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Basic Concepts of Auditing and Accounting Test Online

Mustansar KhanLast Updated: July 8, 2025

Basic Concepts of Auditing and Accounting Test Online

Basic Concepts of Auditing and Accounting Test

Total Questions:	41
Time Allowed:	20 Minutes
Total Marks:	41
How to Attempt Test:	Please choose the right Option in MCQ-type question.
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1. What is the role of 'depreciation' in accounting?

To calculate the total liabilities of a business

To increase the net income of a business

To reduce the tax burden on businesses

To record changes in asset value over time due to wear and tear

2. What does the term 'audit' refer to in accounting?

The preparation of a company’s annual report

The process of tax filing

The process of recording financial transactions

The examination and verification of financial statements

3. Which of the following is NOT part of an auditor's role in an audit?

Conducting a physical count of assets

Examining the effectiveness of internal controls

Preparing financial statements for a company

Verifying the accuracy of financial records

4. What is the term for the allocation of the cost of a fixed asset over its useful life in accounting?

Capitalization

Depreciation

Amortization

Revenue recognition

5. What does the "cost of goods sold" represent in the income statement?

The costs associated with producing or purchasing the goods sold by a business

The total revenue earned from sales

The taxes paid on sales

The net income earned after all expenses

6. What is the "trial balance" used for in accounting?

To calculate the profit or loss for the period

To determine tax liabilities

To prepare the financial statements

To verify that total debits equal total credits in the ledger accounts

7. Which of the following is an example of an intangible asset?

Building

Cash

Patent

Inventory

8. Which of the following is NOT included in 'current assets' on a balance sheet?

Accounts Receivable

Inventory

Equipment

Cash

9. Which of the following is the primary purpose of financial accounting?

To prepare financial statements for internal management

To record transactions for tax purposes

To create reports for external stakeholders like investors and creditors

To calculate tax liabilities

10. Which of the following is classified as a "liability" on a balance sheet?

Notes payable

Accounts receivable

Capital stock

Equipment

11. Which of the following is a characteristic of an internal auditor’s role?

To express an opinion on the fairness of financial statements

To report directly to shareholders

To evaluate the effectiveness of internal controls and risk management

To prepare tax returns for the company

12. What is the 'cost principle' in accounting?

Assets should be recorded at their original cost at the time of purchase

Liabilities should be recorded at market value

Revenues should be recorded when earned, not when received

Assets should be recorded at their current market value

13. Which of the following accounting principles is used to recognize revenue when earned rather than when received?

Revenue Recognition Principle

Historical Cost Principle

Conservatism Principle

Matching Principle

14. What is the term for the analysis of financial transactions to identify errors or discrepancies in an audit?

Analytical Review

Trial Balance

Financial Ratio Analysis

Materiality Test

15. What is the purpose of an audit trail in accounting?

To record the financial performance of a company

To provide a transparent and traceable record of all financial transactions

To summarize financial statements

To track the number of transactions during a given period

16. Which of the following financial statements provides information on a company’s financial position at a specific point in time?

Income Statement

Statement of Retained Earnings

Balance Sheet

Statement of Cash Flows

17. Which of the following is NOT a type of audit opinion?

Unqualified Opinion

Qualified Opinion

Tax Opinion

Disclaimer of Opinion

18. What does the term “bookkeeping” refer to?

The systematic recording of financial transactions

The collection of taxes from consumers

The analysis of financial data

The process of preparing financial statements

19. What is the primary objective of internal auditing?

To review the company's profit margins

To prepare financial statements for external use

To verify the company's compliance with tax laws

To provide assurance on the effectiveness of internal controls

20. What does the term 'materiality' refer to in accounting and auditing?

The magnitude of an error or omission that could influence a user’s decision

The rate of return on investment

The number of accounts in a company’s general ledger

The size of an audit firm

21. Which of the following is an example of an external user of financial information?

Employee

Business owner

Investor

Internal auditor

22. Which of the following is the primary purpose of accounting?

To create financial reports for shareholders

To provide financial information to stakeholders

To calculate the company’s profits

To ensure compliance with tax laws

23. What is the 'audit trail' in accounting?

A record of all adjustments made to a company’s financial statements

The path of financial transactions through the accounting system, from inception to final report

A document showing all deductions made from gross income

A report showing the daily transactions of a business

24. What is the purpose of the 'matching principle' in accounting?

To match the financial year with tax periods

To ensure that all assets are matched with liabilities

To match expenses with the revenues they help generate

To match the company's earnings with its market share

25. Which of the following is considered a current liability in accounting?

Retained earnings

Short-term loans

Equity capital

Long-term debt

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26. What does 'capital budgeting' refer to in accounting and auditing?

The setting of tax rates for businesses

The process of planning and managing a company's long-term investments

The process of auditing the company’s balance sheet

The allocation of a company’s operational budget

27. What does the term "revenue recognition" mean in accounting?

Recognizing revenue when goods or services are provided, regardless of when payment is made

Recognizing revenue based on the value of assets

Recognizing revenue when it is reported in the income statement

Recognizing revenue only when the customer pays for goods or services

28. What is the 'double-entry bookkeeping' system?

A method of recording only cash transactions

A system where each transaction is recorded in two separate journals

A system where each transaction affects at least two accounts, with equal debits and credits

A system that requires every transaction to be entered twice

29. Which of the following is NOT a financial statement used in accounting?

Audit Report

Income Statement

Cash Flow Statement

Balance Sheet

30. Which of the following financial statements is used to assess a company’s profitability?

Statement of Retained Earnings

Income Statement

Balance Sheet

Cash Flow Statement

31. Which of the following is an example of a non-operating expense?

Cost of goods sold

Advertising expense

Rent for office space

Loss from the sale of an asset

32. What does the 'going concern' principle in accounting assume?

That a company will be liquidated soon

That a company is not profitable

That a company will reduce its liabilities

That a company will continue its operations for the foreseeable future

33. Which of the following accounts is typically classified as a current liability?

Long-term loan

Equity capital

Accounts payable

Retained earnings

34. Which of the following is a key responsibility of an external auditor?

Preparing tax returns for the company

Managing a company’s internal controls

Approving financial transactions

Verifying the accuracy of financial statements presented to external stakeholders

35. Which of the following would be classified as an operating expense in accounting?

Interest paid on loans

Rent paid for office space

Depreciation on machinery

Cost of inventory sold

36. What is the 'conservatism principle' in accounting?

Expenses should be minimized

Assets should be recorded at the highest possible value

Losses should be anticipated, but gains should only be recognized when they are realized

Revenues should only be recognized when they are certain

37. Which of the following is NOT an accounting concept?

Matching Principle

Going Concern

Revenue Recognition

Economic Order Quantity

38. What is the purpose of the matching principle in accounting?

To match the cost of an asset with its selling price

To match assets with liabilities

To match expenses with the revenue they generate in the same period

To match revenue with the period in which it is earned

39. Which of the following is included in the statement of cash flows?

Long-term liabilities

Operating, investing, and financing activities

Salaries paid to employees

Revenue from sales of goods

40. Which of the following is included in the auditor’s responsibility during an audit?

Preparing financial statements

Setting up accounting systems

Offering tax advice

Expressing an opinion on the financial statements

41. Which of the following is a primary objective of accounting principles?

To ensure accuracy in tax calculations

To maximize company profits

To standardize financial reporting and ensure comparability

To avoid financial audits

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Mustansar KhanLast Updated: July 8, 2025

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Basic Concepts of Auditing and Accounting Test Online

Basic Concepts of Auditing and Accounting Test Online

Basic Concepts of Auditing and Accounting Test

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Basic Concepts of Auditing and Accounting Test Online

Basic Concepts of Auditing and Accounting Test

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