INCOME STATEMENT (PROFIT & LOSS ACCOUNT) EXAM
PRACTICE PAPER 2 – ACCOUNTING & FINANCE |
STANDARD LEVEL | 40 EXAM QUESTIONS WITH FULLY
WORKED ANSWERS, STEP-BY-STEP CALCULATIONS &
DETAILED EXPLANATIONS | REVISION & ASSESSMENT
RESOURCE
COURSE NAME
Accounting and Finance – Financial Statements (Income Statement Focus)
LEVEL
College / First-Year University (Standard Level)
INSTRUCTIONS
• Answer ALL questions
• Show all working for calculations
• Time allowed: 2 hours
• All questions carry equal or stated marks
PAPER 2 – INCOME STATEMENT (STANDARD LEVEL)
40 QUESTIONS WITH ANSWERS AND DETAILED RATIONALE
1. A trading account is mainly used to determine:
A. Net profit
B. Gross profit
C. Cash balance
D. Owner’s equity
, Answer: B
Rationale: The trading account is prepared to calculate gross profit before
expenses.
2. Which of the following is deducted from sales to get net sales?
A. Purchases
B. Returns inwards
C. Capital
D. Assets
Answer: B
Rationale: Sales returns reduce total sales to give net sales.
3. Cost of sales increases when:
A. Closing stock increases
B. Purchases increase
C. Sales increase
D. Revenue decreases
Answer: B
Rationale: Higher purchases increase cost of goods available for sale.
4. Gross profit will decrease if:
A. Sales increase
B. Cost of sales increases
C. Expenses decrease
D. Capital increases
Answer: B
Rationale: Higher cost of sales reduces gross profit.
5. Which item is included in operating expenses?
A. Rent
B. Inventory
C. Sales
D. Capital
PRACTICE PAPER 2 – ACCOUNTING & FINANCE |
STANDARD LEVEL | 40 EXAM QUESTIONS WITH FULLY
WORKED ANSWERS, STEP-BY-STEP CALCULATIONS &
DETAILED EXPLANATIONS | REVISION & ASSESSMENT
RESOURCE
COURSE NAME
Accounting and Finance – Financial Statements (Income Statement Focus)
LEVEL
College / First-Year University (Standard Level)
INSTRUCTIONS
• Answer ALL questions
• Show all working for calculations
• Time allowed: 2 hours
• All questions carry equal or stated marks
PAPER 2 – INCOME STATEMENT (STANDARD LEVEL)
40 QUESTIONS WITH ANSWERS AND DETAILED RATIONALE
1. A trading account is mainly used to determine:
A. Net profit
B. Gross profit
C. Cash balance
D. Owner’s equity
, Answer: B
Rationale: The trading account is prepared to calculate gross profit before
expenses.
2. Which of the following is deducted from sales to get net sales?
A. Purchases
B. Returns inwards
C. Capital
D. Assets
Answer: B
Rationale: Sales returns reduce total sales to give net sales.
3. Cost of sales increases when:
A. Closing stock increases
B. Purchases increase
C. Sales increase
D. Revenue decreases
Answer: B
Rationale: Higher purchases increase cost of goods available for sale.
4. Gross profit will decrease if:
A. Sales increase
B. Cost of sales increases
C. Expenses decrease
D. Capital increases
Answer: B
Rationale: Higher cost of sales reduces gross profit.
5. Which item is included in operating expenses?
A. Rent
B. Inventory
C. Sales
D. Capital
