Financial accounting worksheet with answers

What is the basic accounting equation?

1. AAssets = Liabilities + Equity
2. BProfit = Assets − Liabilities
3. CEquity = Assets + Liabilities
4. DAssets = Revenue − Expenses

Opportunity cost is:

1. AThe interest paid on a loan
2. BThe value of the best alternative given up
3. CThe cash cost of buying into a new opportunity
4. DThe total of all past costs

Dividends paid to shareholders are recorded as:

1. AAn expense in the income statement for the year
2. BA reduction of retained earnings in equity
3. CA non-current liability once paid
4. DRevenue of the shareholders' company

Cost of sales is €600,000 and average inventory is €100,000. What is the inventory turnover?

1. A60 times a year
2. B6 times a year
3. C0.17 times a year
4. D16 times a year

The prudence (conservatism) concept suggests that accountants should:

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

A company pays its insurance for next year in advance. How is the payment recorded at the year end?

1. AAs an expense of the current year in full
2. BAs revenue
3. CAs a liability
4. DAs a prepaid expense (asset)

Closing inventory this year is overstated by €10,000 by mistake. What is the effect on profit, if not corrected?

1. AThis year's profit is overstated and next year's understated by €10,000
2. BProfit is unaffected; only the balance sheet changes
3. CBoth years' profits are overstated
4. DOnly this year's profit is understated

Two firms have the same operating profit, but one is financed mostly by debt. When operating profit falls by 20%, the highly geared firm's net profit:

1. AFalls by a smaller percentage
2. BFalls by exactly 20% as well
3. CRises because interest is fixed
4. DFalls by a larger percentage