Financial Statements MCQs
Financial Statements MCQs
These Financial Statements multiple-choice questions and their answers will help you strengthen your grip on the subject of Financial Statements. You can prepare for an upcoming exam or job interview with these Financial Statements MCQs.
So scroll down and start answering.
1: Net Income Equals:
A. Revenue minus Expenses plus Taxes
B. Operating Revenues minus Operating Expenses
C. Total Revenues minus Cost of Goods Sold
D. Total Revenues minus Total Expenses
2: What is an accounting entity?
A. An entity that must be included with all the other accounting entities
B. A clearly defined unit that must be accounted for with the rest of the units
C. A clearly defined unit that must be accounted for separately
D. An undefined unit that is recognized, but not accounted for
3: How is the return on assets calculated?
A. Gross revenues divided by total assets
B. Net income divided by total assets
C. Gross margin divided by total assets
D. Tangible assets divided by intangible assets
4: Why would investors have an interest in a company's statement of retained earnings?
A. Investors want to know that a company is reinvesting enough of their earnings to expand vertically
B. Investors want to know that the products being sold are ones they believe are good quality
C. Investors want to know that a company is reinvesting enough of their earnings to support future growth and pay dividends
D. Investors want to know that a company is reinvesting enough of their earnings to expand into other industries
5: What is another name for the Balance Sheet?
A. Statement of Operations
B. Statement of Profitability and Loss
C. Statement of Earnings
D. Statement of Financial Position
6: What audience is an annual report addressing?
A. Other businesses
B. The media
C. Shareholders
D. Environmental groups
7: What information is found on the Balance Sheet?
A. Cash inflows and Cash outflows from Operating, Investing and Financing Activities
B. Assets, Liabilities and Shareholder's Equity
C. Revenues, Expenses, Net Profit or Loss
D. Gross Profit, Cost of Goods Sold and Net Income
8: What is the calculation used on the income statement?
A. Liabilities – Expenses = Net Income
B. Liabilities – Assets = Net Income
C. Revenues – Equity = Net Income
D. Revenues – Expenses = Net Income
9: What are revenues?
A. Income from investments
B. Income from assets
C. Income from liabilities
D. Income from goods or services that have been sold
10: What sources of cash flow are included on the statement of cash flows?
A. Cash flows from employment activities, research activities, and financing activities
B. Cash flows from operating activities, investing activities, and financing activities
C. Cash flows from credit activities, expansion activities, and marketing activities
D. Cash flows from credit activities, investing activities, and marketing activities
11: What is GAAP, and why is it important?
A. Greatly Anticipated Accounting Principles; These principles were set because the IRS is anticipating payment.
B. Generally Accepted Accounting Principles; It is important because it is responsible for standardizing accounting procedures.
C. Greatly Appreciated Accounting Practices; It is important because the IRS appreciates your taxes.
D. Generally Acknowledged Accounting Principles; It is important because taxation isn't an exact science and the goal is to be approximate in tax payment.
12: Which of the following is NOT one of the four basic financial statements?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Audit Statement
13: What should balance on a company’s balance sheet?
A. Total Assets and the sum of Liabilities and Shareholders’ Equity
B. Deferred Assets and Deferred Credits
C. Accounts Payable and Accounts Receivable
D. Revenues and Expenses
14: On a balance sheet, goodwill is an example of what?
A. Deferred Liabilities
B. Intangible Assets
C. Accounts Receivable
D. Charitable Donations
15: What agency does a publicly traded company file with if they sell stock?
A. The Federal Reserve
B. National Security Agency
C. Central Intelligence Agency
D. The Securities Exchange Commission
16: What are retained earnings?
A. Earnings that have been reinvested back into the business
B. Earnings that have been converted into stock
C. Earnings that have been converted into assets
D. Earnings that have been paid out as salaries
17: True or False? Liabilities and shareholders’ equity must be equal.
A. False
B. True
18: Which item does not depreciate?
A. Factory Building
B. Manufacturing Equipment
C. Goodwill
19: What is the basic accounting equation used to calculate the balance sheet?
A. Assets = Securities + Stockholders Equity
B. Profit = Liabilities + Stockholders Equity
C. Assets = Liabilities + Stockholders Equity
D. Capital = Liabilities + Stockholders Assets
20: Which two line items are used to calculate Working Capital?
A. Retained Earnings and Total Liabilities
B. Current Assets and Current Liabilities
C. Fixed Assets and Long-term Liabilities
D. All Assets and All Liabilities
21: What information is found on the Income Statement?
A. Cash inflows and Cash outflows from Operating, Investing and Financing activities
B. Assets, Liabilities and Shareholder's Equity
C. Revenues, Expenses, Net Profit or Loss
D. Retained Earnings, Accumulated Depreciation and Shareholders Equity
22: A company’s working capital is defined as
A. Revenues minus expenses
B. Current assets minus current liabilities
C. Current assets plus long-term assets
D. Accounts receivable minus accounts payable
23: Which of the following is NOT a primary section of a company’s financial statements?
A. Statement of Cash Flows
B. Letter from the CEO
C. Balance Sheet
D. Summary of Operations
24: Which of the following is NOT a division of sources and uses of cash flow on the cash flow statement?
A. Investing activities
B. Financing activities
C. Material business activities
D. Operating activities
25: Almost all financial statements use what form of accounting?
A. Cost basis accounting
B. Accrual basis accounting
C. Voodoo accounting
D. Cash basis accounting
26: Of the following, which is an item that doesn't belong in the heading of a balance sheet?
A. Title of the statement
B. Name of the entity
C. Specific date of the statement
D. Address of the business
27: What is an example of a liability?
A. A property tax bill
B. Equipment
C. Cash
D. Stocks owned by the business
28: True or False? All expenses required to be paid in the same accounting period.
A. False
B. True
29: When are current liabilities due to be paid?
A. Within the next 60 days
B. Within the next three months
C. On the date of the balance sheet
D. Within the next 12 months
30: A measure of the overall efficiency of asset utilization is the:
A. Acid-test Ratio
B. Asset Turnover Ratio
C. Receivable Turnover Ratio
D. Earnings Per Share
31: When goods have been sold but not paid for, where are they documented in the balance sheet?
A. As liabilities.
B. As assets.
C. As accounts payables.
D. As accounts receivable.
32: Current assets do NOT include which of the following
A. Machinery and equipment
B. Securities
C. Accounts receivable
D. Cash on hand
33: What happens to retained earnings as dividends are declared?
A. Retained earnings stay the same.
B. Dividends do not affect retained earnings.
C. Retained earnings increase.
D. Retained earnings decrease.
34: What does it mean when a company's stock is volatile?
A. The companies stock is sinking quickly
B. The value of the stock often changes drastically
C. The companies stock is rising quickly
D. The companies stock is stable but expensive
35: Which corporate officers must certify the accuracy of financial statements?
A. CEO and CFO
B. COO and Comptroller
C. Any two senior corporate officers
D. Treasurer and Chair of the Board
36: What is the objective of financial statement analysis?
A. To understand how to properly address shareholders
B. To understand whether a product is worth buying
C. To understand the risk vs. profitability of a company
D. To better understand how to report earnings to the Federal Reserve
37: The income statement is also called what?
A. Balance sheet
B. Statement of earnings
C. Statement of cash flows
D. Statement of retained income
38: What category would cash paid for taxes fall under?
A. Cash flows from investing activities
B. Cash flows from accounting activities
C. Cash flows from operating activities
D. Cash flows from credit activities
39: What equation is used when calculating the statement of retained earnings?
A. Beginning Retained Earnings + Net Income – Assets = Ending Retained Earnings
B. Beginning Retained Earnings + Net Income – Ending Retained Earnings = Dividends
C. Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
D. Beginning Retained Earnings + Liabilities – Dividends = Ending Retained Earnings
40: On a balance sheet, which of the following is subject to depreciation?
A. All assets and liabilities
B. All long-term assets including land
C. All long-term assets except for land
D. All assets
41: Is net income equal to the net cash generated by operations? Where is net cash reported?
A. Yes. Net cash is reported as net income.
B. No. Net cash is spending money that does not need to be reported.
C. No. Net cash is reported on the cash flow statement.
D. No. Net cash is placed into a special account.
42: Current assets are assets that are intended to be converted into cash or consumed within:
A. One year
B. The Operating Cycle
C. Two Years
D. The Inventory Cycle
43: What four components are contained in a financial statement?
A. Statement sheet, income statement, statement of retained earnings, statement of cash flow
B. Balance sheet, income statement, annual report, statement of cash flow
C. Balance sheet, auditing form, statement of retained earnings, statement of cash flow
D. Balance sheet, income statement, statement of retained earnings, statement of cash flow
44: What does the statement of retained earnings tell you about a company's position?
A. It tells you how it has been affected by net income and distribution of dividends
B. It tells you how much has been earned
C. It tells you what items would be best to sell in the following year
D. It tells you how much the company is paying their employees
45: What do the footnotes to financial statements typically provide?
A. All of these
B. A review of stock compensation plans
C. A discussion of contingencies potentially affecting earnings
D. an overview of significant accounting policies
46: Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment are referred to as:
A. Capital Expenditures
B. Revenue Expenditure
C. Operational Expenditures
D. Capital Assets
47: What is the order in which assets are typically listed on the balance sheet?
A. In order of value
B. In order of liquidity
C. In order of acquisition
D. In alphabetical order
48: What's the difference between a Capital lease and an Operational lease?
A. Capital leases are traditionally used for short-term leases while Operational leases are for long-term leases.
B. Capital leases are variable while Operational leases are fixed.
C. Capital leases are fixed while Operational leases are variable.
D. Capital leases are traditionally used for long-term leases while Operational leases are for short-term leases.
49: True or false? A company can never have negative income tax liabilities.
A. False
B. True
50: How do you calculate the Current Ratio?
A. Net Income / Net Revenue
B. Total Assets / Total Liabilities
C. (Current assets – Inventories) / Current Liabilities
D. Total Current Assets / Total Current Liabilities
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