Welcome to the Accounting MCQs with Answers. In this post, we have shared a Accounting Online Test for different competitive exams. Find practice questions with answers of the Accounting test online multiple choice questions with answers here. Each question offers a chance to enhance your knowledge regarding Accounting.
What is the primary objective of financial accounting?
a) To determine the tax liability
b) To prepare financial statements
c) To forecast future trends
d) To control costs
Which of the following is considered an intangible asset?
a) Land
b) Patents
c) Inventory
d) Equipment
What does the term “accrual basis” of accounting mean?
a) Recording revenue only when cash is received
b) Recording expenses only when they are paid
c) Recording revenues and expenses when they are earned or incurred
d) Recording transactions when the company desires
Which financial statement shows a company’s financial position at a specific point in time?
a) Income Statement
b) Statement of Cash Flows
c) Balance Sheet
d) Statement of Retained Earnings
What is the equation for calculating the gross profit?
a) Sales – Operating Expenses
b) Sales – Cost of Goods Sold
c) Sales – Administrative Expenses
d) Sales – Net Income
What does the term “liquidity” refer to in accounting?
a) The ability to generate profits
b) The ease of converting assets to cash
c) The measurement of assets against liabilities
d) The rate of inventory turnover
Which of the following accounts is a liability?
a) Accounts Receivable
b) Inventory
c) Accounts Payable
d) Prepaid Expenses
What does “depreciation” refer to?
a) The increase in value of an asset over time
b) The allocation of the cost of a tangible asset over its useful life
c) The loss of inventory due to theft
d) The reduction of liabilities
Which of the following is a contra asset account?
a) Accounts Receivable
b) Inventory
c) Accumulated Depreciation
d) Equipment
Which financial statement shows a company’s profitability over a period of time?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Retained Earnings
What is “amortization”?
a) The allocation of the cost of a tangible asset over time
b) The gradual repayment of a debt over time
c) The process of writing off inventory
d) The increase in market value of an asset
What does “FIFO” stand for in inventory accounting?
a) First-In, First-Out
b) Final-In, Final-Out
c) First-In, First-Off
d) Finished Inventory, First-Off
What is the purpose of a trial balance?
a) To prepare the financial statements
b) To check the accuracy of ledger balances
c) To calculate net income
d) To record transactions
Which of the following is considered an expense?
a) Prepaid Rent
b) Equipment
c) Wages Payable
d) Utility Bills
Which account would be credited when a company pays off a loan?
a) Cash
b) Accounts Payable
c) Notes Payable
d) Interest Expense
What is “equity” in accounting?
a) The amount owed to creditors
b) The difference between assets and liabilities
c) The cost of goods sold
d) The total value of inventory
Which accounting principle requires that expenses be recorded when they are incurred?
a) Revenue Recognition Principle
b) Matching Principle
c) Conservatism Principle
d) Historical Cost Principle
What does “net income” represent?
a) Total revenues
b) Total expenses
c) The difference between total revenues and total expenses
d) Total liabilities
Which account is a temporary account that is closed at the end of the accounting period?
a) Accounts Receivable
b) Retained Earnings
c) Revenue
d) Notes Payable
What is “goodwill” in accounting?
a) A tangible asset
b) The value of a company’s brand and customer relations
c) A type of liability
d) A form of equity
What does the term “double-entry bookkeeping” refer to?
a) Recording each transaction in a single account
b) Recording each transaction in two accounts
c) Posting transactions to the ledger twice
d) Checking all entries for errors twice
Which account increases with a debit?
a) Accounts Payable
b) Revenue
c) Cash
d) Notes Payable
What is the purpose of a bank reconciliation?
a) To calculate interest earned
b) To ensure the bank balance matches the company’s cash balance
c) To determine outstanding checks
d) To record bank fees
Which accounting principle states that expenses should be recognized when they are incurred, regardless of when they are paid?
a) Revenue Recognition Principle
b) Matching Principle
c) Conservatism Principle
d) Consistency Principle
What does the term “working capital” refer to?
a) The total assets of a company
b) The difference between current assets and current liabilities
c) The equity of a company
d) The long-term liabilities of a company
What is the “going concern” assumption in accounting?
a) The assumption that a company will close soon
b) The assumption that a company will continue to operate indefinitely
c) The assumption that all assets are liquid
d) The assumption that liabilities will be paid immediately
What is the formula for calculating net income?
a) Total Revenue + Total Expenses
b) Total Revenue – Total Expenses
c) Total Assets – Total Liabilities
d) Total Revenue – Cost of Goods Sold
Which of the following is an example of a current liability?
a) Mortgage Payable
b) Bonds Payable
c) Accounts Payable
d) Equipment
Which account is closed at the end of an accounting period?
a) Equipment
b) Retained Earnings
c) Accumulated Depreciation
d) Sales Revenue
What is “retained earnings”?
a) The amount of profit kept in the company after dividends are paid
b) The total revenue earned in a period
c) The total equity of a company
d) The amount of cash in hand
What is the primary purpose of an income statement?
a) To show a company’s assets and liabilities
b) To show a company’s revenues and expenses
c) To show cash flows
d) To show changes in equity
What does “current assets” refer to?
a) Assets that can be converted into cash within a year
b) Assets that are held for long-term investment
c) Assets that are intangible
d) Assets that are used up during the operating cycle
What is the purpose of depreciation?
a) To reduce taxable income
b) To allocate the cost of a tangible asset over its useful life
c) To record a loss on the sale of an asset
d) To increase the value of an asset
What is the formula for calculating the current ratio?
a) Total Assets / Total Liabilities
b) Current Assets / Current Liabilities
c) Net Income / Sales
d) Gross Profit / Sales
What does the term “capital” refer to in accounting?
a) The total revenue of a company
b) The amount of debt a company has
c) The funds contributed by owners or shareholders
d) The amount of profit generated by a company
What is the purpose of an audit?
a) To calculate tax liabilities
b) To verify the accuracy of financial statements
c) To prepare the financial statements
d) To determine profitability
What does the term “overhead” refer to in accounting?
a) Direct costs associated with production
b) Indirect costs that cannot be traced directly to products
c) Variable costs of production
d) The cost of goods sold
What does “variance analysis” involve?
a) Comparing budgeted figures to actual figures
b) Analyzing historical financial data
c) Forecasting future trends
d) Calculating the break-even point
What is the purpose of a cash flow statement?
a) To show a company’s financial position at a specific point in time
b) To show a company’s revenues and expenses
c) To show the cash inflows and outflows during a period
d) To show changes in equity
What does “cost of goods sold” represent?
a) The total cost of all goods produced
b) The total expenses of a company
c) The direct costs associated with producing goods sold by a company
d) The profit earned from sales
What does the term “equity financing” mean?
a) Borrowing funds to finance operations
b) Issuing shares of stock to raise capital
c) Retaining earnings to reinvest in the business
d) Selling assets to generate cash
What is “inventory turnover”?
a) The number of times inventory is sold and replaced during a period
b) The cost of inventory sold during a period
c) The profit margin on inventory sales
d) The amount of time inventory is held before being sold
What is the purpose of the matching principle?
a) To recognize revenue when it is earned
b) To recognize expenses in the same period as the revenues they help generate
c) To ensure consistency in financial reporting
d) To provide a conservative estimate of financial results
What is a “deferred tax liability”?
a) Taxes owed but not yet paid
b) Taxes that have been prepaid
c) A tax expense that will be incurred in the future due to temporary differences
d) A tax refund due to overpayment
What does “net working capital” represent?
a) The difference between total assets and total liabilities
b) The difference between current assets and current liabilities
c) The total equity of a company
d) The total revenue generated by a company
Which financial statement shows the inflows and outflows of cash over a period of time?
a) Income Statement
b) Balance Sheet
c) Cash Flow Statement
d) Statement of Retained Earnings
What does “return on equity” measure?
a) The profitability of a company relative to its total assets
b) The profitability of a company relative to its total equity
c) The efficiency of asset utilization
d) The liquidity of a company
What is the primary purpose of managerial accounting?
a) To prepare financial statements for external users
b) To provide information for internal decision-making
c) To comply with tax regulations
d) To report to shareholders
What does the term “contingent liability” refer to?
a) A liability that is certain to occur
b) A potential liability that may occur depending on the outcome of a future event
c) A liability that has already been paid
d) A liability that is recorded in the equity section
What is “accrued revenue”?
a) Revenue that has been received but not yet earned
b) Revenue that has been earned but not yet received
c) Revenue that is anticipated in the future
d) Revenue that has been deferred
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