Bcom Bachelor of Commerce Bachelor of Commerce: Financial Accounting 5

Question 1

Which of the following best describes the conservatism (prudence) principle in accounting?

Accepted Answer

When uncertain, recognize losses and expenses sooner and revenues later

Answer

Conservatism means accountants err on the side of caution: anticipate potential losses early but do not recognize revenues until they are certain.

Question 2

A contingent liability should be recorded on the balance sheet when:

Accepted Answer

It is probable that a loss will occur and the amount can be reasonably estimated

Answer

GAAP requires recording a contingent liability only when a loss is both probable and the amount can be reasonably estimated.

Question 3

The gross profit margin is calculated as:

Accepted Answer

(Net Sales − Cost of Goods Sold) ÷ Net Sales

Answer

Gross profit margin measures the percentage of sales remaining after deducting cost of goods sold, indicating production/pricing efficiency.

Question 4

Under the direct write-off method for bad debts:

Accepted Answer

Bad debt expense is recognized when a specific account is deemed uncollectible

Answer

The direct write-off method records bad debt expense only when a specific customer account is identified as uncollectible, violating the matching principle.

Question 5

Which of the following transactions increases total assets without affecting liabilities?

Accepted Answer

Issuing common stock for cash

Answer

Issuing common stock for cash increases Cash (asset) and Common Stock/Additional Paid-in Capital (equity), with no effect on liabilities.

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Bachelor of Commerce: Financial Accounting 5