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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 is considered a current liability in accounting?

Equity capital

Long-term debt

Retained earnings

Short-term loans

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

A document showing all deductions made from gross income

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

A report showing the daily transactions of a business

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

3. 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

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

To ensure compliance with tax laws

To provide financial information to stakeholders

To calculate the company’s profits

To create financial reports for shareholders

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

Cash

Inventory

Equipment

Accounts Receivable

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

Revenue recognition

Amortization

Capitalization

Depreciation

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

Notes payable

Accounts receivable

Capital stock

Equipment

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

To match assets with liabilities

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

To match the cost of an asset with its selling price

To match revenue with the period in which it is earned

9. 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

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

To reduce the tax burden on businesses

To calculate the total liabilities of a business

To increase the net income of a business

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

11. 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

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

To track the number of transactions during a given period

To provide a transparent and traceable record of all financial transactions

To summarize financial statements

To record the financial performance of a company

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

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

Expenses should be minimized

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

Long-term loan

Retained earnings

Equity capital

Accounts payable

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

To record transactions for tax purposes

To prepare financial statements for internal management

To create reports for external stakeholders like investors and creditors

To calculate tax liabilities

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

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

Recognizing revenue only when the customer pays for goods or services

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

Statement of Cash Flows

Balance Sheet

Statement of Retained Earnings

Income Statement

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

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

The allocation of a company’s operational budget

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

Matching Principle

Economic Order Quantity

Going Concern

Revenue Recognition

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

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

To prepare the financial statements

To calculate the profit or loss for the period

To determine tax liabilities

21. 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

22. What is the primary objective of internal auditing?

To provide assurance on the effectiveness of internal controls

To prepare financial statements for external use

To verify the company's compliance with tax laws

To review the company's profit margins

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

Investor

Employee

Business owner

Internal auditor

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

Qualified Opinion

Unqualified Opinion

Disclaimer of Opinion

Tax Opinion

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

Cash

Inventory

Building

Patent

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

Revenues should be recorded when earned, not when received

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

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

Rent for office space

Loss from the sale of an asset

Advertising expense

Cost of goods sold

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

The process of preparing financial statements

The analysis of financial data

The systematic recording of financial transactions

The collection of taxes from consumers

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

The rate of return on investment

The number of accounts in a company’s general ledger

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

The size of an audit firm

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

Managing a company’s internal controls

Preparing tax returns for the company

Verifying the accuracy of financial statements presented to external stakeholders

Approving financial transactions

31. 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

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

Examining the effectiveness of internal controls

Verifying the accuracy of financial records

Preparing financial statements for a company

Conducting a physical count of assets

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

Offering tax advice

Setting up accounting systems

Expressing an opinion on the financial statements

Preparing financial statements

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

Rent paid for office space

Interest paid on loans

Depreciation on machinery

Cost of inventory sold

35. 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

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

To avoid financial audits

To maximize company profits

To ensure accuracy in tax calculations

To standardize financial reporting and ensure comparability

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

A method of recording only cash transactions

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 system that requires every transaction to be entered twice

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

The total revenue earned from sales

The taxes paid on sales

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

The net income earned after all expenses

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

Cash Flow Statement

Income Statement

Balance Sheet

Audit Report

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

To match the company's earnings with its market share

To ensure that all assets are matched with liabilities

To match expenses with the revenues they help generate

To match the financial year with tax periods

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

That a company is not profitable

That a company will reduce its liabilities

That a company will be liquidated soon

That a company will continue its operations for the foreseeable future

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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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