Business and Finance Examination
Practice Test Questions And Correct
Answers (Verified Answers) Plus
Rationales 2025|2026 Q&A | Instant
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1. What is the primary purpose of financial management in a business?
a) To increase sales
b) To maximize shareholder wealth
c) To improve employee satisfaction
d) To minimize taxes
The main goal of financial management is maximizing shareholder
wealth by ensuring long-term profitability and growth.
2. Which of the following is considered a current asset?
a) Buildings
b) Machinery
, c) Accounts receivable
d) Patents
Current assets are those expected to be converted to cash within one
year, and accounts receivable qualify.
3. The accounting equation is:
a) Assets = Income – Expenses
b) Assets = Liabilities + Equity
c) Assets = Cash + Revenue
d) Assets = Liabilities – Equity
The fundamental equation of accounting shows that a company’s
resources equal its obligations plus owner’s equity.
4. Which financial statement shows a company’s revenues and expenses
over a period of time?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Retained Earnings
The income statement measures financial performance by reporting
revenues and expenses over time.
5. Depreciation is used to:
a) Reduce cash balances
b) Allocate the cost of an asset over its useful life
c) Increase net income
, d) Record liabilities
Depreciation spreads the cost of a fixed asset over its useful life to
match expenses with revenues.
6. Which of the following is a long-term liability?
a) Accounts payable
b) Wages payable
c) Bonds payable
d) Taxes payable
Bonds payable are due over a long-term period, typically more than
one year.
7. A company’s liquidity refers to:
a) Profitability
b) Ability to meet short-term obligations
c) Level of debt
d) Return on investment
Liquidity measures how easily a company can convert assets into
cash to pay short-term liabilities.
8. What is the main purpose of budgeting?
a) To measure profits
b) To plan and control financial resources
c) To reduce taxes
d) To evaluate employees
, Budgets help organizations plan expenditures and monitor actual
performance against financial goals.
9. What does ROI stand for?
a) Rate of Income
b) Return on Investment
c) Return on Income
d) Rate of Interest
ROI is a profitability ratio that compares net profit to the investment
made.
10. Which of the following is NOT a source of short-term financing?
a) Trade credit
b) Bank overdraft
c) Issuing bonds
d) Commercial paper
Bonds are generally issued for long-term financing, not short-term
needs.
11. A sole proprietorship has which characteristic?
a) Limited liability
b) Double taxation
c) Owner has unlimited liability
d) Separate legal entity
Practice Test Questions And Correct
Answers (Verified Answers) Plus
Rationales 2025|2026 Q&A | Instant
Download Pdf
1. What is the primary purpose of financial management in a business?
a) To increase sales
b) To maximize shareholder wealth
c) To improve employee satisfaction
d) To minimize taxes
The main goal of financial management is maximizing shareholder
wealth by ensuring long-term profitability and growth.
2. Which of the following is considered a current asset?
a) Buildings
b) Machinery
, c) Accounts receivable
d) Patents
Current assets are those expected to be converted to cash within one
year, and accounts receivable qualify.
3. The accounting equation is:
a) Assets = Income – Expenses
b) Assets = Liabilities + Equity
c) Assets = Cash + Revenue
d) Assets = Liabilities – Equity
The fundamental equation of accounting shows that a company’s
resources equal its obligations plus owner’s equity.
4. Which financial statement shows a company’s revenues and expenses
over a period of time?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Retained Earnings
The income statement measures financial performance by reporting
revenues and expenses over time.
5. Depreciation is used to:
a) Reduce cash balances
b) Allocate the cost of an asset over its useful life
c) Increase net income
, d) Record liabilities
Depreciation spreads the cost of a fixed asset over its useful life to
match expenses with revenues.
6. Which of the following is a long-term liability?
a) Accounts payable
b) Wages payable
c) Bonds payable
d) Taxes payable
Bonds payable are due over a long-term period, typically more than
one year.
7. A company’s liquidity refers to:
a) Profitability
b) Ability to meet short-term obligations
c) Level of debt
d) Return on investment
Liquidity measures how easily a company can convert assets into
cash to pay short-term liabilities.
8. What is the main purpose of budgeting?
a) To measure profits
b) To plan and control financial resources
c) To reduce taxes
d) To evaluate employees
, Budgets help organizations plan expenditures and monitor actual
performance against financial goals.
9. What does ROI stand for?
a) Rate of Income
b) Return on Investment
c) Return on Income
d) Rate of Interest
ROI is a profitability ratio that compares net profit to the investment
made.
10. Which of the following is NOT a source of short-term financing?
a) Trade credit
b) Bank overdraft
c) Issuing bonds
d) Commercial paper
Bonds are generally issued for long-term financing, not short-term
needs.
11. A sole proprietorship has which characteristic?
a) Limited liability
b) Double taxation
c) Owner has unlimited liability
d) Separate legal entity
