First Mid-Term Break Test for Financial Accounting (SS1)
Mid-Term Break Test for Financial Accounting (SS1)
Instructions:
- Answer all questions.
- Write your answers clearly and legibly.
- For multiple-choice questions, circle the correct answer.
- Ensure to review your work before submission.
Objective Questions
- Which of the following is the primary purpose of accounting?
a) To record only cash transactions
b) To provide financial information for decision-making
c) To track the number of employees
d) To manage physical assets
Answer: b) To provide financial information for decision-making - Which of the following best defines bookkeeping?
a) Recording financial transactions
b) Analyzing financial statements
c) Preparing tax returns
d) Managing financial statements for external stakeholders
Answer: a) Recording financial transactions - What is the accounting equation?
a) Assets = Liabilities + Equity
b) Assets = Revenue – Liabilities
c) Liabilities = Assets + Equity
d) Liabilities = Assets – Revenue
Answer: a) Assets = Liabilities + Equity - Which of the following is an internal user of accounting information?
a) Shareholders
b) Employees
c) Tax authorities
d) Customers
Answer: b) Employees - Which journal is used to record all cash receipts?
a) Cash Book
b) Purchases Journal
c) Sales Journal
d) Return Inwards Journal
Answer: a) Cash Book - Which of the following accounts is credited when a sale is made on credit?
a) Cash
b) Accounts Payable
c) Accounts Receivable
d) Sales Revenue
Answer: c) Accounts Receivable - Which source document is used for a credit sale transaction?
a) Receipt
b) Invoice
c) Delivery Note
d) Bank Statement
Answer: b) Invoice - What is the Return Outwards Journal used for?
a) Recording returns from customers
b) Recording purchases made on credit
c) Recording goods returned to suppliers
d) Recording payment of debts
Answer: c) Recording goods returned to suppliers - Which account is debited when a business receives cash from a customer?
a) Accounts Receivable
b) Sales Revenue
c) Cash
d) Bank
Answer: c) Cash - Which of the following is a limitation of accounting?
a) Provides clear financial data for decision-making
b) Cannot capture non-financial aspects of business performance
c) Is always accurate and free of errors
d) Helps businesses to avoid taxes
Answer: b) Cannot capture non-financial aspects of business performance - What does the term ‘double-entry principle’ refer to?
a) Each transaction is recorded in two separate journals
b) Every transaction affects at least two accounts
c) Transactions are always posted to two different businesses
d) Double the amount is recorded in accounting records
Answer: b) Every transaction affects at least two accounts - Which of the following is an example of a source document in accounting?
a) Bank Statement
b) Financial Statement
c) Sales Invoice
d) Balance Sheet
Answer: c) Sales Invoice - What is the main function of the Trial Balance?
a) To record all transactions
b) To summarize all transactions for the year
c) To verify the accuracy of the ledger balances
d) To calculate the company’s profits and losses
Answer: c) To verify the accuracy of the ledger balances - Which of the following is a characteristic of good accounting information?
a) Obsolete and outdated
b) Accurate, timely, and relevant
c) Irrelevant to decision-making
d) Limited in quantity
Answer: b) Accurate, timely, and relevant - What is the primary use of the Purchase Journal?
a) To record purchases made on credit
b) To record sales made on credit
c) To record returns from customers
d) To record cash payments
Answer: a) To record purchases made on credit
Short Answer Questions
- Define the term “bookkeeping” and explain its role in accounting.
Answer:
Bookkeeping refers to the process of recording financial transactions systematically. It is the first step in accounting, providing accurate and timely records of all transactions to ensure that the financial statements reflect the true financial position of the business. - List and explain two types of source documents used in accounting.
Answer:- Invoice: A document issued by the seller to the buyer, detailing the amount owed for goods or services purchased on credit.
- Receipt: A written acknowledgment that payment has been made for goods or services, typically for cash transactions.
- Describe the differences between bookkeeping and financial accounting.
Answer:- Bookkeeping focuses on the systematic recording of financial transactions. It is the foundation of accounting and involves tasks such as journal entries and ledger postings.
- Financial Accounting involves the preparation and presentation of financial statements (like the income statement, balance sheet, and cash flow statement) for external users such as investors, creditors, and regulatory bodies.
- What is the accounting equation? Explain its components.
Answer:
The accounting equation is:
Assets = Liabilities + Owner’s Equity- Assets: Resources owned by the business (e.g., cash, buildings, inventory).
- Liabilities: Debts or obligations owed to creditors (e.g., loans, accounts payable).
- Owner’s Equity: The owner’s claims on the assets of the business after liabilities are deducted (e.g., capital, retained earnings).
- What is the purpose of the Trial Balance in accounting?
Answer:
The Trial Balance is used to verify that the total of debits equals the total of credits after recording all transactions. It helps identify any errors in the ledger accounts before preparing the financial statements.
Evaluation Questions
- Define bookkeeping and its importance in accounting.
- What is the difference between the Sales Journal and the Purchases Journal?
- Explain the double-entry principle in accounting.
- How does the Return Inwards Journal affect the financial statements?
- List and describe two types of subsidiary books used in accounting.
- Explain the purpose of the Cash Book in recording transactions.
- What is the role of source documents in the accounting cycle?
- How do you record a credit sale in the Sales Journal?
- Describe how a Trial Balance is used to ensure the accuracy of accounting records.
- What are the limitations of accounting, and how can they affect financial reporting?
Financial Accounting SS1 First Term Mid-Term Assessment
Part A: Objective Questions
(20 Fill-in-the-Blank Questions with Options)
- The primary purpose of accounting is to _______ financial information.
a) Analyze
b) Record
c) Communicate
d) Delete - _______ is the process of recording business transactions in an accounting system.
a) Bookkeeping
b) Accounting
c) Auditing
d) Budgeting - The _______ accounting equation is: Assets = Liabilities + Owner’s Equity.
a) Original
b) Modified
c) Adjusted
d) Expanded - A _______ discount is offered to customers who pay their invoices early.
a) Seasonal
b) Trade
c) Cash
d) Volume - _______ are used to prove the financial position of a business.
a) Financial Statements
b) Business Reports
c) Bank Statements
d) Purchase Orders - The purpose of preparing a trial balance is to _______ the accuracy of recorded transactions.
a) Verify
b) Compare
c) Delete
d) Enhance - A _______ journal is used to record credit transactions.
a) Sales
b) Cash
c) Purchase
d) Return Inward - The _______ journal is used for recording all cash transactions.
a) Purchases
b) General
c) Cashbook
d) Return Outward - The process of transferring entries from journals to ledgers is known as _______.
a) Posting
b) Balancing
c) Recording
d) Closing - A _______ is a document used to support transactions recorded in the books of accounts.
a) Voucher
b) Cashbook
c) Ledger
d) Invoice - The _______ is the final step in the accounting cycle, where the business’s financial status is summarized.
a) Balance Sheet
b) Journal Entry
c) Income Statement
d) Cash Flow Statement - _______ accounting focuses on the preparation of financial statements for external users.
a) Cost
b) Financial
c) Managerial
d) Auditing - An example of an internal user of accounting information is a _______.
a) Investor
b) Manager
c) Government
d) Customer - The cash book can be classified as a _______ journal.
a) Special
b) General
c) Compound
d) Personal - _______ are not included in the ledger accounts.
a) Personal Accounts
b) Impersonal Accounts
c) Private Accounts
d) Sales Accounts - The _______ principle states that every transaction affects at least two accounts.
a) Single Entry
b) Double Entry
c) Cash Entry
d) Transaction Entry - A _______ discount is deducted from the sale price at the time of purchase.
a) Cash
b) Trade
c) Promotional
d) Volume - A sales invoice showing a trade discount will record the _______ price after discount.
a) Net
b) Gross
c) Original
d) Discounted - The correct sequence of the accounting cycle is: _______.
a) Journal, Trial Balance, Ledger
b) Posting, Journaling, Trial Balance
c) Journaling, Posting, Preparing Financial Statements
d) Ledger, Trial Balance, Journaling - A _______ is a record that summarizes all transactions affecting one account.
a) Journal
b) Trial Balance
c) Ledger
d) Cashbook
Part B: Theory Questions
(20 Short Answer Questions)
- Define bookkeeping and its role in accounting.
- What are the major differences between bookkeeping and financial accounting?
- Explain the accounting equation and its components.
- Discuss the importance of accounting in business decision-making.
- Who are the internal users of accounting information and what do they need it for?
- Who are the external users of accounting information and how do they use it?
- List and describe the types of source documents in accounting.
- Explain the double-entry principle and provide an example.
- What is the purpose of preparing a trial balance?
- Define cash book and explain the types of cash books.
- What is the difference between trade discounts and cash discounts?
- Why do businesses offer discounts to customers?
- How is the ledger used in accounting?
- What is the purpose of a sales journal in accounting?
- How does posting from journals to ledgers work?
- Describe the steps in the accounting process cycle.
- How is a trade discount recorded in accounting books?
- What is the role of a trial balance in the accounting process?
- Why is it important for a business to maintain accurate accounting records?
- What is the purpose of financial statements, and who uses them?
Part C: True or False Questions
(20 True or False Statements)
- The accounting equation is Assets = Liabilities + Owner’s Equity. (True/False)
- A sales journal is used to record all cash payments. (True/False)
- Financial accounting focuses on internal decision-making. (True/False)
- A cash discount is only available for early payment of debts. (True/False)
- Discounts granted to customers are recorded in the cash book. (True/False)
- The general ledger contains only personal accounts. (True/False)
- All accounting transactions must follow the double-entry system. (True/False)
- The trial balance is used to test the accuracy of the ledgers. (True/False)
- A trade discount is always recorded in the accounting books. (True/False)
- A purchase journal records all cash transactions. (True/False)
- Subsidiary books help in maintaining detailed records of business transactions. (True/False)
- The cash book records only cash receipts. (True/False)
- An accounting journal is used to summarize financial transactions. (True/False)
- The ledger is a record of all business transactions for a specific period. (True/False)
- A sales invoice includes both trade and cash discounts. (True/False)
- The double-entry system ensures that every debit has a corresponding credit. (True/False)
- A journal entry can be posted directly to the financial statements. (True/False)
- The cash book is classified as a special journal. (True/False)
- A trial balance includes both income and expense accounts. (True/False)
- A business can operate without maintaining proper accounting records. (True/False)
Part D: Fill-in-the-Gaps Questions
(20 Fill-in-the-Blank Questions Without Multiple-Choice Options)
- The _______ principle of accounting ensures that each transaction is recorded with both a debit and a credit.
- A _______ discount is offered to customers who pay early, typically within a specified time frame.
- The primary purpose of the _______ is to record business transactions in chronological order.
- The _______ book records all transactions involving cash receipts and payments.
- A _______ journal records all sales made on credit.
- The _______ is used to verify that the total debits equal the total credits in the accounting system.
- A business’s _______ is the financial statement that shows its assets, liabilities, and owner’s equity.
- A _______ account is an account that summarizes transactions related to one individual or entity.
- _______ is the term used to describe the initial step in the accounting process where transactions are recorded.
- A _______ is a record that summarizes financial transactions by account.
- The _______ accounting equation reflects the relationship between assets, liabilities, and owner’s equity.
- A business transaction is recorded in the _______ as a journal entry before being posted to the ledger.
- A _______ discount is subtracted from the list price before calculating the final amount payable.
- The _______ account is used to record any discounts allowed to customers.
- A trial balance helps to ensure the _______ of the financial records.
- The cash book includes _______ columns to record both cash receipts and payments.
- The accounting cycle begins with _______ the business transactions.
- The _______ journal records all purchases of goods and services on credit.
- A ledger account for _______ transactions is classified under personal accounts.
- A _______ entry is used to transfer amounts from the journal to the appropriate ledger accounts.
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Conclusion:
The Mid-Term Break Test assesses students’ understanding of key concepts in Financial Accounting, including bookkeeping, accounting equations, journal entries, and the role of source documents. It’s crucial to comprehend these concepts as they form the foundation of accounting, helping students build the skills needed for accurate financial reporting.