Month: October 2025

Which ONE of the following best describes the principal difference between fraud and error?

Select ONE answer:

1. Fraud may result in the financial statements being materially misstated
2. Fraud is an intentional act, whereas error is unintentional
3. A misstatement can be material whether it is caused by fraud or by error
4. Fraud may be the result of negligence, whereas error is unintentional

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct => It is true that fraud may result in a material misstatement, but this is also true of error, so Answer 1 is incorrect. Answer 4 is incorrect, since fraud is an intentional act. Answer 2 is correct – fraud is an intentional act, but an error is not.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Which ONE of the following statements correctly describes the principal purpose of an external audit of a limited company?

Select ONE answer:

1. To help in the preparation of the company’s financial statements
2. To prevent fraud within the company
3. To examine and express an opinion on the company’s financial statements
4. To help the directors improve the company’s financial reporting process

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct => It is management’s responsibility to prevent fraud within a company (option 2). There are auditor independence issues regarding external auditors’ involvement in the preparation of financial statements and in assisting management to improve reporting processes (options 1 and 2). It should therefore be apparent that option (3) is the correct one
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex plc’s current ratio this year is 1.5:1 compared to 1.25:1 last year.

Which ONE of the following might help to explain this increase in the ratio?

Select ONE answer:

1. Alex plc paid its payables earlier than usual out of a bank overdraft
2. Alex plc made an unusually large sale immediately after the year-end
3. Alex plc made an unusually large purchase of goods for cash immediately before the year-end, and these goods remain in inventory
4. Alex plc paid its payables earlier than usual out of a positive cash balance

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct => If payables are paid out of a positive cash balance, then this will reduce both cash (assets) and payables by the same absolute amount. However, since the current ratio is positive (assets are greater than liabilities), the ratio will increase.

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex plc’s current ratio this year is 1.5:1 compared to 1.25:1 last year.

Which ONE of the following might help to explain this increase in the ratio?

Select ONE answer:

1. Alex plc paid its payables earlier than usual out of a bank overdraft
2. Alex plc made an unusually large sale immediately before the year-end
3. Alex plc made an unusually large purchase of goods for cash immediately before the year-end, and these goods remain in inventory
4. Alex plc paid its payables later than usual, out of a negative cash balance

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct => An unusually large sale would increase receivables and the current ratio.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

A furniture store and a local high-street bakery have the same markup on cost.

However, the gross profit margin of the furniture store is significantly higher than that of the bakery.

Which ONE of the following is a possible reason for this?

Select ONE answer:

1. The Bakery’s revenue is increasing, while that of the Furniture shop is decreasing
2. The Bakery has a higher level of wastage of inventory than the Furniture store
3. The Furniture shop takes advantage of trade discounts for bulk buying
4. The Bakery has a higher turnover of inventory than the Furniture store

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct => If the Bakery has a higher level of wastage of inventory than the Furniture shop, then the cost of wasted inventory will be treated as an expense in cost of sales. This will reduce the Bakery’s cost of sales independently of the mark-up applied. Cost of sales will therefore be high in relation to revenue, so the Bakery’s gross margin will be lower than the Furniture store’s.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.