4. Increase the total liabilities
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Every business transaction affects two accounts as accounting is based on double entry system of accounting. For every debit there will be a credit and vice versa. 


Accounting entry for payment received from debtors will be:

Cash A/c              Dr.
    To Debtors

Cash and debtors both are current assets. One is increasing and another is decreasing. There will be no change in total assets.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Purchase of office equipment for cash would cause __________.

  1. Cash in hand to decrease

  2. External liability to decrease

  3. Total liabilities to increase

  4. Total assets to increase
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cash exists as a company's most liquid asset. Purchasing office equipment for cash will reduce a company's assets (i.e. reduction in cash in hand). Since owner's equity equals assets minus liabilities, owner's equity will be reduced as a result of buying office equipment with cash.

Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

Bills Receivable A/c is _________.

  1. Personal A/c

  2. Real A/c

  3. Nominal

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

There are mainly three types of account: Real, Personal and Nominal accounts. Personal accounts are classified into three subcategories: Natural, Artificial and Representative. Bills Receivable and Bills Payable are personal accounts. Both these accounts represent debtors and creditors of a particular entity. The rule of personal account is Debit the receiver, Credit the giver. Suppose when Bills Receivable is issued, its debited because that represents debtor from whom money is receivable. In a way the entity has given those debtors a benefit i.e. credit so as per the rule  Bills Receivable A/c is debited. Hence, bills receivable is a personal a/c.


Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

A scale of typewriter that as been used in the office should be credited to ______________.

  1. Cash Account.

  2. Sales Account.

  3. Office Equipment Account.

  4. Bank Account.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A typewriter is a fixed asset (office equipment). When an office asset is sold, the credit should be made to the asset account (Office Equipment) to remove its value from the books, not to a sales account which is reserved for inventory.