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 7 of 7
- A. Expenses are greater than Income
- B. Expenses are less than Income
- C. Expenses=Income
- D. Liabilities are greater than income
Explanation: A net loss results when total expenses exceed total income for the accounting period.
Correct answer: Expenses are greater than Income- A. Identifying transactions
- B. Preparing "T Accounts"
- C. Preparing financial statements
- D. Preparing trial balances
Explanation: Financial statements are the main output of the accounting cycle and communicate financial information to users, making their preparation…
Correct answer: Preparing financial statements- A. They are mainly prepared for external users of financial information
- B. They are more complex and hard to prepare
- C. The are the summary of accounting data
- D. The are prepared on basis of actual concept Accounting & Auditing
Explanation: Financial statements are designed mainly for external users such as investors, creditors and government agencies, whereas management…
Correct answer: They are mainly prepared for external users of financial information- A. Creditor of the business
- B. Government agency
- C. Shareholder of the business
- D. Manager of the business
Explanation: A manager is an internal user because the manager works within the business and uses financial information for planning, control and…
Correct answer: Manager of the business- A. Manager of the business
- B. CEO of the business
- C. Creditor of the business
- D. Controller of the business
Explanation: A creditor is external to the business and uses financial statements to assess repayment ability and credit risk.
Correct answer: Creditor of the business- A. Identification of economic event
- B. Communication of financial information
- C. Recording financial information
- D. Making decisions about business
Explanation: Financial statements are prepared to communicate summarized financial information to users, so their preparation belongs to the…
Correct answer: Communication of financial information127. Financial accounting provides financial information to all of the following external users except:
- A. Government agencies
- B. investors
- C. Creditors
- D. Managers
Explanation: Managers are internal users who use accounting information for operational and strategic decisions.
Correct answer: Managers- A. Equity
- B. Sale return
- C. Inventory
- D. Purchases
Explanation: Unsold goods held for resale are closing inventory, also called stock. They are reported as a current asset and reduce the cost of goods…
Correct answer: Inventory