Q: A company has net income of $$60,000, average total assets of 400$$,000, and sales of $1,000,000. What is the Return on Assets (ROA)?

$$ \frac{60,000}{400,000} \times 100 = 15\% $$

Question 1

Which of the following best describes the relationship among the main financial statements as shown in the diagram 'How the Financial Statements Connect'?

Accepted Answer

The Statement of Comprehensive Income determines profit, which affects equity in the Statement of Changes in Equity, and both link to the Statement of Financial Position. The Statement of Cash Flows reconciles cash movements from these statements.

Question 2

According to the accounting cycle diagram, what is the correct sequence for preparing financial statements?

Accepted Answer

Transactions -\u003e Journal -\u003e Ledger -\u003e Trial Balance -\u003e Adjustments -\u003e Adjusted TB -\u003e Financial Statements -\u003e Closing Entries

Question 3

Which of the following is a fundamental qualitative characteristic of useful financial information, as shown in the 'Useful Financial Information' diagram?

Accepted Answer

Relevance

Question 4

A company has total assets of $$500,000 and total liabilities of 350$$,000. Using the accounting equation, what is the amount of equity?

Accepted Answer

$150,000

Question 5

Which internal control activity is best described as 'ensuring that no single individual is responsible for both recording and authorizing a transaction'?

Accepted Answer

Segregation of duties

Question 6

In the indirect method of preparing a cash flow statement, which of the following adjustments is made to profit before tax?

Accepted Answer

Add back depreciation expense

Question 7

A business has current assets of $$80,000, inventory of 20$$,000, and current liabilities of $40,000. What is the quick ratio?

Accepted Answer

$$ \frac{80,000 - 20,000}{40,000} = 1.5 $$

Question 8

Which of the following is a limitation of financial statements?

Accepted Answer

They may rely on estimates and historical cost.

Question 9

Which ratio would best help an analyst assess a company's ability to pay its short-term obligations?

Accepted Answer

Current ratio

Question 10

A company has net income of $$60,000, average total assets of 400$$,000, and sales of $1,000,000. What is the Return on Assets (ROA)?

Accepted Answer

$$ \frac{60,000}{400,000} 	imes 100 = 15\% $$

Question 11

Which of the following best describes the prudence concept in accounting?

Accepted Answer

Do not overstate assets or income, or understate liabilities or expenses.

Question 12

A company issues shares for cash of $100,000. What is the correct journal entry?

Accepted Answer

Dr Bank $$100,000; Cr Share Capital 100$$,000

Question 13

Which of the following is an example of an adjusting event after the reporting period?

Accepted Answer

A customer declared bankrupt after year-end, confirming a doubtful receivable at year-end.

Question 14

Which of the following best describes the purpose of the Statement of Changes in Equity?

Accepted Answer

To show movements in equity, including share issues, profit, dividends, and transfers to reserves.

Question 15

A business has opening receivables of $$10,000, closing receivables of 12$$,000, receipts from receivables of $$50,000, discounts allowed of 1$$,000, bad debts of $$500, and sales returns of 2$$,000. What are the credit sales for the period?

Accepted Answer

$$ 12,000 + 50,000 + 1,000 + 500 - 10,000 - 2,000 = 51,500 $$

Question 16

Which of the following is NOT a typical control activity in an internal control system?

Accepted Answer

Window dressing

Question 17

Which accounting method provides a fairer picture of performance by matching income and expenses to the correct period?

Accepted Answer

Accrual basis

Question 18

A company has a gross profit of $$200,000 and sales of 800$$,000. What is the gross margin percentage?

Accepted Answer

$$ \frac{200,000}{800,000} 	imes 100 = 25\% $$

Question 19

Which of the following best describes the 'going concern' assumption?

Accepted Answer

The business is expected to continue operating for the foreseeable future.

Financial Accounting Unit 1: Comprehensive Study Notes and Exam Revision Guide

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