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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.
Test Helpful For:	FBR Sub Inspector Test Customs Inspector Test FBR Interviews FBR Sepoy Test Preparation for Customs and Tax Related Questions

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

To match expenses with the revenues they help generate

To match the financial year with tax periods

To match the company's earnings with its market share

To ensure that all assets are matched with liabilities

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

The allocation of a company’s operational budget

The process of auditing the company’s balance sheet

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

The setting of tax rates for businesses

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

Assets should be recorded at their current market value

Liabilities should be recorded at market value

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

Revenues should be recorded when earned, not when received

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

Cash

Inventory

Accounts Receivable

Equipment

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

Cash

Building

Patent

Inventory

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

To determine tax liabilities

To prepare the financial statements

To calculate the profit or loss for the period

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

7. 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 net income earned after all expenses

The total revenue earned from sales

The taxes paid on sales

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

Balance Sheet

Income Statement

Statement of Retained Earnings

Cash Flow Statement

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

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

Assets should be recorded at the highest possible value

Revenues should only be recognized when they are certain

Expenses should be minimized

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

Amortization

Depreciation

Revenue recognition

Capitalization

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

A method of recording only cash transactions

A system that requires every transaction to be entered twice

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

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

The examination and verification of financial statements

The preparation of a company’s annual report

The process of tax filing

The process of recording financial transactions

13. 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

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

To prepare tax returns for the company

To report directly to shareholders

To evaluate the effectiveness of internal controls and risk management

To express an opinion on the fairness of financial statements

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

To match revenue with the period in which it is earned

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

To match assets with liabilities

To match the cost of an asset with its selling price

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

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

A document showing all deductions made from gross income

A report showing the daily transactions of a business

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

17. What is the role of 'depreciation' in accounting?

To increase the net income of a business

To calculate the total liabilities of a business

To reduce the tax burden on businesses

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

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

Equity capital

Short-term loans

Long-term debt

Retained earnings

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

Cash Flow Statement

Balance Sheet

Income Statement

Audit Report

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

Cost of goods sold

Rent for office space

Loss from the sale of an asset

Advertising expense

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

Recognizing revenue when it is reported in the income statement

Recognizing revenue based on the value of assets

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

Recognizing revenue only when the customer pays for goods or services

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

Offering tax advice

Preparing financial statements

Expressing an opinion on the financial statements

Setting up accounting systems

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

To maximize company profits

To ensure accuracy in tax calculations

To avoid financial audits

To standardize financial reporting and ensure comparability

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

Salaries paid to employees

Operating, investing, and financing activities

Long-term liabilities

Revenue from sales of goods

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

Historical Cost Principle

Conservatism Principle

Matching Principle

Revenue Recognition Principle

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

Economic Order Quantity

Going Concern

Matching Principle

Revenue Recognition

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

To record the financial performance of a company

To summarize financial statements

To provide a transparent and traceable record of all financial transactions

To track the number of transactions during a given period

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

That a company will be liquidated soon

That a company will continue its operations for the foreseeable future

That a company will reduce its liabilities

That a company is not profitable

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

Statement of Retained Earnings

Income Statement

Statement of Cash Flows

Balance Sheet

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

Notes payable

Accounts receivable

Capital stock

Equipment

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

Investor

Employee

Internal auditor

Business owner

32. What is the primary objective of internal auditing?

To prepare financial statements for external use

To provide assurance on the effectiveness of internal controls

To review the company's profit margins

To verify the company's compliance with tax laws

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

Verifying the accuracy of financial records

Examining the effectiveness of internal controls

Conducting a physical count of assets

Preparing financial statements for a company

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

Interest paid on loans

Cost of inventory sold

Rent paid for office space

Depreciation on machinery

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

Unqualified Opinion

Disclaimer of Opinion

Qualified Opinion

Tax Opinion

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

To record transactions for tax purposes

To create reports for external stakeholders like investors and creditors

To calculate tax liabilities

To prepare financial statements for internal management

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

The systematic recording of financial transactions

The analysis of financial data

The process of preparing financial statements

The collection of taxes from consumers

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

Verifying the accuracy of financial statements presented to external stakeholders

Approving financial transactions

Preparing tax returns for the company

Managing a company’s internal controls

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

Long-term loan

Equity capital

Retained earnings

Accounts payable

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

To provide financial information to stakeholders

To ensure compliance with tax laws

To calculate the company’s profits

To create financial reports for shareholders

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

Materiality Test

Trial Balance

Analytical Review

Financial Ratio Analysis

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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

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