Audit, Accounting & Finance – 100 Marks
Q. What is meant by accrual accounting?
Answer: Recording revenues and expenses when they occur
Q. Which concept matches expenses with revenues?
Answer: Matching Concept
Q. What is the main purpose of trial balance?
Answer: To check arithmetical accuracy
Q. Which asset is not depreciated?
Answer: Land
Q. What is the formula of Quick Ratio?
Answer: (Current Assets – Inventory) / Current Liabilities
Q. Which document authorizes payment?
Answer: Invoice
Q. What is meant by contingent liability?
Answer: Possible obligation depending on future event
Q. Which account is debited when goods are purchased on credit?
Answer: Purchases Account
Q. What is the purpose of bank reconciliation?
Answer: To match bank and cash book balances
Q. Which error is corrected by suspense account?
Answer: One-sided error
Q. What is meant by provision?
Answer: Estimated liability
Q. What is deferred revenue?
Answer: Income received in advance
Q. Which method is used for stock valuation?
Answer: FIFO
Q. What is meant by cost of goods sold (COGS)?
Answer: Cost of goods sold during period
Q. Which account shows owner’s interest?
Answer: Capital Account
Q. What is meant by impairment loss?
Answer: Reduction in asset value
Q. Which audit opinion is given when statements are true and fair?
Answer: Unqualified Opinion
Q. Which sampling method uses random selection?
Answer: Random Sampling
Q. What is meant by materiality in auditing?
Answer: Significance of misstatement
Q. Which type of error is not disclosed by trial balance?
Answer: Error of principle
Q. What is meant by double entry system?
Answer: Every transaction has two effects
Q. Which book records credit purchases?
Answer: Purchase Book
Q. What is meant by owner’s equity?
Answer: Owner’s claim on assets
Q. Which account is credited when cash is received?
Answer: Cash Account
Q. What is meant by audit program?
Answer: Plan of audit procedures
Q. Which account records depreciation?
Answer: Depreciation Account
Q. What is meant by budget?
Answer: Financial plan for future
Q. Which budget is prepared first?
Answer: Sales Budget
Q. What is meant by standard costing?
Answer: Predetermined cost system
Q. What is variance analysis?
Answer: Comparison of actual and standard cost
Q. Which cost is relevant for decision making?
Answer: Relevant Cost
Q. What is meant by margin of safety?
Answer: Excess of sales over break-even
Q. Which financial statement shows profit?
Answer: Income Statement
Q. What is meant by dividend?
Answer: Profit distributed to shareholders
Q. Which account shows expenses and revenues?
Answer: Profit and Loss Account
Q. What is meant by fiscal policy?
Answer: Government taxation and spending policy
Q. Which institution controls money supply in Pakistan?
Answer: State Bank of Pakistan
Q. What is meant by inflation?
Answer: Rise in general price level
Q. Which market deals in long-term securities?
Answer: Capital Market
Q. What is meant by debenture?
Answer: Long-term debt instrument
Q. Who appoints the Auditor General of Pakistan?
Answer: The President
Q. What does GDP stand for?
Answer: Gross Domestic Product
Q. In a manufacturing account, what is calculated?
Answer: Cost of goods produced
Q. Which of the following is a liability?
Answer: Creditors
Q. Which of the following is charged in the Profit and Loss Account?
Answer: Office Rent
Q. Where is the headquarters of the ILO?
Answer: Geneva
Q. What is ‘Financial Audit’ versus ‘Cost Audit’?
Answer: Financial Audit verifies the overall accuracy of financial statements, while Cost Audit verifies the correctness of cost accounts and adherence to the cost accounting plan.
Q. What is ‘Over-capitalization’?
Answer: A situation where a company has more capital than it needs for its operations, leading to low earnings per share.
Q. In auditing, what is ‘Detection Risk’?
Answer: The risk that the auditor’s procedures will fail to detect a material misstatement that exists in an account balance.
Q. What is ‘Float’ in cash management?
Answer: The difference between the balance shown in a company’s checkbook and the balance shown on the bank’s records due to processing delays.
Q. Which accounting concept requires that ‘Stock’ be valued at cost or net realizable value, whichever is lower?
Answer: Prudence (Conservatism) Concept.
Q. What is ‘Consolidated Financial Statement’?
Answer: The combined financial statements of a parent company and its subsidiaries, presented as a single economic entity.
Q. What is ‘Audit Trail’?
Answer: A step-by-step documented history that allows a financial transaction to be traced back to its source.
Q. What is ‘Negative Confirmation’ in auditing?
Answer: A request that the third party respond only if they disagree with the amount stated in the auditor’s letter.
Q. What is ‘Capital Reserve’?
Answer: Profits created from capital transactions which cannot be used to distribute dividends.
Q. What is ‘Operating Leverage’?
Answer: The degree to which a firm uses fixed costs in its operations.
Q. In a company liquidation, who is paid first?
Answer: Secured Creditors.
Q. What is ‘Statutory Audit’?
Answer: An audit mandated by law to ensure the fairness of financial reports.
Q. What is ‘Sunk Cost’?
Answer: A cost that has already been incurred and cannot be recovered.
Q. What is ‘Internal Check’?
Answer: A system of allocation of duties where the work of one employee is automatically checked by another.
Q. What is ‘Goodwill’ impairment testing?
Answer: The annual process of checking whether the recorded value of goodwill has decreased.
