QUESTION BANK ACCOUNTING AND FINANCIAL ANALYSIS
LONG ANSWER TYPE QUESTIONS
1. Define accounting and give its functions.
2. What is the difference between book keeping and accounting?
3. Accounting is both a Science and an Art. Examine this statement
4. What are the basic concepts of accounting?
5. What are the principles of accounting?
6. What is double entry system of book keeping?
7. What do you mean by final accounts? What are its constituents? Name them and briefly explain the purpose of each of them.
8. Differentiate between:
(a) Outstanding expenses & prepaid expenses
(b) Outstanding income & accrued income
(c) Interest or capital & interest on drawings.
9. What are the differences between Trail Balance and Balance Sheet?
10. What do you mean by the liquidity of the firm? How can the liquidity of a firm be assessed?
11. How do you perform the vertical and horizontal analysis of the financial statement? Explain clearly.
12. What are the uses of Accounting Ratios for the shareholders and creditors of a company? give examples in support of your answer.
13. What are the objectives of the analysis and interpretation of financial statement? Discuss with appropriate analysis pointing out their nature a significance.
14. "Cash flow statement is a special type of funds flow statements". Comment.
15. What is funds flow statement? How is it prepared? How does it differ from CFS.
16. "Cash flow Analysis is very useful to the management for short-term financial planning because it is a very effective tool for controlling the cash flows of a business". Elucidate this statement.
17. What is a funds flow statement? Explain clearly. Do you agree with this view that's funds flow statement is a better substitute for an Income statement?
18. Explain the meaning of depreciation. Enumerate different methods of depreciation. Explain straight line method.
19. Discuss the difference between reserve and provision.
20. What is the difference between straight line and written down value method of depreciation?
MULTIPLE CHOICE QUESTIONS
1. Which of the following is not a business transaction?
(a) Purchase of goods on credit.
(b) Loss of goods by theft.
(c) Withdraw by proprietor for personal use.
(d) Dismissal of an employee for committing theft
2. The function of financial accounting is
(a) Record all business transactions
(b) Interpret the financial data
(c) Assist the management in performing functions effectively
3. Which of the following is a business transaction?
(a) Purchase of goods from Mr. Arun
(b) Slapping of one worker by another.
(c) The proprietor dies.
4. Which of the following accounting does not record?
(a) Selling of goods.
(b) Loss by fire of goods
(c) Qualitative aspect of business
5. Accounting principles are generally based on:
(a) Practicability
(b) Subjectively
(c) Convenience in recording
6. The system of recording transaction based on dual aspect concept is called:
(a) Double entry system
(b) Double account system
(c) Single entry system
7. According to money measurement concept following will be recorded:
(a) health of managing director of company
(b) quality of company goods
(c) value of plant and machinery
8. The convention of conservatism is applicable:
(a) in providing for discount on creditors
(b) in making provision for bad and doubtful debts
(c) providing for depreciation
9. Asset account show ______________ balance
(a) debit
(b) credit
(c) plus
(d) debit or credit
10. Trail balance is prepared according to _____________ method
(a) balance
(b) total
(c) none
(d) both
11. The amount brought in by the proprietor in the business should be credited to _____________ account.
(a) cash
(b) capital
(c) drawing
(d) none
12. The process of transferring the debit and credit items from a journal to their respective accounts in the ledger is termed as ______________
(a) balancing of account
(b) posting
(c) journalising
(d) all
13. Purchase book records ___________
(a) All purchases
(b) cash purchases
(c) all credit purchases
(d) all credit purchases of goods
14. Which of the following is the example of personal account
(a) Machinery
(b) Rent
(c) Cash
(d) Creditor
(e) Salary
15. Payment of salary is recorded by
(a) Debiting Salary A/c, Crediting cash A/c
(b) Debiting Cash A/c, Crediting Salary A/c
(c) Debiting Empoyees A/c, Crediting Cash A/c
(d) Debiting Cash A/c,. Crediting employee A/c
(e) None of the above
16. Journal is a
(a) Book of Original entry
(b) Classified summary of all transactions
(c) Permanent record
(d) Both (a) and (b) above
(e) None of the above
17. The function of financial statement is to ascertain
(a) Profit
(b) the value of assets
(c) the value of liabilities
(d) profit or less and financial position
18. Financial statements are prepared
(a) at the end of calender year
(b) at the end of the assessment year
(c) at the end of accounting year
(d) on every Diwali
19. The statement of assets and liabilities is
(a) Balance sheet
(b) Trading account
(c) Trail balance
(d) Profit and loss account
20. Gross profit is ascertained by
(a) Trading account
(b) Profit and loss account
(c) Balance sheet
(d) Profit and loss account
21. Outstanding salaries is shown as
(a) An asset in the balance sheet
(b) A liability
(c) By adjusting it in the P & L A/c
(d) Both (a) and (c)
(e) Both (b) and (c)
22. Depreciation appearing in the Trail Balance. Should be
(a) Debited to P & L A/c
(b) Shown as liability imbalance sheet
(c) Reduced from related asset in balance sheet
(d) Both (a) and (b)
(e) Both (a) and (c)
23. Bank Overdraft is shown as a
(a) Current Liability
(b) Contingent Liability
(c) Current Asset
(d) Unsecured loan
(e) Provision
24. Closing stock in trail balance implies that
(a) It is already adjusted in the opening stock
(b) It is adjusted in purchase account
(c) It is adjusted in the cost of sale A/c
(d) It is adjusted in the sale A/c
(e) It is adjusted in the profit and loss A/c
25. The commonly used method to analyse financial statement is:
(a) Common size statement
(b) trend analysis
(c) ratio analysis
26. Which is not one of the types of ratio?
(a) liquidity ratios
(b) balance ratios
(c) turnover ratios
27. The different types of comparisons are:
(a) comparison with standard on plan
(b) inter firm comparison
(c) both (a) and (b)
28. Dividend pay-out ratio is
(a) A ratio between dividend paid and the number of equity shares
(b) DPS divided by EPS
(c) a ratio between PAT and dividend paid
(d) The percentage of earnings over EBIT
(e) EPS divided by DPS
29. Receivables turn over ratio of 10 means
(a) The net credit sales for the year are 10 times the average receivables
(b) Receivables are generated 10 times during the year
(c) It takes 36 days to collect credit sales on an average
(d) Both (a) and (c)
(e) All of (a), (b) and (c)
30. The long-term solvency positions are measured by
(a) Coverage ratios
(b) Earnings ratios
(c) Structural ratios
(d) Both (a) and (c)
(e) Both (a) and (b)
31. 1 Year = 365 days. The expression is known as
(a) Receivable turnover ratio
(b) Average collection period
(c) Quick ratio
(d) Current ratio
(e) Leverage ratio
32. If the debt equity ratio of a company is 2 : 1 then it can be understood that for every
(a) 2 rupees of equity there is 1 rupee of debt
(b) 2 rupees of total assets there is 1 rupee of equity
(c) 3 rupees of total assets there is 1 rupee of debt
(d) 3 rupees of total assets there are 2 rupees of debt
(e) 3 rupees of debt there are 2 rupees of equity
33. Which of the following will result in flow of funds?
(a) purchase of furniture on credit
(b) writing off goodwill
(c) depreciation of assets
(d) appreciation of building
34. Inflow of funds does not take place due to:
(a) funds from operation
(b) increase in capital
(c) increase in W. capital
(d) sale of fixed assets
35. Current liabilities are equal to:
(a) working capital + current assets
(b) working capital – current assets
(c) current assets – working capital
(d) current assets + working capital
36. Increase in working capital is:
(a) source of funds
(b) application of funds
(c) funds from operation
(d) loss from operation
37. Cash flow statement is required for the financial planning of:
(a) short range
(b) long range
(c) medium range
(d) very long range
38. While calculating cash from operation ________ are added.
(a) decrease in current assets
(b) increase in debtors
(c) decrease in current liabilities
(d) all the above
39. The meaning of "fund" in funds flow statement is:
(a) Cash
(b) Net working capital
(c) Gross working capital
(d) Profit
(e) Either (a) and (b)
40. Which of the following is the source of funds?
(a) Increase in cash
(b) Increase in accrued expenses
(c) Decrease in reserve
(d) Dividend payment
(e) All the above
41. Which of the following is not a source of fund?
(a) Increase in share capital
(b) Increase in working capital
(c) Increase in long-term liability
(d) Increase in profit
(e) Increase in fund
42. Depreciation in straight line method is calculated on
(a) opening balance
(b) closing balance
(c) original cost
(d) market value
43. Depreciation is calculated on ___________ of assets.
(a) cost price
(b) market value
(c) book value
(d) income price
44. _______________ is created for unknown liability
(a) provision
(b) reserve for bad debts
(c) reserve
(d) provision for taxation
45. Maintenance of _______________ is a must
(a) general reserve
(b) sinking fund
(c) provision
(d) secret reserve