Business Services Business Services Finance and Accounting 2 — Questions and Answers
Question 1: What is a 'general ledger' in accounting?
- A summary of payroll records only
- The complete record of all financial transactions of a business (Correct answer)
- A document listing only unpaid invoices
- A bank statement provided by lenders
Correct answer: The complete record of all financial transactions of a business
A general ledger is the master set of accounts that records every financial transaction of a company in double-entry format.
Question 2: What does 'gross profit margin' measure?
- Net income divided by total assets
- Revenue minus cost of goods sold, divided by revenue (Correct answer)
- Total expenses divided by total revenue
- Operating income divided by net sales
Correct answer: Revenue minus cost of goods sold, divided by revenue
Gross profit margin shows what percentage of revenue remains after deducting the cost of goods sold, indicating production efficiency.
Question 3: Which method records revenue when it is earned, not when cash is received?
- Cash basis accounting
- Modified cash basis
- Accrual basis accounting (Correct answer)
- Single-entry accounting
Correct answer: Accrual basis accounting
Accrual accounting records revenues and expenses when they are incurred, regardless of when cash actually changes hands.
Question 4: What is a 'budget variance' in financial management?
- The total annual budget amount
- The difference between budgeted and actual financial results (Correct answer)
- A type of financial audit finding
- The projected cash surplus at year-end
Correct answer: The difference between budgeted and actual financial results
Budget variance is the difference between the budgeted amount and the actual amount spent or earned, used to track financial performance.
Question 5: What is the purpose of a 'balance sheet'?
- To show cash inflows and outflows
- To report a company's assets, liabilities, and equity at a point in time (Correct answer)
- To list employee compensation details
- To summarize quarterly sales performance
Correct answer: To report a company's assets, liabilities, and equity at a point in time
A balance sheet provides a snapshot of a company's financial position, showing what it owns, what it owes, and the owners' equity at a specific date.
Question 6: What does 'amortization' refer to in business accounting?
- Writing off bad debts immediately
- Spreading the cost of an intangible asset over its useful life (Correct answer)
- Calculating depreciation on physical equipment
- Recording inventory write-downs
Correct answer: Spreading the cost of an intangible asset over its useful life
Amortization is the process of gradually expensing the cost of an intangible asset (such as a patent or trademark) over its useful life.
Business Services Business Services Finance and Accounting 2
What is a 'general ledger' in accounting?