Accountancy and Auditing

Preparation of Financial Statements MCQs with Answers

Which of the following is NOT a part of the financial statements?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Marketing plan

The income statement reports:
A) The company’s cash position
B) The company’s profitability over a period
C) The company’s equity
D) The company’s assets and liabilities

The balance sheet shows the financial position of a company at:
A) A specific point in time
B) A specific period of time
C) The end of the fiscal year only
D) The end of the month

Which of the following is included in the statement of cash flows?
A) Revenues and expenses
B) Changes in equity
C) Operating, investing, and financing activities
D) Assets and liabilities

The statement of changes in equity provides information about:
A) Cash inflows and outflows
B) The net income of the company
C) Changes in the company’s equity during a period
D) The liabilities of the company

What is the primary purpose of preparing financial statements?
A) To attract investors
B) To comply with tax regulations
C) To communicate the financial performance and position of the company
D) To calculate dividends

Which of the following is typically shown on the balance sheet?
A) Revenues
B) Expenses
C) Assets
D) Net income

Which of the following is NOT part of the income statement?
A) Revenue
B) Gross profit
C) Net income
D) Cash balance

What is the correct sequence of preparing financial statements?
A) Income statement → Cash flow statement → Balance sheet
B) Cash flow statement → Income statement → Balance sheet
C) Income statement → Balance sheet → Cash flow statement
D) Balance sheet → Cash flow statement → Income statement

The balance sheet consists of:
A) Assets, liabilities, and equity
B) Assets and revenues
C) Liabilities, revenues, and expenses
D) Revenues, expenses, and equity

Which of the following best describes the statement of cash flows?
A) It shows the company’s revenues
B) It shows the company’s cash inflows and outflows
C) It lists the company’s liabilities
D) It shows the company’s equity changes

The income statement starts with:
A) Gross profit
B) Net income
C) Revenue
D) Operating expenses

Which financial statement includes information about the company’s equity?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity

What is a typical starting point when preparing an income statement?
A) Net income
B) Revenue
C) Liabilities
D) Operating expenses

The net income from the income statement is reported on which of the following?
A) Cash flow statement
B) Statement of changes in equity
C) Balance sheet
D) All of the above

The main purpose of the statement of cash flows is to:
A) Calculate net income
B) Identify how cash was used and generated during the period
C) Report the company’s profitability
D) Provide a snapshot of the company’s assets and liabilities

What is reported on the balance sheet under the “liabilities” section?
A) Stockholders’ equity
B) Short-term and long-term debts
C) Revenues
D) Expenses

The statement of changes in equity includes changes in:
A) Assets and liabilities
B) Shareholder’s equity
C) Revenues and expenses
D) Cash flows

The operating activities section of the cash flow statement includes:
A) Cash from buying assets
B) Cash from stock issuance
C) Cash received from customers
D) Cash dividends paid

Which of the following is typically NOT considered an operating activity?
A) Sales revenue
B) Purchase of inventory
C) Issuance of stock
D) Payment of wages

What is the effect of expenses on the income statement?
A) They increase net income
B) They decrease net income
C) They do not affect net income
D) They affect only gross profit

When preparing a financial statement, which of the following should be classified as a current liability?
A) Long-term debt due in 10 years
B) Accounts payable
C) Property, plant, and equipment
D) Intangible assets

The presentation of financial statements should follow which set of guidelines?
A) Generally Accepted Accounting Principles (GAAP)
B) The company’s internal guidelines
C) Tax regulations
D) Industry best practices

The income statement shows:
A) The value of the company’s assets and liabilities
B) The net income or loss for a period
C) The company’s cash flows from financing activities
D) The changes in stockholders’ equity

Which financial statement is prepared to show a company’s profitability?
A) Statement of cash flows
B) Income statement
C) Statement of changes in equity
D) Balance sheet

The balance sheet is divided into two main sections:
A) Assets and liabilities
B) Revenue and expenses
C) Operating and financing activities
D) Short-term and long-term liabilities

The retained earnings section of the balance sheet reflects:
A) The company’s total revenue
B) The total cash flows during a period
C) The cumulative net income that is not distributed as dividends
D) The liabilities owed by the company

Which of the following is reported under the “financing activities” section of the cash flow statement?
A) Cash received from sales
B) Cash from borrowing or repaying debt
C) Cash paid to suppliers
D) Cash paid for operating expenses

What type of transaction is recorded under investing activities in the cash flow statement?
A) Payment of wages
B) Issuance of new stock
C) Purchase of equipment
D) Borrowing from a bank

The primary difference between a balance sheet and an income statement is:
A) A balance sheet shows the company’s cash flows
B) An income statement shows the company’s revenues and expenses
C) A balance sheet shows net income
D) An income statement includes liabilities

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