NABTEB Financial Account Past Questions And Answers (Objective and Theory)

Section A: Financial Account Questions

Question: What does the term “EBIT” stand for in financial accounting?

A) Earnings Before Income and Taxes

B) Earnings Before Interest and Taxes

C) Expenditures and Budgets In Total

D) Exponential Balance in Transactions

Answer: B) Earnings Before Interest and Taxes

Question: How does the current ratio differ from the quick ratio?

A) Current ratio includes inventory; quick ratio excludes inventory

B) Quick ratio includes prepaid expenses; current ratio excludes prepaid expenses

C) Current ratio excludes accounts receivable; quick ratio includes accounts receivable

D) Quick ratio is another term for current ratio

Answer: A) Current ratio includes inventory; quick ratio excludes inventory

Question: What is the purpose of the DuPont analysis in financial analysis?

A) Assess a company’s liquidity

B) Evaluate profitability and return on equity

C) Measure efficiency in cash flow operations

D) Analyze long-term solvency

Answer: B) Evaluate profitability and return on equity

Question: How does a company calculate its free cash flow?

A) Operating cash flow – Capital expenditures

B) Net income + Depreciation

C) Total revenue – Total expenses

D) Long-term liabilities – Long-term assets

Answer: A) Operating cash flow – Capital expenditures

Question: What is the purpose of the statement of stockholders’ equity?

A) Show changes in equity over time

B) Present financial position

C) Summarize cash flows

D) Report cash inflows and outflows

Answer: A) Show changes in equity over time

Section B: Theory Questions

Question: Explain the concept of conservatism in accounting.

Answer: Conservatism is an accounting principle that suggests accountants should choose the option that is least likely to overstate assets and income. It encourages a cautious approach when dealing with uncertainties or potential losses.

Question: Describe the role of auditors in the financial reporting process.

Answer: Auditors are independent third parties responsible for reviewing a company’s financial statements to ensure they are presented fairly and in accordance with accounting standards. Their role is to provide assurance to stakeholders regarding the accuracy and reliability of the financial information.

Question: Define the term “accruals” in accounting and provide an example.

Answer: Accruals are adjustments made to recognize revenues or expenses before the actual cash transaction occurs. An example is recognizing interest expense that has accrued but not yet been paid at the end of a reporting period.

Question: Explain the difference between horizontal and vertical analysis in financial statement analysis.

Answer: Horizontal analysis compares financial data over multiple periods to identify trends or changes, while vertical analysis involves comparing individual line items to a base item within the same period to assess proportions and relationships.