Free Financial Statements MCQs with Answers
128 Financial Statements MCQs from Accounting, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Financial statements present a business's financial performance and position through the income statement, statement of financial position, cash flow statement and changes in equity. Questions involve preparing and interpreting these statements, adjusting entries, depreciation, closing inventory, accrued and prepaid items, and distinguishing profit from cash flow.
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128 questions · page 3 of 7
- A. Recognise revenue of Rs. 48,000
- B. Recognise a contract liability of Rs. 48,000
- C. Recognise an accrued expense of Rs. 48,000
- D. Reduce trade receivables by Rs. 48,000
Explanation: The business has received cash but has not yet earned the revenue. Therefore, the amount is recorded as a contract liability until the…
Correct answer: Recognise a contract liability of Rs. 48,000- A. Rs. 94,000
- B. Rs. 100,000
- C. Rs. 106,000
- D. Rs. 6,000
Explanation: Trade receivables are presented net of the expected credit loss allowance. Thus, Rs. 100,000 less Rs. 6,000 gives a carrying amount of Rs.
Correct answer: Rs. 94,000- A. A gain of Rs. 30,000
- B. A loss of Rs. 30,000
- C. A gain of Rs. 150,000
- D. No gain or loss
Explanation: The loss or gain is measured by comparing sale proceeds with carrying amount. Since Rs. 150,000 is Rs. 30,000 below Rs.
Correct answer: A loss of Rs. 30,000- A. Rs. 90,000
- B. Rs. 110,000
- C. Rs. 150,000
- D. Rs. 40,000
Explanation: The net increase in cash is Rs. 55,000 minus Rs. 40,000 plus Rs. 20,000, which equals Rs. 35,000.
Correct answer: Rs. 90,000- A. Assets increase and equity increases
- B. Assets increase and liabilities increase
- C. Expenses increase and equity decreases
- D. Assets decrease and equity increases
Explanation: Cash received from issuing shares increases the company's assets. The share capital component of equity also increases by the amount…
Correct answer: Assets increase and equity increases- A. Salaries expense
- B. Utilities expense
- C. Dividends declared
- D. Rent expense
Explanation: Dividends are distributions of profit to owners, not costs incurred to generate revenue.
Correct answer: Dividends declared- A. Rs. 6,000
- B. Rs. 30,000
- C. Rs. 36,000
- D. Rs. 3,000
Explanation: Two months of the contract, November and December, have expired, so expense is Rs. 6,000.
Correct answer: Rs. 30,000- A. Assets overstated and profit overstated
- B. Assets understated and profit understated
- C. Assets overstated and liabilities understated
- D. Assets and profit both unaffected
Explanation: The equipment should be recognised as a non-current asset rather than as an immediate expense.
Correct answer: Assets understated and profit understated- A. Closing profit is transferred to non-current assets
- B. Profit or loss is included in the movement of retained earnings
- C. Total expenses are added directly to share capital
- D. Revenue is transferred directly to trade payables
Explanation: The profit or loss for the period contributes to the change in retained earnings.
Correct answer: Profit or loss is included in the movement of retained earnings- A. Rs. 240,000
- B. Rs. 320,000
- C. Rs. 400,000
- D. Rs. 80,000
Explanation: Profit after tax is calculated by deducting income tax expense from profit before tax. Therefore, Rs. 320,000 minus Rs. 80,000 equals Rs.
Correct answer: Rs. 240,000- A. Working Capital
- B. Circulating capital
- C. Fixed capital
- D. Trading capital
Explanation: Working capital is calculated as current assets minus current liabilities and indicates the short-term operating cushion.
Correct answer: Working Capital- A. Balance Sheet
- B. Cash Flow Statement
- C. Income Statement
- D. None of the above
Explanation: The income statement summarizes revenues earned and expenses incurred during an accounting period, allowing profit or loss to be…
Correct answer: Income Statement- A. $113,000
- B. $643,000
- C. $743,000
- D. $543,000
Explanation: Working capital equals current assets minus current liabilities, so current assets are $265,000 + $378,000 = $643,000.
Correct answer: $643,000- A. current liabilities
- B. long-term liabilities
- C. residual assets value
- D. net residual incomeCompare Credit Cards
Explanation: Since working capital equals current assets minus current liabilities, subtracting working capital from current assets leaves current…
Correct answer: current liabilities- A. $3,855,500
- B. $314,500
- C. $214,500
- D. $114,500
Explanation: Working capital is found by deducting current liabilities from current assets: $250,000 − $135,500 = $114,500.
Correct answer: $114,500- A. imputed assets
- B. residual assets
- C. current assets
- D. nominal assetsHire An Accountant
Explanation: Working capital equals current assets minus current liabilities, so adding current liabilities back to working capital gives current…
Correct answer: current assets- A. $501,500
- B. $401,500
- C. $201,500
- D. $301,500
Explanation: Since working capital equals current assets minus current liabilities, current liabilities are $856,000 − $654,500 = $201,500.
Correct answer: $201,500- A. cost statement
- B. preformed statement
- C. sales statement
- D. market statement
Explanation: These are called pro forma statements, which present projected financial results or plans for future periods.
Correct answer: preformed statement- A. communicating company position to investors
- B. helping managers make decisions
- C. future oriented
- D. single person orientation
Explanation: Financial accounting provides standardized information about a company's financial position and performance to external users, especially…
Correct answer: communicating company position to investors- A. external parties
- B. internal parties
- C. environmental parties
- D. transactional partiesHire Grant Writers
Explanation: Investors, banks, suppliers, and government agencies are outside the business, so they are external users of financial accounting…
Correct answer: external parties