IBA Accounting Fundamentals 2

Question 1

The going concern assumption in accounting means:

Accepted Answer

A company will continue to operate indefinitely into the future

Answer

The going concern assumption holds that a business will remain operational for the foreseeable future, justifying the use of historical cost rather than liquidation values.

Question 2

What does the current ratio measure?

Accepted Answer

A company's ability to pay short-term obligations with current assets

Answer

The current ratio (Current Assets ÷ Current Liabilities) measures a company's short-term liquidity and ability to meet near-term obligations.

Question 3

Which of the following represents a non-cash expense?

Accepted Answer

Depreciation expense

Answer

Depreciation expense reduces the book value of assets and affects net income but does not involve an actual cash outflow in the period it is recorded.

Question 4

Retained earnings represent:

Accepted Answer

Cumulative net income kept in the business after dividends are paid

Answer

Retained earnings are the accumulated net profits of a company that have been reinvested in the business rather than distributed to shareholders as dividends.

Question 5

Which accounting concept requires that expenses be recorded in the same period as the revenues they help generate?

Accepted Answer

Matching principle

Answer

The matching principle requires that expenses be recognized in the same accounting period as the revenues they helped to produce, ensuring accurate profit measurement.

IBA - Institute of Business Administration Practice Test

IBA - Institute of Business Administration Practice Test

IBA Accounting Fundamentals 2