)(_)$()_q$(()_q#_+$)+_$+)q$+$_$))*%(&&%*(%)(%*q$)()q$(*q)_)$($*)(#@_)*$_)$*$_)(_$@
_($_(@_()#@)($@_)$@$_@(A
Accounting & financial statement
analysis, practice questions and
answers
Terms in this set (126)
1. Which is an advantage of online banking for businesses?
A. Internal controls may be reduced.
B. Book balances always equal bank balances.
C. Bank reconciliations are unnecessary.
D. Businesses can reconcile balances at any time.
ANSWER: D
Rationale: Online banking allows immediate access to account information for faster
reconciliation.
2. A check for $507 was mistakenly recorded as $705. How is this corrected on the bank
reconciliation?
A. Deduction on the bank side
B. Addition on the bank side
C. Deduction on the book side
D. Addition on the book side
ANSWER: D
Rationale: The business overstated the cash reduction, so the book balance must be
increased.
3. Which method does NOT accurately evaluate financial performance?
A. Comparing with industry averages
B. Comparing results from year to year
C. Examining only one year’s data
D. Comparing with competitors
ANSWER: C
Rationale: Trend analysis requires comparisons across multiple periods and benchmarks.
Which of the following is NOT one of the three primary methods of financial statement
analysis?
A. Ratio analysis
B. Vertical analysis
, )(_)$()_q$(()_q#_+$)+_$+)q$+$_$))*%(&&%*(%)(%*q$)()q$(*q)_)$($*)(#@_)*$_)$*$_)(_$@
_($_(@_()#@)($@_)$@$_@(A
C. Financial statement analysis
D. Horizontal analysis
ANSWER: C
Rationale: The primary methods are ratio analysis, horizontal analysis, and vertical analysis.
4. Which statement best describes horizontal analysis?
A. Calculating key ratios to evaluate performance
B. Comparing a company with competitors
C. Comparing financial statement amounts from year to year for the same company
D. Expressing amounts as percentages of budgeted amounts
ANSWER: C
Rationale: Horizontal analysis evaluates trends by comparing financial data over multiple
periods.
5. When performing vertical analysis of a balance sheet, the base amount is:
A. Net income
B. Current assets
C. Total liabilities
D. Total assets
ANSWER: D
Rationale: In vertical analysis, each balance sheet item is expressed as a percentage of
total assets.
6 Which analysis method shows how operating expenses as a percentage of net sales
change over time?
A. Ratio analysis
B. Horizontal analysis
C. Vertical analysis
D. Industry analysis
ANSWER: C
Rationale: Vertical analysis expresses each income statement item as a percentage of net
sales.
7. A common-size statement reports percentages used in:
A. Horizontal analysis
B. Vertical analysis
C. Ratio analysis
D. Trend analysis
_($_(@_()#@)($@_)$@$_@(A
Accounting & financial statement
analysis, practice questions and
answers
Terms in this set (126)
1. Which is an advantage of online banking for businesses?
A. Internal controls may be reduced.
B. Book balances always equal bank balances.
C. Bank reconciliations are unnecessary.
D. Businesses can reconcile balances at any time.
ANSWER: D
Rationale: Online banking allows immediate access to account information for faster
reconciliation.
2. A check for $507 was mistakenly recorded as $705. How is this corrected on the bank
reconciliation?
A. Deduction on the bank side
B. Addition on the bank side
C. Deduction on the book side
D. Addition on the book side
ANSWER: D
Rationale: The business overstated the cash reduction, so the book balance must be
increased.
3. Which method does NOT accurately evaluate financial performance?
A. Comparing with industry averages
B. Comparing results from year to year
C. Examining only one year’s data
D. Comparing with competitors
ANSWER: C
Rationale: Trend analysis requires comparisons across multiple periods and benchmarks.
Which of the following is NOT one of the three primary methods of financial statement
analysis?
A. Ratio analysis
B. Vertical analysis
, )(_)$()_q$(()_q#_+$)+_$+)q$+$_$))*%(&&%*(%)(%*q$)()q$(*q)_)$($*)(#@_)*$_)$*$_)(_$@
_($_(@_()#@)($@_)$@$_@(A
C. Financial statement analysis
D. Horizontal analysis
ANSWER: C
Rationale: The primary methods are ratio analysis, horizontal analysis, and vertical analysis.
4. Which statement best describes horizontal analysis?
A. Calculating key ratios to evaluate performance
B. Comparing a company with competitors
C. Comparing financial statement amounts from year to year for the same company
D. Expressing amounts as percentages of budgeted amounts
ANSWER: C
Rationale: Horizontal analysis evaluates trends by comparing financial data over multiple
periods.
5. When performing vertical analysis of a balance sheet, the base amount is:
A. Net income
B. Current assets
C. Total liabilities
D. Total assets
ANSWER: D
Rationale: In vertical analysis, each balance sheet item is expressed as a percentage of
total assets.
6 Which analysis method shows how operating expenses as a percentage of net sales
change over time?
A. Ratio analysis
B. Horizontal analysis
C. Vertical analysis
D. Industry analysis
ANSWER: C
Rationale: Vertical analysis expresses each income statement item as a percentage of net
sales.
7. A common-size statement reports percentages used in:
A. Horizontal analysis
B. Vertical analysis
C. Ratio analysis
D. Trend analysis
