Question 1

What is the primary objective of preparing financial statements?

Accepted Answer

The primary objective of preparing financial statements is to provide financial information about the business entity to users such as owners, creditors, investors, and tax authorities to help them make economic decisions.

Question 2

Which of the following is a component of financial statements?

Accepted Answer

Financial statements generally include the Trading and Profit and Loss Account (Income Statement) and the Balance Sheet (Position Statement) for sole proprietorships.

Question 3

Trading account shows which of the following?

Accepted Answer

The trading account is prepared to ascertain the gross profit or gross loss resulting from the trading activities of a business during an accounting period.

Question 4

Direct expenses are debited to which of the following accounts?

Accepted Answer

Direct expenses are those expenses which are directly connected with the purchase or manufacture of goods and are debited to the Trading Account.

Question 5

Which of the following is considered an indirect expense?

Accepted Answer

Salaries, rent, advertising, and office expenses are related to administration, selling, and distribution, hence they are treated as indirect expenses and debited to the Profit and Loss Account.

Financial Statements - I