Financial accounting NABTEB exam past questions and answers

Financial accounting NABTEB exam past questions and answers

Here they are;

Question: What is the accounting equation?

A) Assets = Liabilities + Equity

B) Assets - Liabilities = Equity

C) Liabilities = Assets - Equity

D) Equity = Assets + Liabilities

Question: What is the purpose of the income statement?

A) To show the financial position of a company at a specific point in time

B) To report the changes in equity over a period

C) To outline the company's revenues and expenses over a period

D) To summarize the cash transactions of a company

Question: Which accounting principle states that expenses should be recorded in the same period as the revenue they help to generate?

A) Matching principle

B) Revenue recognition principle

C) Consistency principle

D) Materiality principle

Question: What is the purpose of a balance sheet?

A) To show the profitability of a company

B) To provide information about cash flows

C) To summarize a company's financial position at a specific point in time

D) To report the changes in equity over a period

Question: How are dividends typically classified on the income statement?

A) Operating expenses

B) Non-operating expenses

C) Financing activities

D) Investing activities

Question: According to the accrual basis of accounting, when should revenue be recognized?

A) When cash is received

B) When the product or service is delivered

C) When an invoice is issued

D) At the end of the fiscal year

Question: What is depreciation?

A) A decrease in the value of money over time

B) The process of allocating the cost of an asset over its useful life

C) An increase in the market value of an asset

D) The total revenue earned by a company

Question: Which financial statement reports cash inflows and outflows from operating, investing, and financing activities?

A) Income statement

B) Balance sheet

C) Statement of cash flows

D) Retained earnings statement

Question: What is the main purpose of the statement of cash flows?

A) To show the company's financial position at a specific point in time

B) To provide information about the company's liquidity and solvency

C) To report the changes in equity over a period

D) To provide information about cash inflows and outflows over a period

Question: According to the cost principle, how should assets be initially recorded?

A) At their fair market value

B) At historical cost

C) At the highest value among various appraisals

D) At the lowest value among various appraisals

Question: What is the purpose of the trial balance?

A) To identify errors in the financial statements

B) To summarize the company's transactions over a period

C) To calculate the company's taxable income

D) To report the changes in equity over a period

Question: What does the term "liquidity" refer to in financial accounting?

A) The ability of a company to meet its short-term obligations

B) The profitability of a company

C) The efficiency of a company's operations

D) The overall financial health of a company

Question: How are retained earnings calculated?

A) Beginning Retained Earnings + Net Income - Dividends

B) Net Income - Beginning Retained Earnings - Dividends

C) Net Income + Dividends - Beginning Retained Earnings

D) Dividends - Net Income + Beginning Retained Earnings

Question: Which financial statement is also known as the statement of financial position?

A) Income statement

B) Balance sheet

C) Statement of cash flows

D) Retained earnings statement

Question: Under which accounting principle are financial statements prepared assuming the company will continue to operate indefinitely?

A) Going concern principle

B) Revenue recognition principle

C) Matching principle

D) Consistency principle

Question: What is the purpose of the statement of retained earnings?

A) To show the company's profitability over a period

B) To report the changes in equity over a period

C) To provide information about cash inflows and outflows

D) To disclose any errors in the financial statements

Question: How are long-term liabilities typically classified on the balance sheet?

A) Current liabilities

B) Operating liabilities

C) Non-current liabilities

D) Contingent liabilities

Question: What is the primary purpose of the auditor's report in financial statements?

A) To express an opinion on the accuracy of the financial statements

B) To prepare the financial statements

C) To identify errors in the financial statements

D) To provide recommendations for future business strategies

Question: According to the revenue recognition principle, when should revenue be recognized?

A) When the cash is received

B) When the product or service is delivered

C) When an invoice is issued

D) At the end of the fiscal year

Question: What is the purpose of the cash flow statement's operating activities section?

A) To report cash flows related to the purchase and sale of long-term assets

B) To report cash flows related to the company's primary operations

C) To report cash flows related to financing transactions

D) To report cash flows related to investing activities