Q.1 Which of the following is NOT a financial statement?
Balance Sheet
Cash Flow Statement
Trial Balance
Income Statement
Explanation - Trial Balance is not a financial statement; it is a tool used to prepare financial statements.
Correct answer is: Trial Balance
Q.2 The Balance Sheet shows:
Assets and liabilities at a point in time
Expenses of a year
Cash receipts only
Profit for a year
Explanation - The Balance Sheet provides the financial position of the company on a particular date.
Correct answer is: Assets and liabilities at a point in time
Q.3 Which financial statement shows the profitability of a business?
Balance Sheet
Income Statement
Cash Flow Statement
Ledger
Explanation - The Income Statement shows revenues and expenses, resulting in profit or loss for a period.
Correct answer is: Income Statement
Q.4 What does the Cash Flow Statement mainly indicate?
Liquidity position
Profitability
Net worth
Sales revenue
Explanation - Cash Flow Statement highlights the inflow and outflow of cash, indicating liquidity.
Correct answer is: Liquidity position
Q.5 Which of the following is also known as the Statement of Financial Position?
Balance Sheet
Income Statement
Cash Flow Statement
Notes to Accounts
Explanation - Balance Sheet is another name for the Statement of Financial Position.
Correct answer is: Balance Sheet
Q.6 Gross profit is shown in which financial statement?
Balance Sheet
Income Statement
Cash Flow Statement
Statement of Changes in Equity
Explanation - Gross profit is part of the Income Statement, showing profit before operating expenses.
Correct answer is: Income Statement
Q.7 Which statement explains changes in equity during the period?
Income Statement
Cash Flow Statement
Balance Sheet
Statement of Changes in Equity
Explanation - The Statement of Changes in Equity shows movements in capital and reserves.
Correct answer is: Statement of Changes in Equity
Q.8 Net profit is transferred to which account in the Balance Sheet?
Reserves and Surplus
Capital Account
Assets
Liabilities
Explanation - Net profit is added to reserves and surplus, part of shareholders’ equity.
Correct answer is: Reserves and Surplus
Q.9 Which of the following is a limitation of financial statements?
Based on historical cost
Easy comparability
Shows profitability
Shows liquidity
Explanation - Financial statements record assets at historical cost, ignoring current values.
Correct answer is: Based on historical cost
Q.10 Which statement helps assess the cash-generating ability of a firm?
Income Statement
Balance Sheet
Cash Flow Statement
Trial Balance
Explanation - Cash Flow Statement reveals the cash-generating capacity of the business.
Correct answer is: Cash Flow Statement
Q.11 Which item is NOT part of the Balance Sheet?
Inventory
Outstanding Expenses
Depreciation
Capital
Explanation - Depreciation is recorded in the Income Statement, not on the Balance Sheet directly.
Correct answer is: Depreciation
Q.12 Which concept requires preparation of financial statements periodically?
Going Concern
Periodicity
Accrual
Conservatism
Explanation - The Periodicity concept requires reporting results for specific time periods.
Correct answer is: Periodicity
Q.13 Revenue is recognized in the Income Statement based on which accounting principle?
Matching
Accrual
Conservatism
Cost
Explanation - Accrual principle recognizes revenue when earned, not when cash is received.
Correct answer is: Accrual
Q.14 The Notes to Accounts in financial statements provide:
Detailed explanations
Cash flows
Profit figures
Assets only
Explanation - Notes to Accounts give detailed disclosures about figures in the financial statements.
Correct answer is: Detailed explanations
Q.15 What is the primary objective of financial statements?
Tax planning
Providing information to stakeholders
Calculating depreciation
Auditing
Explanation - Financial statements aim to communicate financial information to stakeholders.
Correct answer is: Providing information to stakeholders
Q.16 Which statement includes both cash and non-cash transactions?
Income Statement
Balance Sheet
Cash Flow Statement
Notes to Accounts
Explanation - Income Statement records revenues and expenses, which may include non-cash items like depreciation.
Correct answer is: Income Statement
Q.17 The Balance Sheet equation is:
Assets = Liabilities + Equity
Assets = Income + Expenses
Assets = Cash + Reserves
Assets = Profit + Loss
Explanation - Balance Sheet follows the equation Assets = Liabilities + Equity.
Correct answer is: Assets = Liabilities + Equity
Q.18 Financial statements are prepared based on which assumption?
Going Concern
Dual Aspect
Periodicity
All of these
Explanation - Financial statements rely on Going Concern, Dual Aspect, and Periodicity assumptions.
Correct answer is: All of these
Q.19 The Cash Flow Statement is classified into how many activities?
Two
Three
Four
Five
Explanation - Cash Flow Statement is divided into operating, investing, and financing activities.
Correct answer is: Three
Q.20 Which financial statement shows the distribution of dividends?
Income Statement
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity
Explanation - Dividend distribution is shown in the Statement of Changes in Equity.
Correct answer is: Statement of Changes in Equity
Q.21 Operating profit is calculated in which statement?
Cash Flow Statement
Income Statement
Balance Sheet
Trial Balance
Explanation - Operating profit appears in the Income Statement after deducting operating expenses.
Correct answer is: Income Statement
Q.22 Which financial statement shows the owner’s equity at the end of a period?
Balance Sheet
Income Statement
Cash Flow Statement
Trial Balance
Explanation - Balance Sheet displays owner’s equity under liabilities and capital.
Correct answer is: Balance Sheet
Q.23 Dividends paid appear under which activity in Cash Flow Statement?
Operating
Investing
Financing
None of these
Explanation - Dividend payments are classified under financing activities in Cash Flow Statement.
Correct answer is: Financing
Q.24 Which of the following users are primarily interested in financial statements?
Investors
Management
Creditors
All of these
Explanation - Investors, management, and creditors all use financial statements for decisions.
Correct answer is: All of these
Q.25 Accrued expenses are shown in the Balance Sheet under:
Assets
Liabilities
Capital
Reserves
Explanation - Accrued expenses are obligations to be paid, so they appear as liabilities.
Correct answer is: Liabilities