Under the weighted average cost method, the cost per unit is calculated as:
The average is recalculated after each purchase or at period end.
Financial Accounting MCQs
Cost of goods sold is calculated as:
This gives the cost of inventory sold during the period.
Sales are Rs. 500,000 and cost of goods sold is Rs. 320,000. Gross profit is:
Gross profit = 500,000 - 320,000 = Rs. 180,000.
Current assets are Rs. 300,000 and current liabilities are Rs. 150,000. The current ratio is:
Current ratio = 300,000 / 150,000 = 2.
The main purpose of depreciation is to:
Depreciation is an allocation of cost, not a valuation or a cash reserve.
In a bank reconciliation, outstanding (unpresented) cheques are:
Cheques issued but not yet cleared have been recorded in the cash book but not by the bank.
Bank charges shown on the bank statement but not yet recorded in the cash book should be:
The cash book must be updated for charges known only from the statement.
The allowance for doubtful debts is presented in the statement of financial position as:
It is a contra-asset account with a credit balance.
Under the direct write-off method, when a specific receivable is written off as bad:
The loss is recognized when the debt is identified as uncollectible.
The historical cost concept requires assets to be recorded at:
Under this concept, assets are initially recorded at the amount paid to acquire them.
The business entity concept states that:
Owner's personal transactions are kept separate from the business transactions.
A trial balance is prepared mainly to:
A trial balance proves only the equality of debit and credit totals.
Which of the following errors will NOT be disclosed by a trial balance?
If both sides of a transaction are omitted, debits still equal credits.
The fundamental qualitative characteristics of useful financial information are:
The IFRS Conceptual Framework identifies relevance and faithful representation as fundamental; the others are enhancing.
A machine costs Rs. 100,000, has a residual value of Rs. 10,000 and a useful life of 5 years. Annual straight-line depreciation is:
(100,000 - 10,000) / 5 = Rs. 18,000.
The normal balance of a revenue account is:
Revenues increase equity, so they increase with credits.
The going concern concept assumes that a business:
Assets are therefore not valued at forced-sale prices.
Under the accrual basis of accounting, revenue is recognized:
Accrual accounting records transactions when they occur, not when cash moves.
The matching principle requires that:
Expenses are matched with the related revenue to measure profit properly.
The prudence (conservatism) concept suggests that a business should:
Prudence calls for caution under uncertainty.
The materiality concept means that:
An item is material if omitting or misstating it could influence users' decisions.
The basic accounting equation is:
Resources owned by a business (assets) are financed by outsiders (liabilities) and owners (equity).
In double-entry bookkeeping, every transaction:
Each transaction has a dual effect so debits always equal credits.
The normal balance of an asset account is:
Assets increase with debits and normally have debit balances.