ACCA Accountant in Business 4 — Questions and Answers
Question 1: Which financial statement shows a company's assets, liabilities, and equity at a specific point in time?
- Statement of cash flows
- Income statement
- Statement of financial position (Correct answer)
- Statement of changes in equity
Correct answer: Statement of financial position
The statement of financial position (balance sheet) provides a snapshot of what a company owns and owes at a single date.
Question 2: A company's current assets total $500,000 and current liabilities total $250,000. What is the current ratio?
- 0.5
- 1.5
- 2.0 (Correct answer)
- 2.5
Correct answer: 2.0
Current ratio = Current assets ÷ Current liabilities = $500,000 ÷ $250,000 = 2.0.
Question 3: Which of the following best describes 'working capital'?
- Total assets minus total liabilities
- Non-current assets minus long-term debt
- Current assets minus current liabilities (Correct answer)
- Shareholders' equity plus retained earnings
Correct answer: Current assets minus current liabilities
Working capital measures short-term liquidity as the difference between current assets and current liabilities.
Question 4: Under the accruals (matching) concept, when should revenue be recognized?
- When cash is received from the customer
- When the goods or services are delivered/performed (Correct answer)
- When the sales invoice is raised, regardless of delivery
- When the customer places the order
Correct answer: When the goods or services are delivered/performed
The accruals concept requires revenue to be recognized when earned (goods/services delivered), not when cash changes hands.
Question 5: Which of the following is classified as a non-current (fixed) asset?
- Trade receivables
- Inventory held for sale
- A factory building owned by the company (Correct answer)
- Cash at bank
Correct answer: A factory building owned by the company
Non-current assets are held for long-term use in the business, such as property, plant, and equipment.
Question 6: Gross profit is calculated as:
- Revenue minus all operating expenses
- Revenue minus cost of goods sold (Correct answer)
- Net profit plus tax
- Operating profit minus interest expense
Correct answer: Revenue minus cost of goods sold
Gross profit = Revenue − Cost of goods sold (COGS), representing profit before operating expenses.
Question 7: A company has equity of $800,000 and total debt of $200,000. What is the debt-to-equity ratio?
- 0.20
- 0.25 (Correct answer)
- 4.00
- 0.80
Correct answer: 0.25
Debt-to-equity ratio = Total debt ÷ Equity = $200,000 ÷ $800,000 = 0.25.
ACCA Accountant in Business 4
Which financial statement shows a company's assets, liabilities, and equity at a specific point in time?