Financial Statements

Financial statements can be described as a group of reports that are at the summary level regarding various aspects of an organization such as financial results, the flow of cash and financial position. The financial statements can include a balance sheet, a statement related to income and a statement regarding the flow of cash. There can be diverse advantages and disadvantages of financial statements. 

Some MCQs on financial statements are mentioned below. The answers to these MCQs are also given for better learning purposes. 

Question 1 – What do we understand from financial statements? 

1. 1. A group of reports regarding the organization’s various financial aspects.
   2. A group of reports regarding the employee’s data.
   3. A collection of reports pertaining to the organization’s vision and mission. 
   4. None of the above

Answer 1 – A) 

Question 2 – Which of the following is a disadvantage of the financial statements. 

1. 1. The ability to tell if a business would be able to pay the debts
   2. Determining the sources and use of cash in the organization 
   3. Chance of manipulation in the report for obtaining debt that the organization cannot payback
   4. A yearly report that the investors can refer to

Answer 2 – C) 

A financial report may be manipulated such that the investors might begin believing the false better results of the organization. 

Question 3 – What does a balance sheet indicate out of the following options

1. 1. The demographic details of the employees 
   2. The overall organization’s liabilities, assets as well as stockholders’ equity
   3. The report regarding the weekly work progress of the organization
   4. None of the above

Answer 3 B)  

Question 4 – Which of the following is not a part of the financial reports of the organization

1. 1. Balance sheet
   2. Income statements 
   3. Report with the vision and mission of the organization 
   4. Report regarding the flow of cash

Answer 4 – C)

Question 5 – Which of the following can be a part of financial reports?

1. 1. The report regarding the financial result of the organization 
   2. The report with details about the financial position of the organization
   3. The report regarding the flow of cash of the organization 
   4. All of the above

Answer 5 – D)

Question 6 – In a balance sheet report, the total value of assets should be able to match the worth of the following

1. 1. The total sum of equity and liabilities 
   2. Total number of employees in the organization 
   3. The total earnings of the organization in the past week 
   4. The total number of new employees hires in the organization during the past year

Answer 6 – A)

Question 7 – Which of the following is the most suitable statement for explaining the statement of cash flows

1. 1. Report regarding the assets, equity and liabilities
   2. Report explaining the purpose of business 
   3. Report regarding the changes in the flow of cash for a particular time
   4. Report regarding the working and functioning of the organization 

Answer 7 – C) 

Statement of cash flows helps in understanding the flow of cash for a specific period. 

Question 8 – Which of the following can be a part of liabilities in the balance sheet

1. 1. Debts
   2. Dividends payable 
   3. Wages that are payable
   4. All of the above

Answer 8 D) 

Question 9 – What are the limitations of the financial statements

1. 1. There can be subjective interpretations of the financial statements as per the investors 
   2. There may be manipulation done in the financial statements such that the real profit-loss of the organization is not shown to the investors 
   3. The financial statements give a detailed description of the cash flow of the organization 
   4. Both A and B

Answer 9 – D)

Question 10 – Which of the following can be called very important in terms of the financial statements 

1. 1. The report regarding ethics of the organization 
   2. The list of holidays in the organization 
   3. Cash flow statement, balance sheet and the income statement 
   4. List of investors for the organization 

Answer 10 C) 

Question 11 – In terms of the topic – of financial statements, what can be the most suitable full form of CFS?

1. 1. Chronic fatigue syndrome
   2. Cubic feet per second
   3. Cash flow statement 
   4. Container Freight Solution 

Answer 11 C)

Question 12 – What can be some of the commonly depicted items in the financial statement of an organization 

1. 1. Cost of goods
   2. Debts
   3. Taxes
   4. All of the above

Answer 12 – D)

Question 13 – What can be the most appropriate role of the income statement from the following options 

1. 1. The income statement helps in learning about the business’s performance on a yearly basis in terms of the overall profit and other significant aspects of the business 
   2. It helps in learning about the shareholder’s equity, assets and liabilities. 
   3. It helps in understanding the decrease and increase in terms of the cash
   4. It helps in showing the overall changes in cash

Answer 13 – A) 

Question 14 – Out of the following options, which is the most suitable with regards to the balance sheet

1. 1. Liabilities = Assets + Shareholders Equity
   2. Shareholders Equity = Assets + Liabilities
   3. Assets = Shareholders Equity + Liabilities 
   4. Assets = Shareholders Equity – Liabilities

Answer 14 – C)

Question 15 – Out of all following four options, which is the most suitable with reference to a key feature of cash flow

1. 1. Cash flow helps in showing the increase as well as a decrease in the cash
   2. Cash flow has three significant sections such as liabilities, assets and shareholders’ equity
   3. Cash flow helps in showing the expenses as well as revenue of the business
   4. Cash flow can be used for showing the businesses’ financial position

Answer 15 – A)

A key feature of cash flow can be its ability to show a decrease as well as an increase in the cash flow. The three sections regarding liabilities, assets and shareholders’ equity can be found in a balance sheet, the balance sheet can also be helpful for showing the financial position of the business and the income statement can help in learning about the expenses and revenue of a specific business. 

Question 16 – Out of the following four options what can be the most suitable key feature with regards to the balance sheet

1. 1. The balance sheet can help in showing the expenses as well as revenues of the business
   2. The balance sheet helps in showing the business’s financial position and it has three crucial sections such as liabilities, assets and shareholder’s equity
   3.  The balance sheet helps in showing the decrease as well as an increase in cash
   4. The balance sheet helps in assessing the profitability

Answer 16 – B)

Question 17 – Which of the following four options cannot be called as a part of financial statements

1. 1. Income Statement
   2. Company’s Vision
   3. Balance Sheet
   4. Cash flow of the organization

Answer 17 – B)

Question 18 – Which of the following options is the most suitable for explaining the purpose of an income statement

1. 1. Profitability and financial position
   2. Financial Position and movement of cash
   3. Movement of cash and profitability
   4. Profitability 

Answer 18 – D)

Question 19 – What can be the measure of cash flow in keeping a record of the financial statement

1. 1. Revenues, liabilities, expenses and shareholder’s equity
   2. Decrease as well as an increase in cash along with revenue
   3. Expenses, assets, shareholders’ equity as well as decrease and increase in the cash
   4. Decrease and increase in cash

Answer 19 – D)

Question 20 – What can be the measure of the balance sheet in terms of keeping a record for the financial statements

1. 1. Assets, shareholder’s equity and liabilities
   2. Expenses, Assets, Shareholder’s equity, liabilities and movement of cash
   3. Decrease as well as an increase in cash along with assets, shareholder’s equity and liabilities
   4. Profitability and expenses

Answer 20 – A)

Question 21 – Which of the following description can be the most suitable for an explanation of liabilities in the balance sheet

1. 1. Liabilities refer to things owned by the organization
   2. Liabilities refer to the total sum of capital that the organization is indebted to others
   3. Liabilities refer to the overall capital or the total net worth
   4. Liabilities refer to the masses that may be either used or sold by the organization 

Answer 21 – B) 

Question 22 – Which of the following activities can be called a crucial part of the cash flow statements

1. 1. Operating activities
   2. Financing activities
   3. Investing activities
   4. All of the above

Answer 22 – D)

Question 23 – Which of the following option can be most suitable for understanding the operating margins

1. 1. Operating Margin = Net revenue/Income from operations
   2. Operating Margin = Income from operations/net revenue
   3. Operating margin = Net revenue
   4. Operating margin = Income from operations

Answer 23 – B)