Financial accounting worksheet with answers

In double-entry bookkeeping, an increase in a liability is recorded as:

1. AA credit
2. BA debit to cash only
3. CNo entry until it is paid
4. DA debit

What is the main purpose of an external audit?

1. ATo prepare the company's financial statements
2. BTo give an independent opinion on whether the financial statements give a true and fair view
3. CTo decide the company's dividend policy
4. DTo guarantee that no fraud has happened

An accrued expense (accrual) is:

1. AA cost that will never be paid
2. BAn expense paid in advance that relates to next year
3. CAn expense incurred in the period but not yet paid
4. DIncome received before it is earned

Which depreciation method charges the same amount every year?

1. AStraight-line
2. BSum-of-the-years'-digits
3. CUnits of production
4. DReducing balance

Trade receivables are €50,000 and annual credit sales are €365,000. What are the receivable days?

1. A73 days
2. B36.5 days
3. C50 days
4. D7.3 days

A machine costs €10,000 and is depreciated at 20% a year on the reducing balance. What is the depreciation charge in year 2?

1. A€1,600
2. B€4,000
3. C€2,000
4. D€1,800

An increase in accounts receivable during the year, in the indirect cash flow method, is:

1. ASubtracted from profit to get operating cash flow
2. BAdded to profit
3. CShown as an investing outflow
4. DNot relevant to cash flow

A company borrows at 5% interest to invest in assets that earn 12%. What is the likely effect on return on equity?

1. AROE rises and financial risk falls
2. BROE falls, because interest is an expense
3. CROE rises, but financial risk also increases
4. DROE stays the same, because debt is not equity