Financial accounting worksheet with answers

Gross profit is:

1. ATotal assets minus total liabilities
2. BRevenue minus all expenses
3. CCash in minus cash out
4. DRevenue minus cost of goods sold

Revenue minus all expenses equals:

1. ANet profit (or loss)
2. BGross profit, before operating expenses
3. CEquity
4. DCash flow

Which statement shows cash coming in and going out in operating, investing and financing activities?

1. AThe cash flow statement
2. BThe income statement
3. CThe notes to the accounts only
4. DThe balance sheet

Why can a profitable company run out of cash?

1. AProfit includes credit sales and non-cash items, while cash may be tied up in receivables and inventory
2. BProfitable companies never pay taxes
3. CProfit always equals cash
4. DCash is not recorded in accounting

A machine with a carrying amount of €3,000 is sold for €4,000. What is recorded in the income statement?

1. ARevenue of €4,000
2. BA loss on disposal of €1,000
3. CA gain on disposal of €1,000
4. DA gain on disposal of €4,000

Under IAS 16, which cost should be included in the cost of a new machine?

1. ARepairs carried out two years later
2. BInstallation costs needed to get it working
3. CStaff training costs after it starts operating
4. DGeneral office overheads for the year

A company "sells" inventory to a bank and must buy it back later at a higher price, keeping the risks and rewards. How should it be accounted for?

1. AAs a gain on disposal of inventory
2. BAs a contingent asset in the notes
3. CAs a secured loan, not a sale
4. DAs revenue on the date of transfer

A company's debt-to-equity ratio rises sharply. What does this usually indicate?

1. AThat shareholders invested more money
2. BHigher financial risk because the company relies more on borrowed money
3. CBetter liquidity in the short term
4. DHigher profitability