FAC3701 – General Financial Reporting | University
of South Africa (UNISA) | Fall Semester 2025/2026
Updated Exam Prep Guide | 245+ Verified
Application Questions with Correct Answers &
Detailed Rationales | Complete Study Pack for
IFRS, Consolidations, and Financial Statements
Analysis
Question 1:
What is the primary objective of financial reporting?
A) To provide information to management
B) To assist in tax calculations
C) To provide information that is useful for economic decision-making by users
D) To comply with legal requirements
Rationale: Financial reporting aims to provide relevant information to help users make
informed decisions.
Question 2:
Which of the following is a key qualitative characteristic of useful financial information?
A) Complexity
B) Relevance
C) Ambiguity
D) Subjectivity
Rationale: Relevance ensures that information is capable of influencing users'
decisions.
Question 3:
What is the accounting equation?
A) Assets = Liabilities + Revenues
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Assets = Equity + Revenues
Rationale: The accounting equation represents the relationship between a company’s
assets, liabilities, and equity.
Question 4:
What does the term "double-entry bookkeeping" refer to?
,A) Recording transactions in one account only
B) Recording each transaction in at least two accounts
C) Using two different currencies
D) Preparing two sets of financial statements
Rationale: Double-entry bookkeeping ensures that the accounting equation remains
balanced.
Question 5:
Which financial statement provides a snapshot of a company's financial position at a
specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Changes in Equity
Rationale: The balance sheet shows assets, liabilities, and equity at a specific date.
Question 6:
What is the purpose of the income statement?
A) To show cash flows
B) To report revenues and expenses over a period of time
C) To summarize the financial position
D) To detail changes in equity
Rationale: The income statement summarizes a company’s performance over a
specific period.
Question 7:
Which of the following is considered a current asset?
A) Buildings
B) Inventory
C) Long-term investments
D) Goodwill
Rationale: Current assets are expected to be converted to cash or used up within one
year.
Question 8:
What is depreciation?
,A) An increase in asset value
B) A systematic allocation of the cost of a tangible asset over its useful life
C) The total purchase price of an asset
D) An accounting error
Rationale: Depreciation allocates the cost of an asset over its useful life to match
expenses with revenues.
Question 9:
Which accounting principle requires expenses to be matched with revenues?
A) Cost Principle
B) Matching Principle
C) Revenue Recognition Principle
D) Conservatism Principle
Rationale: The matching principle ensures that expenses are recorded in the same
period as the revenues they help generate.
Question 10:
What is the purpose of the statement of cash flows?
A) To show the net income
B) To summarize financial position
C) To provide information about cash inflows and outflows over a period
D) To report equity changes
Rationale: The statement of cash flows details the cash generated and used during a
specific period.
Question 11:
Which of the following is an example of a financing activity in the statement of cash
flows?
A) Sale of inventory
B) Issuance of shares
C) Purchase of equipment
D) Collection of accounts receivable
Rationale: Financing activities include transactions that affect the equity and debt of
the company.
, Question 12:
What is the role of the International Financial Reporting Standards (IFRS)?
A) To regulate tax policies
B) To establish global accounting standards for financial reporting
C) To set auditing standards
D) To enforce compliance with laws
Rationale: IFRS provides guidelines for financial reporting to ensure consistency and
transparency.
Question 13:
Which financial statement would you refer to for information about a company's
profitability?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Changes in Equity
Rationale: The income statement provides details about revenues, expenses, and
profits.
Question 14:
What does "accrued expenses" refer to in accounting?
A) Expenses paid in cash
B) Expenses that have been incurred but not yet paid
C) Future expenses expected to be incurred
D) Non-cash expenses
Rationale: Accrued expenses are recognized when incurred, regardless of when
payment is made.
Question 15:
What is the significance of the "going concern" assumption in accounting?
A) It assumes assets will be sold soon
B) It assumes that a company will continue to operate for the foreseeable future
C) It indicates immediate liquidation
D) It refers to temporary business closures
Rationale: The going concern assumption underlies the preparation of financial
statements.
of South Africa (UNISA) | Fall Semester 2025/2026
Updated Exam Prep Guide | 245+ Verified
Application Questions with Correct Answers &
Detailed Rationales | Complete Study Pack for
IFRS, Consolidations, and Financial Statements
Analysis
Question 1:
What is the primary objective of financial reporting?
A) To provide information to management
B) To assist in tax calculations
C) To provide information that is useful for economic decision-making by users
D) To comply with legal requirements
Rationale: Financial reporting aims to provide relevant information to help users make
informed decisions.
Question 2:
Which of the following is a key qualitative characteristic of useful financial information?
A) Complexity
B) Relevance
C) Ambiguity
D) Subjectivity
Rationale: Relevance ensures that information is capable of influencing users'
decisions.
Question 3:
What is the accounting equation?
A) Assets = Liabilities + Revenues
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Assets = Equity + Revenues
Rationale: The accounting equation represents the relationship between a company’s
assets, liabilities, and equity.
Question 4:
What does the term "double-entry bookkeeping" refer to?
,A) Recording transactions in one account only
B) Recording each transaction in at least two accounts
C) Using two different currencies
D) Preparing two sets of financial statements
Rationale: Double-entry bookkeeping ensures that the accounting equation remains
balanced.
Question 5:
Which financial statement provides a snapshot of a company's financial position at a
specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Changes in Equity
Rationale: The balance sheet shows assets, liabilities, and equity at a specific date.
Question 6:
What is the purpose of the income statement?
A) To show cash flows
B) To report revenues and expenses over a period of time
C) To summarize the financial position
D) To detail changes in equity
Rationale: The income statement summarizes a company’s performance over a
specific period.
Question 7:
Which of the following is considered a current asset?
A) Buildings
B) Inventory
C) Long-term investments
D) Goodwill
Rationale: Current assets are expected to be converted to cash or used up within one
year.
Question 8:
What is depreciation?
,A) An increase in asset value
B) A systematic allocation of the cost of a tangible asset over its useful life
C) The total purchase price of an asset
D) An accounting error
Rationale: Depreciation allocates the cost of an asset over its useful life to match
expenses with revenues.
Question 9:
Which accounting principle requires expenses to be matched with revenues?
A) Cost Principle
B) Matching Principle
C) Revenue Recognition Principle
D) Conservatism Principle
Rationale: The matching principle ensures that expenses are recorded in the same
period as the revenues they help generate.
Question 10:
What is the purpose of the statement of cash flows?
A) To show the net income
B) To summarize financial position
C) To provide information about cash inflows and outflows over a period
D) To report equity changes
Rationale: The statement of cash flows details the cash generated and used during a
specific period.
Question 11:
Which of the following is an example of a financing activity in the statement of cash
flows?
A) Sale of inventory
B) Issuance of shares
C) Purchase of equipment
D) Collection of accounts receivable
Rationale: Financing activities include transactions that affect the equity and debt of
the company.
, Question 12:
What is the role of the International Financial Reporting Standards (IFRS)?
A) To regulate tax policies
B) To establish global accounting standards for financial reporting
C) To set auditing standards
D) To enforce compliance with laws
Rationale: IFRS provides guidelines for financial reporting to ensure consistency and
transparency.
Question 13:
Which financial statement would you refer to for information about a company's
profitability?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Changes in Equity
Rationale: The income statement provides details about revenues, expenses, and
profits.
Question 14:
What does "accrued expenses" refer to in accounting?
A) Expenses paid in cash
B) Expenses that have been incurred but not yet paid
C) Future expenses expected to be incurred
D) Non-cash expenses
Rationale: Accrued expenses are recognized when incurred, regardless of when
payment is made.
Question 15:
What is the significance of the "going concern" assumption in accounting?
A) It assumes assets will be sold soon
B) It assumes that a company will continue to operate for the foreseeable future
C) It indicates immediate liquidation
D) It refers to temporary business closures
Rationale: The going concern assumption underlies the preparation of financial
statements.
