Financial accounting worksheet with answers

Revenue minus all expenses equals:

1. AGross profit, before operating expenses
2. BCash flow
3. CEquity
4. DNet profit (or loss)

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

The gross profit margin is calculated as:

1. AGross profit ÷ revenue × 100
2. BRevenue ÷ cost of sales × 100
3. CGross profit ÷ total assets × 100
4. DNet profit ÷ revenue × 100

The prudence (conservatism) concept suggests that accountants should:

1. AAlways record the highest possible profit to attract investors
2. BAvoid overstating assets and income under uncertainty
3. CIgnore possible losses
4. DValue assets at their selling price

An asset costs €50,000, has a residual value of €5,000 and a useful life of 5 years. What is the annual straight-line depreciation?

1. A€9,000
2. B€11,000
3. C€5,000
4. D€10,000

Which depreciation method charges the same amount every year?

1. ASum-of-the-years'-digits
2. BReducing balance
3. CStraight-line
4. DUnits of production

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

The going concern assumption means financial statements are prepared assuming the entity:

1. AWill continue to operate for the foreseeable future
2. BWill make a profit every year
3. CWill be sold within one year
4. DHas no debts