accounting-quiz.md

Accounting

Q1. Which statement is not an advantage of robotic process automation (RPA)?

• Bots are more creative than humans
• Bots do no need to take time off
• Bots improve efficiency
• Bots can eliminate human errors

Q2. What effect does a contra asset account have on a balance sheet?

• A contra asset is not an accounting term
• A contra asset has a credit balance and therefore a negative effect on total assets
• A contra asset with a positive balance will increase overall liabilities
• A contra asset has a debit balance and therefore a positive effect on total assets

Q3. Internal controls may be preventative, detective, corrective, or directive. Which is a detective control?

• data backups
• physical inventory check
• employee background checks
• physical locks on inventory warehouse

Q4. On March 15, a business receives an invoice from the power company for utilities used in February. The retailer pays the invoice on April 1. The business uses accrual-based accounting. Which month should the business recognize the expense?

• April
• March
• no record required
• February

Q5. Which choice is a general guideline for adequate separation of duties to prevent both fraud and error?

• A person who has control over an asset should not safeguard that asset.
• A person who has temporary or permanent custody of an asset should not account for that asset.
• A person who has record-keeping responsibility should not make journal entries.
• A person who has operational responsibility should not authorize transactions for the area.

Q6. What does the cost of a unit of product under absorption costing method consist of?

• direct materials, direct and indirect labor, and fixed overhead
• direct materials, indirect labor, and variable and fixed overhead
• direct materials, direct labor, and both variable and fixed overhead
• direct materials, direct and indirect labor, and variable overhead

Q7. Which answer best describes accruals and deferrals?

• Accruals are past cash receipts and payments, while deferrals are expected future cash receipts and payments.
• Both accruals and deferrals are both expected future cash receipts and payments.
• Accruals are expected future cash receipts and payments, while deferrals are past cash receipts and payments.
• Both accruals and deferrals are not expected past cash receipts and payments.

Q8. What do you call a situation where more than one person collaborates to circumvent existing internal controls?

• assigned responsibility
• segregation of duties
• fraud prevention
• collusion

Q9. Which is not an example of an internal control activity?

• review of manufacturing plan
• segregation of duties
• bank reconciliations
• approval process

[source] 'MT: bank recons are a internal control, checking to see if figures match. Approval by different level of authorities help to prevent unathorized transactions - so its a control too. segregate duties also ensures that.

Q10. Which budgeting approach request justification of all expenditures?

• zero-based budgeting
• master budgeting
• rolling budgets
• bottom-up budgeting

Q11. What does the discontinued operations section of the income statement refer to?

• disposal of a major product line or major geographical area of operations
• sale of unused or obsolete equipment and discontinued inventory
• plant shutdown or decommissioning of a facility
• net income or loss for products completed and sold

Q12. How are the three financial statements (income statement, balance sheet, and cash flow statement) linked?

• Only the assets are reflected in the cash flow statement, and the net income expenses correlate with the liabilities.
• The net income goes to retained earnings, but the cash flow remains independent.
• The gross profit goes to retained earning, and the shareholder equity total is added to the cash flow statement
• The net income goes to the retained earning and to the cash flow statement

[source]'MT: odd qns. But it should be net profit "npat" flows to retained earnings, and also starts the cashflow statement (so all linked and not independent). Assets are in balance sheet, net income is in income statement. npat goes to retained earnings, not gross profit.

Q13. Which is not one of the four perspectives of the balanced scorecard?

• internal business
• learning and growth
• quantitative
• customer

Q14. What would be deducted from the balance per books when doing a bank reconciliation?

• deposits in transit
• bank service fees
• outstating checks
• electronic fund transfers/payments

Q15. What situation could be the results of the three retails store employees sharing the same cash register?

• a thorough internal control activity
• a violation of assignment of responsibility
• a violation of segregation of duties
• a support process to avoid fraud

Q16. A firm has $1,000 in debt and $3,000 in assets. What is the firm's debt-to-equity ratio?

• 3
• 2
• 0.5
• 0.33

Q17. An external auditor is required to be independent when performing

• all attestation services
• all professional services (wrong ans, includes consulting)
• all tax services
• all consulting engagements (wrong ans)

Reference 'MT: tough qns, ambiguous options. Attest = validate audit data gathered. Consulting is less regulatory/ restrictive, = how to increase pie sales, versus audit/attestation = why you reported more pies in your fridge than we observed. Tax is grey, usually has to be internal audt committee approved or fees disclosed etc. but there are exceptions.'

Q18. Proper segregation of functional responsibilities calls for separation of

• custody, payment, and recording
• authorization, custody, and execution
• authorization, custody, and recording
• custody, execution, and payment

Reference

Q19. What does the degree of operating leverage represent?

• how much the value of capital assets will change in response to a change in sales
• how much the operating income of a company will change in response to a change in sales
• the valuation of assets to determine how much additional debt the company can borrow
• how much the sales of a company will change in response to a change in operating income

[Reference]'High operating leverage means a firm has a relatively fixed, and usually high cost base. So additional sales would incrementally drive more profits because those sales do not need to incur more costs to generate (like a factory, versus factory workers)'

Q20. Which characteristic would concern an auditor about the risk of material misstatements arising from fraudulent financial reporting?

• limited employee turnover within the accounting and finance department
• management's disregard of regulations and regulatory authorities
• regularly reported bank reconciliations, including deposits in transit
• capital assets sold at a loss before being depreciated fully

[source]'MT: regular bank recons and loyal employees are +ve. Nothing wrong with assets sold at lost before fully depreciated, like you can sell a plane at a loss even before it has been "fully used".

Q21. An employee who makes a sale, ships the goods, and bills the customer violates which control activity?

• assignment of responsibility
• audit verification
• segregation of duties
• review and reconciliation

Reference

Q22. What trait distinguishes auditors from accountants?

• The auditor can interpret accounting principles applicable to the country in which the client operates.
• The auditor has extensive education beyond what is required for an accountant
• The auditor can adapt to a rapidly changing profession.
• The auditor has expertise in the gathering and interpretation of audit evidence.

[source]'MT: auditors are focused on gathering and interpreting audit evidence in specific sectors. Both auditors and accountants would be familiar to the principles that the client operates in'

Q23. What is the purpose of an operational audit?

• assessing the company's compliance with environmental laws and regulations
• evaluating whether the organization is meeting the metrics set by management in order to achieve the goals and objectives set forth by the board of directors
• assessing the organization's control mechanisms for overall efficiency and reliability
• evaluating compliance with applicable laws, regulations, policies, and procedures

Q24. Which statement is false?

• The balanced scorecard aligns an organization's operational activities with its mission.
• The balanced scorecard focuses on four primary areas: financial, customer, internal process, and learning and growth. (def true)
• The balanced scorecard measures, tracks, and reports on a balance of qualitative and financial data and metrics. (def true)
• The balanced scorecard ensures the organization's profitability aligns with director compensation and dividend expectations.

Reference'MT: BSC is on improving efficiency - deliver goals and how to measure that quantitatively or qualitatively. Nothing to do with how to compensate'

Q25. Which choice is not a component of internal control?

• information and communication
• risk mitigation
• monitoring
• control environment

Q26. What is the difference between the cost of an asset and the accumulated depreciation for that asset?

• depreciation value
• prepaid asset
• depreciation expense
• book value

Q27. A company budgeted 1,200 washers, but only 1,000 are produced. It costs $10 to produce a widget. What is the materials variance?

• 200
• 2000
• 350
• 20

Q28. Who does an audit committee report to?

• external auditors
• senior management
• board of directors
• union of employee representatives

Q29. A business purchased office equipment by issuing a one-year note payable. The entire amount of the note is due at the end of one year. How do you record this transaction?

• Debt asset, credit equity
• Debt liablity, credit asset.
• Debit asset, credit liability
• Debit equity, credit asset.

[source]'MT answer - its Debit equipment (asset), Credit notes payable (liability). To +/- assets, need to dr/cr, inverse is true for liabilities. Long-form journal entry is: Borrow cash - Dr cash, Cr notes payable, then for equipment purchase - Dr equipment, Cr cash'

Q30. Which section of a financial annual report describes the corporation's accounting methods?

• Notes to the financial statements
• An auditor's report
• Listing of the stockholders
• Management discussion and analysis

Q31. What does "independence" mean in auditing?

• being an advocate for all clients
• not being dependent on a client's fee
• having only indirect financial interests in the auditee
• taking an unbiased viewpoint

Reference

Q32. What would cause a bank to increase a depositor's account?

• collecting a note receivable
• paying a note payable
• NSF checks ("non sufficient funds")
• service changes

[source]'MT: depositor account os a liability to the bank - bank owes the money to depositor. bank collects a notes receivable from client means reducing client's cash/ deposits. Similar if NSF means the cheque owner does not have enough funds to transfer funds into the client's deposits, so theres no change in deposits.'