Assets & Liabilities MCQ

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  • 1/10 Questions

    Which of the following is considered a current asset?

    • Equipment
    • Patents
    • Cash
    • Goodwill
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About This Quiz

Think of your piggy bank, sometimes it's full and, sometimes it's not. Just like that, businesses keep track of what they own and what they owe through something called assets and liabilities. Our Assets & Liabilities MCQ quiz is like a check-up for your understanding of these important financial ideas. This quiz is about understanding the bigger picture of what a business has (assets) and what it needs to pay back (liabilities).

Each question will challenge you to think and apply what you know about assets and liabilities. Whether you're just curious or seriously studying business, this quiz is a great tool for you. Don't worry if you make mistakes, you're here to learn! Sharpen your pencils and get ready to test your knowledge with our Assets & Liabilities MCQ quiz.

Assets & Liabilities MCQ - Quiz

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  • 2. 

    What type of asset is cash?

    • Current asset

    • Fixed asset

    • Intangible asset

    • Accrued asset

    Correct Answer
    A. Current asset
    Explanation
    Cash is classified as a current asset because it is readily available and can be used immediately to settle debts, fund operations, or make purchases. Current assets are essential for managing day-to-day financial transactions of a business and include items that are either cash, cash equivalents, or expected to be converted into cash within one year. This liquidity makes cash a critical component of working capital management, helping businesses maintain operational stability and flexibility.

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  • 3. 

    What is typically considered a long-term asset?

    • Inventory

    • Accounts receivable

    • Land

    • Prepaid insurance

    Correct Answer
    A. Land
    Explanation
    Long-term assets, such as land, are crucial for businesses as they are used over an extended period and are not intended for resale within the business cycle of one year. These assets are fundamental to the long-term operations of a business and are subject to depreciation (except land), which allocates the cost of an asset over its useful life, reflecting wear and tear and obsolescence.

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  • 4. 

    Which asset is considered intangible?

    • Machinery

    • Buildings

    • Goodwill

    • Inventory

    Correct Answer
    A. Goodwill
    Explanation
    Goodwill is an intangible asset that arises when a company acquires another business at a price higher than the fair value of its tangible and identifiable intangible assets. It represents non-physical assets like brand reputation, customer loyalty, and favorable business locations that are expected to yield economic benefits in future operations. Goodwill is crucial for businesses that have invested significantly in building a strong brand or acquiring other companies.

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  • 5. 

    Which liability must typically be paid within a year?

    • Long-term liability

    • Current liability

    • Contingent liability

    • Equity

    Correct Answer
    A. Current liability
    Explanation
    Current liabilities are financial obligations that a company is expected to settle within one year. They are crucial for understanding a company’s short-term financial health and include accounts payable, short-term loans, and other similar debts. Proper management of current liabilities is essential to ensure sufficient liquidity for ongoing operations and to prevent potential cash flow issues that could disrupt business activities.

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  • 6. 

    What is depreciation related to?

    • Decrease in liabilities

    • Decrease in owner's equity

    • Reduction in the value of an asset

    • Increase in revenue

    Correct Answer
    A. Reduction in the value of an asset
    Explanation
    Depreciation relates to the gradual reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset is zero or negligible. It is an accounting method that helps spread the cost of an asset over its useful life, reflecting its consumption, wear and tear, or obsolescence. This process helps businesses accurately report the decreasing values of their fixed assets and reduce their taxable income.

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  • 7. 

    What does accounts payable represent?

    • An investment

    • An expense

    • A revenue

    • A liability

    Correct Answer
    A. A liability
    Explanation
    Accounts payable represents a liability that arises when a business receives goods or services before payment is made. It is a form of credit extended by suppliers that allows a business to manage its cash flow more effectively. Managing accounts payable efficiently ensures that a company can meet its financial obligations on time without incurring unnecessary debt or damaging its credit rating.

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  • 8. 

    Which of the following is NOT a liability?

    • Mortgage payable

    • Trademark

    • Unearned revenue

    • Accrued expenses

    Correct Answer
    A. Trademark
    Explanation
    Trademarks are classified as intangible assets, not liabilities. They represent the legal exclusive rights granted to a business to use a particular name, symbol, or design, which can generate significant value and competitive advantage. Unlike liabilities, which are financial obligations to others, trademarks are valuable resources owned by the company.

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  • 9. 

    What describes equity?

    • The difference between assets and liabilities

    • Total assets minus total liabilities

    • Owner's investment in the business

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    Equity describes the ownership value held in the business by its owners or shareholders. It is calculated as the difference between total assets and total liabilities. This figure reflects the net resources that are owned by the shareholders after all obligations are settled. Equity is important for assessing the financial health of a business, providing insight into the value that the stakeholders hold.

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  • 10. 

    What is an example of a contingent liability?

    • Bank loan

    • Lawsuit potential damages

    • Mortgage

    • Building lease

    Correct Answer
    A. Lawsuit potential damages
    Explanation
    A contingent liability is recorded in the accounting records only if the liability is probable and the amount can be reasonably estimated. It represents a potential financial loss to a business due to future events that may or may not happen, such as lawsuit potential damages. These liabilities are not definitive but could have a significant financial impact if they come to fruition, hence they must be carefully managed and disclosed in financial statements.

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  • Current Version
  • Jul 12, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Aug 29, 2008
    Quiz Created by
    Pertamana
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