©EG/SSM/MB/DKH/YJA/HSM/NAA/SA

CHAPTER 1: INTRODUCTION
SECTION A (Multiple choice questions)

Circle the most appropriate answer.

1. The following descriptions relate to which type of business ownership?

Owned by one person

Owner has full entitlement of profit/loss

One owner liable for all debts

a. Full control by owner

Sole proprietorship
b. Partnership
c. Public limited company
d. Private limited company

2. Which of the following is INCORRECT about partnership?

a. The number of members or partners is more than two.

b. The professional partnership can have a maximum of hundred members.
c. The liability is unlimited.
d. The resources of capital is easy to get and huge in amount.

3. Which of the following statements do not relate to a description of financial accounting?

a. Reports concentrate on financially quantifiable information.

b. Reports are produced at least on an annual basis.
c. It is designed to satisfy a particular decision.
d. Reporting is subject to accounting regulatory regimes.

4. The accounting information system comprises of four main procedures: analysis, recording,
reporting and identification. The order in which they occur is ________________.

a. Reporting, analysis, recording, identification.

b. Identification, analysis, recording, reporting.
c. Identification, recording, analysis, reporting.
d. Analysis, recording, reporting, identification.

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5. Identify the internal user of accounting information.

a. Creditors
b. Board of directors
c. Government
d. Investors

6. Users of accounting information include ________________.

a. Individuals and employees.

b. Government agencies and banking institutions.
c. Investors and creditors.
d. All of the above.

7. Creditors are interested in the accounting information of a business to ________________.

a. Know the ability of the business in fulfilling its financial obligations.

b. Keep a close watch on the performance of the business.
c. Evaluate the profitability of their investment.
d. Apply for a bank loan.

8. Managers would be most likely to use accounting information to ________________.

a. Assess the ability of the business to succeed and to supply the needs of the customers.
b. Assess how effectively the managers are running the business and to make judgments
on future risks and returns.
c. Help make decisions and plans for the business and to help exercise control to ensure
that plans come to fruition.
d. Assess how much tax the business should pay and whether it complies with agreed
pricing policies.

9. Which of the following is INCORRECT about source document?

a. It contains relevant information of a business transaction.

b. It is an objective evidence of a transaction that has not yet take place.
c. All accounting entries are supported by source documents.
d. Details of source documents are entered into various journals.

10. A listing of all the resources held by a business at the end of a given period of time would
be found in the _____ .

a. Invoice book
b. Balance sheet
c. Income statement
d. Cash receipts journal

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SECTION B (True or False Questions)

Select the most appropriate answer.
1. The shareholder of a company may enjoy limited liability upon any
business debts. T F

2. One of the advantages of a partnership is its continuity of existence T F

3. A sole proprietorship is a one-man business, owned and managed by two

people. T F

4. The personal liability of a sole proprietor is less than that of a shareholder

in a limited company. T F

5. Accounting involves more than the bookkeeping function. T F

6. The primary objective of accounting is to provide economic information

about entities useful for decision making. T F

7. The evidence that a business transaction has taken place and the details
pertaining to that transaction are contained in a source document.
T F
8. General purpose financial statements are useful to the needs of a wide
range of external users, but are not used by management. T F

9. Before being reported to users, relevant economic information must first

be identified and captured by the accounting system. T F

10. Investment analysts are considered to be main users of financial

information relating to a business. T F

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SECTION C
Fill in your answer in the space provided.
Question 1

a) Name three forms of businesses and explain their differences in terms of ownership.

No Forms of business Ownership

1.
2.
3

b) List the main sources of finance available to each form of business.

No Forms of business Main Sources of Finance

1.
2.
3

c) Of the three forms of businesses:

(i) Which is the most widespread and;

(ii) Which is normally the largest in size?

Give reasons for your answers.

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Question 2

Identify the form of business that fits with the following statement.

No Statements Forms of Business

a) The easiest and simplest business to establish.

b) As far as taxation is concerned, it is not taxable business

entities.

c) The law does not view it as separate and distinct legal entities
from the owners.

d) Transferability of ownership interest probably presents the

least problem to owners.

e) Creditors of the business may seize and grasp an owner’s

personal assets to satisfy their claims.

Question 3

a) Distinguish between bookkeeping and accounting.

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b) In what way can bookkeeping and accounting help a businessman?

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c) Name ANY TWO parties who may be interested in the financial affairs of a business. Give
reasons.

No Name of Parties Reasons

1.

2.

Question 4

a) What is a source document and what is its importance to accounting?

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b) How does a cash transaction differ from a credit transaction?

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c) Briefly describe the accounting process.

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Question 5

Fill in the blanks with the correct words/statements relating to the accounting process.

Step Remark/Output

One: Invoices; Receipts; Vouchers; Credit

Notes etc.

Two: Details of source documents

are entered into various journals
or books of original entry.

Three: Sales Ledger, Purchases Ledger and

General Ledger.

Four: Pre-adjusted trial balance and

adjusted trial balance.

Five: Adjustments i)

ii)

iii)

iv)

Six: Closing of accounts and

preparation of Financial
Statements Chapter 1: Introduction 7
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Chapter 1: Introduction 8