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

Accounts payable

Retained earnings

Long-term loan

Equity capital

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

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

A system where each transaction is recorded in two separate journals

A method of recording only cash transactions

A system that requires every transaction to be entered twice

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

Recognizing revenue only when the customer pays for goods or services

Recognizing revenue based on the value of assets

Recognizing revenue when it is reported in the income statement

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

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

Cash Flow Statement

Audit Report

Balance Sheet

Income Statement

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

Matching Principle

Historical Cost Principle

Conservatism Principle

Revenue Recognition Principle

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

Liabilities should be recorded at market value

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

Assets should be recorded at their current market value

Revenues should be recorded when earned, not when received

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

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

A report showing the daily transactions of a business

A document showing all deductions made from gross income

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

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

To determine tax liabilities

To calculate the profit or loss for the period

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

To prepare the financial statements

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

The setting of tax rates for businesses

The process of auditing the company’s balance sheet

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

The allocation of a company’s operational budget

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

Expenses should be minimized

Revenues should only be recognized when they are certain

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

Assets should be recorded at the highest possible value

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

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

To match revenue with the period in which it is earned

To match the cost of an asset with its selling price

To match assets with liabilities

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

Economic Order Quantity

Revenue Recognition

Going Concern

Matching Principle

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

The taxes paid on sales

The total revenue earned from sales

The net income earned after all expenses

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

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

Financial Ratio Analysis

Materiality Test

Analytical Review

Trial Balance

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

Revenue from sales of goods

Long-term liabilities

Operating, investing, and financing activities

Salaries paid to employees

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

Qualified Opinion

Tax Opinion

Disclaimer of Opinion

Unqualified Opinion

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

Accounts Receivable

Cash

Equipment

Inventory

18. 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

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

To reduce the tax burden on businesses

To increase the net income of a business

To calculate the total liabilities of a business

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

20. 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 express an opinion on the fairness of financial statements

To evaluate the effectiveness of internal controls and risk management

21. 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 continue its operations for the foreseeable future

That a company will reduce its liabilities

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

To calculate the company’s profits

To provide financial information to stakeholders

To ensure compliance with tax laws

To create financial reports for shareholders

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

To calculate tax liabilities

To prepare financial statements for internal management

To record transactions for tax purposes

To create reports for external stakeholders like investors and creditors

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

The process of recording financial transactions

The preparation of a company’s annual report

The examination and verification of financial statements

The process of tax filing

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

Managing a company’s internal controls

Approving financial transactions

Verifying the accuracy of financial statements presented to external stakeholders

Preparing tax returns for the company

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

Offering tax advice

Expressing an opinion on the financial statements

Preparing financial statements

Setting up accounting systems

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

Amortization

Capitalization

Depreciation

Revenue recognition

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

To ensure accuracy in tax calculations

To maximize company profits

To avoid financial audits

To standardize financial reporting and ensure comparability

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

Cash Flow Statement

Income Statement

Balance Sheet

Statement of Retained Earnings

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

Conducting a physical count of assets

Preparing financial statements for a company

Verifying the accuracy of financial records

Examining the effectiveness of internal controls

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

The number of accounts in a company’s general ledger

The size of an audit firm

The rate of return on investment

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

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

Rent for office space

Advertising expense

Cost of goods sold

Loss from the sale of an asset

33. 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 verify the company's compliance with tax laws

To review the company's profit margins

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

To ensure that all assets are matched with liabilities

To match the company's earnings with its market share

To match the financial year with tax periods

To match expenses with the revenues they help generate

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

Equity capital

Long-term debt

Retained earnings

Short-term loans

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

Interest paid on loans

Depreciation on machinery

Rent paid for office space

Cost of inventory sold

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

Patent

Building

Cash

Inventory

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

The process of preparing financial statements

The systematic recording of financial transactions

The collection of taxes from consumers

The analysis of financial data

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

Equipment

Capital stock

Notes payable

Accounts receivable

40. 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

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

Internal auditor

Employee

Investor

Business owner

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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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