Basic Accounting Multiple-Choice Questions (MCQs) and Verified Answers

1. The revenues and expenses of a company are displayed in which statement? A. Balance Sheet B. Cash Flow Statement C. Income Statement D. None of the above - ANSWER-Answer: C) Income Statement 10. Which person owes an amount to a business organisation for buying goods and services on a credit basis? A. Creditors B. Debtors C. Owner D. None of the above - ANSWER-Answer: B) Debtors ['Explanation:', 'Debtors are the persons who owe an amount to a business organisation for buying goods and services on a credit basis.'] 11. When are balance sheets prepared? A. Quarterly B. Yearly C. Monthly D. None of the above - ANSWER-Answer: B) Yearly ['Explanation:', 'Balance Sheets are prepared yearly as it displays the liabilities and assets of a company.'] 12. What is Activity Ratio? A. Financial Ratios that measure a firm's ability to convert different accounts into a balance sheet. B. Ratios that measure a company's ability to pay debt obligations and its margin of safety. C. Financial measurements that assess the ability of a company to meet its financial obligations D. The ratio that evaluates the company's ability to generate income as compared to its expenses. - ANSWER-Answer: A) Financial Ratios that measure a firm's ability to convert different accounts into a balance sheet ['Explanation:', "Activity Ratios are a category of financial ratios that measure a firm's ability to convert different accounts within its balance sheets into cash or sales."] 13. What is Current Liability? A. Assets of a company that are expected to be sold or used as a result of standard business operations over the next year. B. A potential liability that may occur in the future. C. Company's short-term financial obligations that are due within one year or within a normal operating cycle. D. Obligations listed on the balance sheet not due for more than a year. - ANSWER-Answer: C) Company's short-term financial obligations that are due within one year or within a normal operating cycle ['Explanation:', "Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle."] 14. What is an operating cycle? A. A metric that expresses the time (measured in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales. B. The time it takes a company to buy goods, sell them and receive cash from the sale of said goods. C. The process of hiring personnel to conduct the daily operations of the business. D. collective process of identifying, analysing, and recording the accounting events of a company. - ANSWER-Answer: B) The time it takes a company to buy goods, sell them and receive cash from the sale of said goods ['Explanation:', "An operating cycle refers to the time it takes a company to buy goods, sell them and receive cash from the sale of said goods. In other words, it's how long it takes a company to turn its inventories into cash. The length of an operating cycle is dependent upon the industry."] 15. What are Outstanding Expenses? A. Expenses which are not paid off in the current balance sheet. B. The necessary purchases that keep a business going from day-to-day. C. Type of expense that is due but has not been paid. D. None of the above. - ANSWER-Answer: C) Type of expense that is due but has not been paid ['Explanation:', 'An Outstanding Expense is a type of expense that is due but has not been paid. This expense becomes outstanding to the company when, this has taken the benefit, but the related payment has not been made simultaneously. For Example: Rent due but not yet paid.']