Balance Sheet: Understanding a Company's Financial Health

Question 1

Which of these is NOT found on a company's balance sheet?

Accepted Answer

Expenses

Answer

Assets

Answer

Liabilities

Answer

Equity

Question 2

A company has total assets worth £100,000 and total liabilities of £60,000. Calculate its equity.

Accepted Answer

£40,000

Answer

£60,000

Answer

£100,000

Answer

£160,000

Question 3

Identify the current liability from the following options.

Accepted Answer

Accounts payable

Answer

Mortgage payable

Answer

Long-term debt

Answer

Share capital

Question 4

A company has a building with a carrying value of £200,000. Upon estimation, it is determined that the building could be sold for £250,000. Calculate the revaluation surplus.

Accepted Answer

£50,000

Answer

£200,000

Answer

£250,000

Answer

£0

Question 5

Which ratio is used to measure a company's liquidity?

Accepted Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Return on equity

Answer

Gross profit margin

Question 6

A company's inventory has a cost of £20,000 and a market value of £18,000. According to accounting rules, what should be done?

Accepted Answer

Reduce the inventory value to £18,000

Answer

Increase the inventory value to £20,000

Answer

Keep the inventory value unchanged

Answer

Sell the inventory immediately

Question 7

Which of the following is not a core element of the balance sheet?

Accepted Answer

Revenue

Answer

Assets

Answer

Liabilities

Answer

Equity

Question 8

Which of the following is NOT a component of the fundamental accounting equation?

Accepted Answer

Revenue

Answer

Assets

Answer

Liabilities

Answer

Equity

Question 9

Which of the following is a non-current liability?

Accepted Answer

Mortgage

Answer

Overdraft

Answer

Trade payables

Answer

Bank loan

Question 10

Which of the following is included in the calculation of a company's net worth?

Accepted Answer

Assets - Liabilities

Answer

Assets + Liabilities

Answer

Liabilities - Assets

Answer

Revenue - Expenses

Question 11

Which of the following is a purpose of the balance sheet?

Accepted Answer

To provide a snapshot of the company's financial position

Answer

To show the company's financial performance over time

Answer

To predict the company's future financial prospects

Answer

To compare the company's financial position with its competitors

Question 12

Which of the following ratios is used to assess a company's liquidity?

Accepted Answer

Current Ratio

Answer

Return on Equity

Answer

Gross Profit Margin

Answer

Inventory Turnover

Question 13

Which of the following is an example of an intangible asset?

Accepted Answer

Patent

Answer

Cash

Answer

Inventory

Answer

Land

Question 14

Which of the following is not a component of the balance sheet?

Accepted Answer

Revenue

Answer

Assets

Answer

Liabilities

Answer

Equity

Question 15

Which of the following is not a primary component of the balance sheet?

Accepted Answer

Income

Answer

Assets

Answer

Liabilities

Answer

Equity

Question 16

What type of account is a trade receivable?

Accepted Answer

Asset

Answer

Liability

Answer

Equity

Answer

Revenue

Question 17

Which of the following is not a source of equity financing?

Accepted Answer

Bank loan

Answer

Share capital

Answer

Retained earnings

Answer

Trade creditors

Question 18

What is the accounting equation?

Accepted Answer

Assets = Liabilities + Equity

Answer

Assets = Liabilities - Equity

Answer

Liabilities = Assets - Equity

Answer

Equity = Assets + Liabilities

Question 19

Which of the following is not a component of working capital?

Accepted Answer

Fixed assets

Answer

Current assets

Answer

Current liabilities

Answer

Inventory

Question 20

How might an economic recession affect a company's balance sheet? Think about changes in asset values, liquidity, and liabilities.

Accepted Answer

Lower asset values and more liabilities

Answer

More assets and fewer liabilities

Answer

Higher liquidity and less equity

Answer

No major changes to the balance sheet

Question 21

Which of the following is NOT a component of the balance sheet equation?

Accepted Answer

Revenue

Answer

Liabilities

Answer

Equity

Answer

Assets

Question 22

A company's fixed assets typically include:

Accepted Answer

Long-term investments in property, plant, and equipment.

Answer

Current liabilities due within one year.

Answer

Short-term investments in stocks and bonds.

Question 23

Which of the following is NOT a type of equity?

Accepted Answer

Accounts payable

Answer

Other reserves

Answer

Retained earnings

Answer

Share capital

Question 24

The difference between a company's assets and liabilities is known as its:

Accepted Answer

Net assets

Answer

Shareholder deficit

Answer

Working capital

Question 25

Which of the following financial statements provides information about a company's financial performance over a period of time?

Accepted Answer

Income statement

Answer

Cash flow statement

Answer

Balance sheet

Answer

Statement of changes in equity

Question 26

A company with a high current ratio is generally considered to be:

Accepted Answer

Liquid

Answer

Profitable

Answer

Insolvent

Answer

Illiquid

Question 27

The balance sheet is primarily used for:

Accepted Answer

Assessing a company's financial position at a specific point in time.

Answer

Determining a company's profitability over a period of time.

Answer

Calculating a company's tax liability.

Question 28

Which of the following transactions would decrease a company's net assets?

Accepted Answer

Declaring a dividend

Answer

Issuing new shares

Answer

Paying off a loan

Answer

Purchasing inventory on credit

Question 29

A company's retained earnings represent:

Accepted Answer

The portion of profits that has not been distributed to shareholders.

Answer

The amount of money a company owes to its creditors.

Answer

The total amount of money a company has in the bank.