Element 8: Fundamentals of financial accounting 1 8.1.1-8.1.9

What is the primary purpose of financial accounting?

• To track business performance

• To satisfy tax requirements

• To provide financial information to stakeholders

• To reduce business expenses

Which of the following is considered an asset?

• Bank loan

• Accounts receivable

• Accounts payable

• Mortgage

How do you define liquidity?

• The ability to meet long-term obligations

• The ability to convert assets into cash quickly

• The amount of profit a business makes

• The total value of a business's assets

Which type of income is generated from the sale of goods and services?

• Capital income

• Revenue income

• Expenditure income

• Investment income

What is the purpose of depreciation?

• To increase the value of non-current assets

• To allocate the cost of an asset over its useful life

• To eliminate liabilities

• To improve liquidity

Which of the following is an internal source of finance?

• Bank loan

• Sale of assets

• Trade credit

• Mortgage

What does a high level of liquidity indicate about a business?

• It has high profitability

• It can easily meet its short-term obligations

• It has a large number of assets

• It is heavily in debt

What is the main difference between cash flow and profit?

• Cash flow includes all revenue

• Profit includes all cash transactions

• Cash flow focuses on liquidity

Which depreciation method allocates an equal amount of depreciation each year?

• Reducing balance

• Straight line

• Accelerated

• Declining balance

What is the primary function of bookkeeping?

• To prepare financial statements

• To record financial transactions

• To audit financial records

• To manage payroll