FINANCIAL ACCOUNTING MCQs

(All answers are marked in green highlighter)

Question 1.
The role of financial accounting is primarily to:
a.
b.
c.
d.

Support the strategic management of the company.

Manage and control corporate funds.
Assist the company in meeting its legal and financial reporting requirements.
Ensure that a company does not pay too much corporation tax.

Question 2.
Which of the following should financial information not be?
a.
b.
c.
d.

timely
reliable
inconsistent
accurate

Question 3.
A sole trader:
a. employs many persons, has unlimited liability and needs to have its accounts audited.
b. employs one person, has limited liability and does not need to have its accounts
audited.
c. employs many persons, has unlimited liability and does not need to have its accounts
audited.
d. employs one person, has limited liability and needs to have its accounts audited.
Question 4.
A private limited company (Ltd):
a. may not offer its shares for sale to the public, has limited liability and does not need to
have its accounts audited.
b. may offer its shares for sale to the public, has limited liability and does not need to have
its accounts audited.
c. may not offer its shares for sale to the public, has limited liability and needs to have its
accounts audited.
d. may offer its shares for sale to the public, has unlimited liability and does not need to
have its accounts audited.
Question 5.
A public limited company (plc):
a) may offer its shares for sale to the public, has limited liability and does not need to have
its accounts audited.
b) employs many persons, has unlimited liability and needs to have its accounts audited.

c) employs many persons, has unlimited liability and does not need to have its accounts
audited.
d) may offer its shares for sale to the public, has limited liability and needs to have its
accounts audited.
Question 6.
A partnership:
a.
b.
c.
d.

does not entitle all partners to share in the running of the business.
is a separate legal entity.
is obliged to make accounting information available to the public.
is formed between two or more persons.

Question 7.
Which of the following is not one of the purposes of accounting?
a.
b.
c.
d.

to assist with evasion of tax

to determine whether a business is doing well or badly
to determine the best alternative for doing a job
to identify which business problems should be looked at

Question 8.
The framework of accounting does not include one of the following. Which one?
a.
b.
c.
d.

Statement of Principles
Financial Services Act 1986
Companies Act 2006
financial reporting standards and accounting concepts

Question 9.
Which of the following is not one of the key financial statements required to be published by a UK plc?
a.
b.
c.
d.

statement of cash flows

balance sheet
VAT report
income statement

Question 10.
UK limited companies are required to produce annual reports and accounts for:
a.
b.
c.
d.

shareholders and the Registrar of Companies.

the bank.
customers and suppliers.
employees.

Question 11.
Which of the following statements is incorrect?
a.
b.
c.
d.

purchase invoice = debit payables and credit something else

cash receipt = debit cash and credit something else
cash payment = credit cash and debit something else
sales invoice = debit receivables and credit something else

Question 12.
A company sells goods on credit for 5,000. Which of the following entries correctly records the
transaction?
a.
b.
c.
d.

debit trade receivables and credit sales 5,000

debit cash and credit sales 5,000
credit trade payables and debit sales 5,000
credit inventories and debit trade receivables 5,000

Question 13.
The following are transactions for July, What are the trade receivables at 31 July 2010?

a.
b.
c.
d.

61,000
39,000
57,000
41,000

Question 14.
The following are transactions for June 2010.

How much was paid to suppliers in June 2010?

a.
b.
c.
d.

415,000
345,000
381,000
379,000

Question 15.
A company had a bank balance of 10,000 on 1 August 2010. During August, total payments were
128,000 and total receipts were 119,000. Bank charges of 3,000 had not yet appeared on the bank
statement. What is the cash book balance at 31 August 2010?
a.
b.
c.
d.

1,000 balance
1,000 overdrawn
2,000 balance
2,000 overdrawn

Question 16.
The following is the trial balance at 31 December 2009 of a company following its first year of trading
that commenced on 1 January 2009

What is the profit or loss for the year 2009?

a.
b.
c.
d.

18,000 profit
8,000 loss
18,000 loss
8,000 profit.

Question 17.
The following is the trial balance at 31 December 2009 of a company following its first year of trading
that commenced on 1 January 2009. (same statistical figure as above)
What are the total assets as at 31 December 2009?
a. 126,000
b. 132,000

c. 62,000
d. 108,000

Question 18.
The following is the trial balance at 31 December 2009 of a company following its first year of trading
that commenced on 1 January 2009. (same statistical figure as above)
What is the total shareholders equity as at 31 December 2009?
a.
b.
c.
d.

108,000
100,000
76,000
32,000

Question 19.
The balance on the telephone account in the profit and loss account for the 12 months to 31 December
2009 is 270,000 (total charges up to 30 September 2009). An accrual is required for the last quarter of
the year, assuming that charges continue at the same level throughout 2009. What is the balance on
the telephone accrual account at 31 December 2009?
a.
b.
c.
d.

135,000 credit
90,000 credit
135,000 debit
90,000 debit

Question 20.
The amount of the rent paid and shown in the profit and loss account for the period January 2009 to
January 2010 was 312,000. A prepayment is required in respect of January 2010, assuming that rent
payable charges are evenly spread over 2009 and 2010. What is the rent payable charge for 2009?
a.
b.
c.
d.

264,000
432,000
288,000
336,000

Question 21.
The total equity of a business is equal to:
a.
b.
c.
d.

the total assets less the current liabilities of the business.

the total liabilities of the business.
the total assets less the total liabilities of the business.
the total assets of the business.

Question 22.
The balance sheet shows:
a. the financial performance of the business.
b. the financial performance and the financial position of the business.

c. the cash flow of the business.

d. the financial position of the business.
Question 23.

The shareholders equity is:

a.
b.
c.
d.

12,500.
20,150.
4,000.
8,650.

Question 24. (same statistical figure as above)

The current liabilities are:
a.
b.
c.
d.

7,200.
8,850.
7,000.
7,650.

Question 25. (same statistical figure as above)

The current assets are:
a.
b.
c.
d.

9,500.
10,000.
8,000.
5,000.

Question 26. (same statistical figure as above)

The total liabilities are:
a.
b.
c.
d.

11,500.
9,850.
20,150.
8,850.

Question 27.
The profit of a business during an accounting period is equal to:
a.
b.
c.
d.

total revenues less total expenses.

total revenues less total cash payments.
total cash receipts less total expenses.
total cash receipts less total cash payments.

Question 28.
The income statement shows:
a.
b.
c.
d.

the financial performance of the business.

the cash flow of the business.
the financial performance and the financial position of the business.
the financial position of the business.

Question 29.

The gross profit is:

a.
b.
c.
d.

10,000,000.
1,000,000.
1,500,000.
1,200,000.

Question30. (same statistical figure as above)

The operating profit is:
a.
b.
c.
d.

1,200,000
1,000,000
1,050,000
1,500,000

Question 31. (same statistical figure as above)

The profit before tax is:
a.
b.
c.
d.

350,000.
850,000.
1,050,000.
1,200,000.

Question 32. (same statistical figure as above)

The profit after tax is:
a.
b.
c.
d.

900,000.
350,000.
250,000.
750,000.

Question 33. (same statistical figure as above)

The retained earnings are:
a.
b.
c.
d.

250,000.
850,000.
1,500,000.
1,000,000.

Question 34.
A company had a doubtful debt provision of 14,000 at 31 December 2008. Its trade receivables at 31
December 2009 were 198,200. The company considers that receivables totaling 12,200 will not be
paid and in addition planned to make a doubtful debts provision for 10% of its net receivables at 31
December 2009. What is the charge for bad and doubtful debts in the income statement for the year
ended 31 December 2009?
a.
b.
c.
d.

44,800
16,800
12,200
32,600

Question 35.
A company purchased plant and machinery for 900,000 on 1 January 2007. The company uses
straight line depreciation. The company estimates that the plant and machinery will have a useful life
of 8 years, after which it may be disposed of for 100,000. What was the net book value of the plant
and machinery at 31 December 2009?
a.
b.
c.
d.

600,000
787,500
562,500
700,000

Question 36.
A companys inventories and purchases information for January 2010 is as follows:

What is the cost of inventory sold in January 2010?

a.
b.
c.
d.

72,000
77,000
87,000
67,000

Question 37.
The statement of cash flows tells us:
a.
b.
c.
d.

how much cash has been received and paid during an accounting period.
the financial position of the business at a point in time.
the forecast cash movements over a period of time.
how much profit the business has made during an accounting period.

Question 38.
The statement of cash flows is:
a.
b.
c.
d.

an alternative to the income statement account.

a legal requirement for all business entities.
covered in IAS (International Accounting Standard) 7.
an alternative to the balance sheet.

Question 39 .
The cash flow direct method calculates cash generated from operations from:
a.
b.
c.
d.

analysis of the changes in cash and overdraft levels.

changes in working capital.
analysis of all receipts and payments relating to operating activities.
operating profit.

Question 40 .
The cash flow indirect method calculates cash generated from operations from:
a.
b.
c.
d.

operating profit and changes in working capital and non-cash adjustments.

operating profit and non-cash adjustments.
operating profit less capital expenditure.
operating profit and changes in working capital.

Question 41 .

The operating profit for 2009 was 17,000 and the depreciation for the year was 8,000. What was
the net cash generated from operations for 2009?
a.
b.
c.
d.

inflow 22,200
inflow 18,800
inflow 27,800
inflow 2,800

Question 42 .
In the statement of cash flows, interest received:
a.
b.
c.
d.

does not appear in the statement of cash flows.

appears within cash generated from operating activities.
appears within cash flows from financing activities.
appears within cash flows from investing activities.

Question 43.
In the statement of cash flows, receipts from disposal of non-current assets:
a.
b.
c.
d.

appear within net cash generated from operations.

do not appear in the statement of cash flows.
appear within cash flows from investing activities.
appear within cash flows from financing activities.

Question 44.
The Notes on Accounts headed Statement of Cash Flows show:
a.
b.
c.
d.

changes in working capital.

changes in the levels of cash and cash equivalents and overdrafts.
increases or decreases in amounts owed by trade receivables.
changes in financing during the accounting period.

Question 45.
Cash flow is:
a.
b.
c.
d.

linked to the balance sheet and income statement.

not linked to the balance sheet or income statement.
linked only to the balance sheet.
linked only to the income statement.

Question 45.

The operating profit for 2009 was 17,000 and the depreciation for the year was 8,000.If the
companys taxation charge in the income statement account was 7,000 and it paid interest of 1,000
and corporation tax of 6,000 during the year, what was the net cash generated from operating
activities for the year 2009?
a.
b.
c.
d.

inflow 11,800
inflow 1,800
inflow 10,800
inflow 12,800

Question 46.
The framework for establishing good corporate governance and accountability was originally set up
by:
a.
b.
c.
d.

The Rowntree Committee.

The Thornton Committee.
The Cadbury Committee.
The Nestl Committee.

Question 47.
Which of the following is not one of the underlying principles of the corporate governance Combined
Code of Practice?
a.
b.
c.
d.

integrity
acceptability
accountability
openness

Question 48.
External audit of the accounts of a limited company is required:
a.
b.
c.
d.

by the Companies Act 2006.

to detect fraud.
at the discretion of the shareholders.
because it is demanded by the companys bankers.

Question 49.
Directors responsibilities are unlikely to include:
a.
b.
c.
d.

a fiduciary duty.
a duty of care.
a duty to keep proper accounting records.
a duty to propose high dividends for shareholders.

Question 50.
A company may become insolvent if it:
a.
b.
c.
d.

cannot pay creditors in full after realisation of its assets.

cannot meet its budgeted level of profit.
makes a loss.
has negative working capital.

Question 51.
A director of a limited company may not be liable for wrongful trading if he or she:
a.
b.
c.
d.

brought in some expected sales from next year into the current year.
increased the valuation of its inventories to cover any potential shortfall.
took every step to minimise the potential loss to creditors.
introduced into the balance sheet an asset based on a valuation of its brands sufficient
to meet any shortfall.

Question 52.
Fraudulent trading may be:
a.
b.
c.
d.

a civil offence committed by any employee.

a civil and a criminal offence committed only by directors of a limited company.
a criminal offence committed only by directors of a limited company.
a civil and a criminal offence committed by any employee.

Question 53.
Disqualification of directors may result from breaches of:
a.
b.
c.
d.

The Financial Services Act 1986.

The Companies Act 2006 and Insolvency Act 1986.
The Health and Safety at Work Act 1974.
The Sale of Goods Act 1979.

Question 54.
Directors may not be disqualified for:
a.
b.
c.
d.

persistent breaches of company legislation.

continuing to trade when the company is insolvent.
paying inadequate attention to the company finances.
being convicted of drunken driving.

Question 55.
Which of the following actions will not help directors to protect themselves from non-compliance with
their obligations and responsibilities?
a.
b.
c.
d.

keeping themselves fully informed about company affairs

ensuring that regular management accounts are prepared by the company
including a disclaimer clause in their service contracts
seeking professional help

Question 56.
Performance review of a business must compare against:
a.
b.
c.
d.

the performance of a similar business within its industrial sector.

a business of similar size.
the performance of a similar business outside its industrial sector.
an appropriate standard for comparison.

Question 57 .
The quick ratio (or acid test) indicates the:
a.
b.
c.
d.

short-term liquidity of the business.

speed with which profits are being made.
rate at which cash is being received.
rate at which cash is being spent.

Question 58 .

The gross profit ratio is:

a.
b.
c.
d.

85%.
12%.
10%.
15%.

Question 59 .The PBIT % ratio is:

a.
b.
c.
d.

10%.
85%.
15%.
12%.

Question 60 . The return on capital employed (ROCE) % is:

a.
b.
c.
d.

(same statistical figure as above)

1.3.
0.8.
1.0.
1.1.

Question 65. The quick ratio (acid test) is:

a.
b.
c.
d.

(same statistical figure as above)

107.
214.
236.
172.

Question 64. The current ratio is:

a.
b.
c.
d.

(same statistical figure as above)

129.
43.
172.
190.

Question 63. Inventory turnover days are:

a.
b.
c.
d.

(same statistical figure as above)

146.
55.
130.
201.

Question 62. Average payables payment days are:

a.
b.
c.
d.

(same statistical figure as above)

14.2%.
9.5%.
3.3%.
8.0%.

Question 61. Average receivables collection days are:

a.
b.
c.
d.

(same statistical figure as above)

0.6.
0.8.
1.1.
1.0.

(same statistical figure as above)

Question 66.
A limited company must send a copy of its annual report and accounts to:
a.
b.
c.
d.

its bankers.
the Registrar of Companies.
all its customers.
all its suppliers.

Question 67 .
The chairmans statement in a companys annual report and accounts:
a.
b.
c.
d.

forecasts the share price for the subsequent year.

analyses the financial results for the year.
is subject to external audit.
comments on current and future performance.

Question 68.
UK plcs are required to include a financial review in their annual reports and accounts in order to:
a.
b.
c.
d.

restrict the amount of information provided to shareholders.

replace the main financial statements.
analyse operating profit performance.
provide greater insights into the affairs of companies .

Question 69.
The segmental reporting section in a companys annual report and accounts includes:
a.
b.
c.
d.

details about subsidiary companies.

information analysed by class of business and geographical location.
a list of the companys products.
a departmental analysis of the income statement.

Question.70.
The directors report in a companys annual report and accounts is unlikely to include:
a.
b.
c.
d.

company policy on health and safety.

details on charitable and political donations.
proposed dividends payable to shareholders.
information about directors and their share ownership.

Question.71.
The following are extracts from the income statement for the year ended 31 December 2009 and the
balance sheets as at 31 December 2009 and 31 December 2008 of a limited company.

Using a vertical analysis based on revenue, administrative expenses are:

a.
b.
c.
d.

5.0.
3.0.
2.0.
4.0.

Question.72.
Using a vertical analysis based on net assets, trade payables in 2009 are: (same statistical figure as above)
a.
b.
c.
d.

29.8.
28.4.
60.0.
16.7.

Question.73.
Using a horizontal analysis based on 2008, investments in 2009 are:
a.
b.
c.
d.

7.4.
11.5.
23.1.
50.0.

(same statistical figure as above)

Question.74.
Using a horizontal analysis based on 2008, taxation payable for 2009 is: (same statistical figure as above)
a.
b.
c.
d.

20.0.
25.0.
55.5.
125.0.

Question 75.
In 2009 staff costs were 5.1m and depreciation was 6m. What percentage of value added was paid
(same statistical figure as above)
to the Government?
a.
b.
c.
d.

14.1%
7.6%
7.9%
8.3%.

Question 76.
Ordinary shares in limited companies have:
a.
b.
c.
d.

a limited life and voting rights, and receive dividends.

an unlimited life and voting rights, and receive dividends.
a limited life with no voting rights but receive dividends.
an unlimited life and voting rights but receive no dividends.

Question 77.
Loans to limited companies:
a. do not have a fixed term but receive interest that is allowable for corporation tax and
have voting rights.
b. have a fixed term and receive interest that is allowable for corporation tax, but have no
voting rights.
c. do not have a fixed term and receive interest that is allowable for corporation tax, but
have no voting rights.
d. have a fixed term and receive interest that is not allowable for corporation tax, but have
no voting rights.
Question 78.
A company has a financial structure where equity is 70% of its total debt plus equity. Its cost of equity
is 10% and gross loan interest is 5%. Corporation tax is paid at 30%. What is the companys weighted
average cost of capital (WACC)?
a.
b.
c.
d.

8.50%
8.05%
7.45%
7.50%

Question 79.
The following are extracts from the income statement for the year ended 31 December 2009 and the
balance sheet as at 31 December 2009.

Earnings per share (eps) is:

a.
b.
c.
d.

17.5p.
42.5p.
12.5p.
50.0p.

Question 80. The price/earnings (P/E) ratio is:

a.
b.
c.
d.

2.8.
9.6.
6.9.
2.4.

Question 81. The dividend per share is:

a.
b.
c.
d.

(same statistical figure as above)

17.5p.
42.5p.
2.5p.
5.0p.

(same statistical figure as above)

Question 82. Dividend cover is:

a.
b.
c.
d.

4.5.
3.5.
6.5.
5.5.

Question 83. The dividend yield is:

a.
b.
c.
d.

(same statistical figure as above)

25.0%.
5.0%.
11.6%.
8.7%.

Question 85. The gearing ratio is:

a.
b.
c.
d.

(same statistical figure as above)

35.4%.
2.1%.
14.6%.
4.2%.

Question 84. The debt/equity ratio is:

a.
b.
c.
d.

(same statistical figure as above)

(same statistical figure as above)

10.4%.
20.0%.
4.7%.
8.0%.

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