Audit, Accounting & Finance – 100 Marks
Q. What is the Materiality Concept in auditing?
Answer: The principle that auditors focus on items that could significantly influence users’ economic decisions.
Q. What does Net Present Value (NPV) represent in capital budgeting?
Answer: The difference between the present value of cash inflows and the present value of cash outflows of a project.
Q. What is meant by the Substance over Form Principle?
Answer: Transactions should be recorded according to their economic reality rather than merely their legal form.
Q. What is Audit Sampling?
Answer: Applying audit procedures to a selected portion of data to draw conclusions about the entire population.
Q. Which ratio measures how frequently inventory is sold and replaced during a period?
Answer: Inventory Turnover Ratio.
Q. In financial analysis, what are Qualitative Factors?
Answer: Non-numerical aspects such as management quality, reputation, and employee morale.
Q. What is the difference between Error and Fraud in auditing?
Answer: Error is unintentional, while fraud is a deliberate act to deceive.
Q. What is Accrued Income in accounting?
Answer: Income earned but not yet received in cash.
Q. Which statement reports the movement of cash during an accounting period?
Answer: Cash Flow Statement.
Q. What is meant by Cost of Capital?
Answer: The minimum return required by investors for providing funds to a company.
Q. In the Balance Sheet, Prepaid Expenses are classified as what type of asset?
Answer: Current Assets.
Q. What is Vouching in auditing?
Answer: Examining documentary evidence to verify the authenticity of recorded transactions.
Q. What is an Operational Audit?
Answer: An audit that evaluates the efficiency and effectiveness of an organization’s operations.
Q. What does the Fixed Asset Turnover Ratio measure?
Answer: The efficiency with which a company uses its fixed assets to generate sales.
Q. What is a Contingent Asset?
Answer: A potential asset arising from past events whose existence depends on a future uncertain event.
Q. What is the primary purpose of a Trial Balance?
Answer: To check the arithmetic accuracy of ledger accounts
Q. Depreciation on an asset is charged to:
Answer: Profit & Loss Account
Q. A liability that is due within 12 months is called:
Answer: Current Liability
Q. Cash sales and credit sales affect which financial statements?
Answer: Income Statement and Cash Flow Statement
Q. Outstanding expenses are:
Answer: Expenses incurred but not yet paid
Q. Prepaid expenses are:
Answer: Expenses paid in advance but not yet incurred
Q. Net Profit ratio measures:
Answer: Profitability of business operations
Q. Operating cycle formula:
Answer: Inventory period + Accounts Receivable period
Q. Letter of Credit (LC) is used for:
Answer: Guarantee by a bank to a foreign bank for imports
Q. What is meant by cash equivalent?
Answer: Short-term highly liquid investments
Q. What is the purpose of a control account?
Answer: To summarize detailed ledger balances
Q. What is meant by deferred expense?
Answer: Expense paid in advance for future periods
Q. Which account is debited when salary is paid?
Answer: Salary Account
Q. What is the main objective of financial statements?
Answer: To provide useful financial information
Q. Which ratio measures company’s ability to pay interest?
Answer: Interest Coverage Ratio
Q. What is meant by equity share?
Answer: Ownership share in a company
Q. What is the purpose of audit evidence?
Answer: To support audit opinion
Q. Which type of cost is direct cost?
Answer: Cost directly traceable to product
Q. What is meant by cost center?
Answer: A unit where cost is incurred
Q. Which account is credited when income is received?
Answer: Income Account
Q. What is meant by capital budgeting?
Answer: Planning long-term investments
Q. Which statement shows cash position?
Answer: Cash Flow Statement
Q. What is meant by financial leverage?
Answer: Use of debt to increase returns
Q. Which concept requires revenue recognition when earned?
Answer: Accrual Concept
Q. What is meant by outstanding expense?
Answer: Expense incurred but not paid
Q. Which ratio measures operational efficiency?
Answer: Operating Ratio
Q. What is meant by book value?
Answer: Value of asset after depreciation
Q. Which account is used for recording credit sales?
Answer: Sales Account
Q. What is meant by audit report?
Answer: Auditor’s opinion on financial statements
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