Quiz # 5 - Chapter 11

Sarah runs a small bakery and notices that while her monthly sales revenue is increasing, her bank account balance isn't growing proportionally. What accounting concept would best help her understand this situation?

• The accounting equation

• The matching principle

• Cash flow analysis

• Revenue recognition

When comparing two similar companies, Company A has a current ratio of 2.5 while Company B has a current ratio of 0.8. What can an investor conclude?

• Company A has more total assets than Company B

• Company A is better positioned to pay short-term debts

• Company B has higher profitability

• Company B has better inventory management

A local restaurant adds up its daily cash register totals to record revenue, but doesn't track credit card tips to servers. Which accounting principle is being violated?

• Going concern principle

• Full disclosure principle

• Double-entry principle

• Consistency principle

During an audit, which combination of findings would raise the most significant ethical concerns?

• Minor math errors and missing receipts

• Delayed invoice payments and high inventory

• Backdated sales records and dual sets of books

• Late bank reconciliations and miscategorized expenses

An equipment rental company purchases new machinery for $100,000. How should this transaction be recorded?

• As an expense that reduces profits immediately

• As a liability since money was spent

• As an asset that will depreciate over time

• As revenue since it will generate income

Which business decision would most likely require managerial accounting information rather than financial accounting data?

• Filing annual tax returns

• Applying for a bank loan

• Deciding whether to add a new product line

• Issuing financial statements to shareholders

In a digital age where transactions happen instantly, why do accountants still use double-entry bookkeeping?

• It's required by tax law

• It helps detect errors and fraud

• It's easier to computerize

• It saves time

A retail store's financial statements show high profits but struggles to pay bills. What's the most likely explanation?

• Poor inventory management

• High operating expenses

• Too much cash on hand

• Large accounts receivable balances

When evaluating a company's financial health, which combination of ratios would provide the most comprehensive view?

• All profitability ratios

• All liquidity ratios

• Mix of profitability, liquidity, and activity ratios

• Only debt ratios

A CPA notices pressure from management to "adjust" some numbers in the financial statements. What's the best first step?

• Immediately report to authorities

• Make small adjustments to appease management

• Document the request and seek clarification

• Ignore the pressure and continue as normal