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The following questions are not specific to Ethiopian Airlines School of Finance and should be used for
practice purposes only:
1. What is the primary goal of financial management?
a) Maximizing sales
b) Maximizing profits
c) Maximizing the wealth of shareholders
d) Maximizing market share
2. Which financial statement provides information about a company's financial position at a
specific point in time?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of retained earnings
3. What is the formula to calculate return on investment (ROI)?
a) Net profit / Total assets
b) Total assets / Net profit
c) Net profit / Shareholder's equity
d) Shareholder's equity / Net profit
4. What is the purpose of a cash flow statement?
a) To show the company's profitability
b) To provide information about the company's assets and liabilities
c) To provide information about the company's cash inflows and outflows
d) To show the company's revenue and expenses
5. What is the formula to calculate the current ratio?
a) Current assets / Current liabilities
b) Current liabilities / Current assets
c) Total assets / Total liabilities
d) Total liabilities / Total assets
6. What are the three main components of the capital structure of a company?
a) Debt, equity, and assets
b) Debt, revenue, and expenses
c) Assets, liabilities, and equity
d) Equity, revenue, and expenses
7. What is the difference between accounts payable and accounts receivable?
a) Accounts payable refers to money owed by the company, while accounts receivable refers to money
owed to the company.
b) Accounts payable refers to money owed to the company, while accounts receivable refers to money
owed by the company.
c) Accounts payable refers to money owed to suppliers, while accounts receivable refers to money owed
by customers.
d) Accounts payable refers to money owed by customers, while accounts receivable refers to money owed
to suppliers.
8. What is the purpose of the statement of retained earnings?
a) To show the company's cash inflows and outflows
b) To provide information about the company's assets and liabilities
c) To show the company's revenue and expenses
d) To show changes in the company's retained earnings over a specific period of time
9. What is depreciation?
a) The process of recording revenue when it is earned
b) The process of allocating the cost of an asset over its useful life
c) The process of recording expenses when they are incurred
d) The process of recording assets at their fair market value
10. What is the purpose of a cash flow statement?
a) To show the company's revenue and expenses
b) To provide information about the company's assets and liabilities
c) To show the company's cash inflows and outflows
d) To show changes in the company's retained earnings over a specific period of time
11. What is the formula for calculating return on investment (ROI)?
a) (Net Income / Total Assets) x 100
b) (Net Income / Total Equity) x 100
c) (Net Income / Total Liabilities) x 100
d) (Net Income / Total Revenue) x 100
12. What is the purpose of a balance sheet?
a) To show the company's cash inflows and outflows
b) To provide information about the company's assets and liabilities
c) To show the company's revenue and expenses
d) To show changes in the company's retained earnings over a specific period of time.
13. What is the difference between preferred stock and common stock?
a) Preferred stockholders have voting rights, while common stockholders do not.
b) Preferred stockholders receive dividends before common stockholders.
c) Preferred stockholders have a higher claim on the company's assets in case of liquidation.
d) Preferred stockholders are entitled to a fixed dividend, while common stockholders are not.
14. What is the difference between gross profit and net profit?
a) Gross profit is the total revenue minus the cost of goods sold, while net profit is the gross profit minus
operating expenses.
b) Gross profit is the total revenue minus operating expenses, while net profit is the gross profit minus the
cost of goods sold.
c) Gross profit is the total revenue minus taxes, while net profit is the gross profit minus interest
expenses.
d) Gross profit is the total revenue minus interest expenses, while net profit is the gross profit minus
operating expenses.
15. What is the purpose of the income statement?
a) To show the company's cash inflows and outflows
b) To provide information about the company's assets and liabilities
c) To show the company's revenue and expenses over a specific period of time
d) To show changes in the company's retained earnings over a specific period of time
16. What is the difference between a balance sheet and an income statement?
a) A balance sheet shows a company's financial position at a specific point in time, while an income
statement shows its financial performance over a specific period of time.
b) A balance sheet shows a company's revenue and expenses, while an income statement shows its assets
and liabilities.
c) A balance sheet shows a company's cash inflows and outflows, while an income statement shows its
retained earnings.
d) A balance sheet shows a company's operating activities, while an income statement shows its financing
activities.
17. What is the purpose of a cash flow statement?
a) To show the company's revenue and expenses over a specific period of time
b) To provide information about the company's assets and liabilities
c) To show changes in the company's retained earnings over a specific period of time
d) To show the company's cash inflows and outflows over a specific period of time
18. What is the difference between a current asset and a non-current asset?
a) Current assets are expected to be used up within one year, while non-current assets are expected to be
used up over a longer period of time.
b) Current assets are tangible assets, while non-current assets are intangible assets.
c) Current assets are financed by debt, while non-current assets are financed by equity.
d) Current assets are reported on the balance sheet, while non-current assets are reported on the income
statement.
19. What is the difference between accounts payable and accounts receivable?
a) Accounts payable represents money owed to a company, while accounts receivable represents money
owed by a company.
b) Accounts payable represents money owed by a company, while accounts receivable represents money
owed to a company.
c) Accounts payable represents a company's assets, while accounts receivable represents a company's
liabilities.
d) Accounts payable represents a company's liabilities, while accounts receivable represents a company's
assets.
20. What is the purpose of depreciation in accounting?
a) To increase the value of an asset over time.
b) To allocate the cost of an asset over its useful life.
c) To decrease the value of an asset over time.
d) To accurately measure a company's profitability.
21. What is the difference between gross profit and net profit?
a) Gross profit represents the total revenue of a company, while net profit represents the revenue minus
expenses.
b) Gross profit represents the revenue minus expenses, while net profit represents the total revenue of a
company.
c) Gross profit represents the revenue minus cost of goods sold, while net profit represents the revenue
minus all expenses.
d) Gross profit represents the total revenue of a company, while net profit represents the revenue minus
cost of goods sold.
22. What is the purpose of a balance sheet in accounting?
a) To summarize a company's revenue and expenses over a specific period.
b) To provide a snapshot of a company's financial position at a specific point in time.
c) To calculate a company's net profit.
d) To track the cash flows of a company.
23. What is the formula for calculating the current ratio?
a) Current Assets / Current Liabilities
b) Current Liabilities / Current Assets
c) Total Assets / Total Liabilities
d) Total Liabilities / Total Assets
24. What is the purpose of a cash flow statement in accounting?
a) To show the profitability of a company.
b) To track the inflows and outflows of cash in a company.
c) To calculate the earnings per share.
d) To summarize a company's revenue and expenses.
25. What is the difference between a debit and a credit in accounting?
a) Debit represents an increase in assets, while credit represents a decrease in assets.
b) Debit represents a decrease in assets, while credit represents an increase in assets.
c) Debit represents an increase in liabilities, while credit represents a decrease in liabilities.
d) Debit represents a decrease in liabilities, while credit represents an increase in liabilities.
26. What is the purpose of the income statement in accounting?
a) To calculate a company's net profit.
b) To track the inflows and outflows of cash.
c) To provide a snapshot of a company's financial position.
d) To summarize a company's revenue and expenses over a specific period.
7. What is the formula for calculating the return on investment (ROI)?
a) Net Profit / Total Assets
b) Net Profit / Total Equity
c) Net Profit / Total Liabilities
d) Net Profit / Total Revenue
28. What is the difference between a liability and an expense in accounting?
a) A liability represents a future obligation, while an expense represents a past cost.
b) A liability represents a past cost, while an expense represents a future obligation.
c) A liability represents an increase in assets, while an expense represents a decrease in assets.
d) A liability represents a decrease in assets, while an expense represents an increase in assets.
29. What is the purpose of the statement of retained earnings in accounting?
a) To summarize a company's revenue and expenses over a specific period.
b) To track the inflows and outflows of cash in a company.
c) To calculate the earnings per share.
d) To show the changes in a company's retained earnings over a specific period.
30. What is the formula for calculating the quick ratio?
a) (Current Assets - Inventory) / Current Liabilities
b) Current Assets / Current Liabilities
c) Total Assets / Total Liabilities
d) Total Liabilities / Total Assets
31. What is the purpose of the statement of cash flows in accounting?
a) To show the profitability of a company.
b) To track the inflows and outflows of cash in a company.
c) To calculate the earnings per share.
d) To summarize a company's revenue and expenses over a specific period.
32. What is the difference between an asset and a liability in accounting?
a) An asset represents a future obligation, while a liability represents a past cost.
b) An asset represents a past cost, while a liability represents a future obligation.
c) An asset represents an increase in resources, while a liability represents a decrease in resources.
d) An asset represents a decrease in resources, while a liability represents an increase in resources.
33. What is the formula for calculating the debt-to-equity ratio?
a) Total Debt / Total Equity
b) Total Equity / Total Debt
c) Total Assets / Total Equity
d) Total Equity / Total Assets
34. What is the purpose of the statement of comprehensive income in accounting?
a) To calculate a company's net profit.
b) To track the inflows and outflows of cash.
c) To provide a snapshot of a company's financial position.
d) To summarize a company's revenue and expenses, including other comprehensive income.
35. What is the difference between a revenue and a gain in accounting?
a) Revenue refers to non-operating income, while gain refers to operating income.
b) Revenue refers to operating income, while gain refers to non-operating income.
c) Revenue represents an increase in assets or a decrease in liabilities, while gain represents an increase in
assets or a decrease in liabilities.
d) Revenue represents an increase in assets or a decrease in liabilities, while gain represents a non-
operating increase in assets or a decrease in liabilities.
36.What is the purpose of the statement of changes in equity in accounting?
a) To summarize a company's revenue and expenses over a specific period.
b) To track the inflows and outflows of cash in a company.
c) To calculate the earnings per share.
d) To show the changes in a company's equity accounts over a specific period.
37. What is the formula for calculating the gross profit margin?
a) Gross Profit / Net Sales
b) Gross Profit / Total Assets
c) Gross Profit / Total Liabilities
d) Gross Profit / Total Revenue
38. What is the difference between a contra account and a regular account in accounting?
a) A contra account increases the balance of a regular account, while a regular account decreases the
balance of a contra account.
b) A contra account decreases the balance of a regular account, while a regular account increases the
balance of a contra account.
c) A contra account represents a future obligation, while a regular account represents a past cost.
d) A contra account represents a past cost, while a regular account represents a future obligation.

39. What is the purpose of the statement of financial position in accounting?

a) To show the profitability of a company.
b) To track the inflows and outflows of cash in a company.
c) To provide a snapshot of a company's financial position at a specific point in time.
d) To summarize a company's revenue and expenses over a specific period.
40. What is the formula for calculating the earnings per share (EPS)?
a) Net Income / Total Assets
b) Net Income / Total Equity
c) Net Income / Total Liabilities
d) Net Income / Number of Shares Outstanding
41. What is the purpose of the statement of retained earnings in accounting?
a) To track the inflows and outflows of cash in a company.
b) To calculate the earnings per share.
c) To summarize a company's revenue and expenses over a specific period.
d) To show the changes in a company's retained earnings over a specific period.
42. What is the formula for calculating the return on assets (ROA)?
a) Net Income / Total Equity
b) Net Income / Total Liabilities
c) Net Income / Total Assets
d) Total Assets / Total Equity
43. What is the difference between a current asset and a non-current asset?
a) A current asset is expected to be used or consumed within one year, while a non-current asset is
expected to provide benefits for more than one year.
b) A current asset is expected to provide benefits for more than one year, while a non-current asset is
expected to be used or consumed within one year.
c) A current asset represents a decrease in resources, while a non-current asset represents an increase in
resources.
d) A current asset represents an increase in resources, while a non-current asset represents a decrease in
resources.
44. What is the purpose of the statement of changes in working capital in accounting?
a) To summarize a company's revenue and expenses over a specific period.
b) To calculate the earnings per share.
c) To track the changes in a company's working capital accounts over a specific period.
d) To show the changes in a company's retained earnings over a specific period.
45. What is the difference between an expense and a loss in accounting?
a) An expense represents a non-operating decrease in assets or an increase in liabilities, while a loss
represents an operating decrease in assets or an increase in liabilities.
b) An expense represents an operating decrease in assets or an increase in liabilities, while a loss
represents a non-operating decrease in assets or an increase in liabilities.
c) An expense represents a future obligation, while a loss represents a past cost.
d) An expense represents a past cost, while a loss represents a future obligation.
46. What is the formula for calculating the quick ratio (acid-test ratio)?
a) (Current Assets - Inventory) / Current Liabilities
b) Current Assets / Current Liabilities
c) Current Liabilities / Current Assets
d) (Current Liabilities - Inventory) / Current Assets
47. What is the difference between a manufacturing company and a service company in
accounting?
a) A manufacturing company provides intangible services, while a service company produces tangible
products.
b) A manufacturing company produces tangible products, while a service company provides intangible
services.
c) A manufacturing company represents a decrease in resources, while a service company represents an
increase in resources.
d) A manufacturing company represents an increase in resources, while a service company represents a
decrease in resources.
48. What is the purpose of the statement of cost of goods sold in accounting?
a) To calculate the earnings per share.
b) To summarize a company's revenue and expenses over a specific period.
c) To track the inflows and outflows of cash in a company.
d) To show the cost of producing goods sold during a specific period.

49. What is the formula for calculating the return on equity (ROE)?
a) Net Income / Total Assets
b) Net Income / Total Equity
c) Net Income / Total Liabilities
d) Total Equity / Total Assets

50. What is the difference between a general ledger and a subsidiary ledger in accounting?
a) A general ledger contains summary-level information, while a subsidiary ledger contains detailed
information.
b) A general ledger contains detailed information, while a subsidiary ledger contains summary-level
information.
c) A general ledger represents a future obligation, while a subsidiary ledger represents a past cost.
d) A general ledger represents a past cost, while a subsidiary ledger represents a future obligation.

51. What is the purpose of the statement of cash flows in accounting?

a) To calculate the earnings per share.
b) To summarize a company's revenue and expenses over a specific period.
c) To track the inflows and outflows of cash in a company.
d) To show the cost of producing goods sold during a specific period.

52. What is the formula for calculating the debt-to-equity ratio?

a) Total Debt / Total Equity
b) Total Debt / Total Assets
c) Total Equity / Total Debt
d) Total Assets / Total Equity

53. What is the difference between a current liability and a long-term liability?
a) A current liability is expected to be settled within one year, while a long-term liability is expected to be
settled over a longer period.
b) A current liability is expected to be settled over a longer period, while a long-term liability is expected
to be settled within one year.
c) A current liability represents an increase in resources, while a long-term liability represents a decrease
in resources.
d) A current liability represents a decrease in resources, while a long-term liability represents an increase
in resources.

54. What is the purpose of the income statement in accounting?

a) To show the changes in a company's retained earnings over a specific period.
b) To calculate the earnings per share.
c) To summarize a company's revenue and expenses over a specific period.
d) To track the inflows and outflows of cash in a company.

55. What is the difference between an asset and a liability in accounting?

a) An asset represents a future obligation, while a liability represents a past cost.
b) An asset represents a past cost, while a liability represents a future obligation.
c) An asset represents an increase in resources, while a liability represents a decrease in resources.
d) An asset represents a decrease in resources, while a liability represents an increase in resources.

56. What is the formula for calculating the gross profit margin?
a) Gross Profit / Net Sales
b) Gross Profit / Total Assets
c) Gross Profit / Total Equity
d) Gross Profit / Total Liabilities

57. What is the difference between a sole proprietorship and a corporation in accounting?
a) A sole proprietorship is a business owned by multiple individuals, while a corporation is a business
owned by a single individual.
b) A sole proprietorship is a business owned by a single individual, while a corporation is a business
owned by multiple individuals.
c) A sole proprietorship represents a decrease in resources, while a corporation represents an increase in
resources.
d) A sole proprietorship represents an increase in resources, while a corporation represents a decrease in
resources.
58. What is the purpose of the balance sheet in accounting?
a) To track the inflows and outflows of cash in a company.
b) To calculate the earnings per share.
c) To summarize a company's revenue and expenses over a specific period.
d) To show a company's financial position at a specific point in time.
59. What is the formula for calculating the current ratio?
a) Current Assets / Current Liabilities
b) (Current Assets - Inventory) / Current Liabilities
c) Current Liabilities / Current Assets
d) (Current Liabilities - Inventory) / Current Assets
60. What is the difference between a revenue and a gain in accounting?
a) A revenue represents an operating increase in assets or a decrease in liabilities, while a gain represents
a non-operating increase in assets or a decrease in liabilities.
b) A revenue represents a non-operating increase in assets or a decrease in liabilities, while a gain
represents an operating increase in assets or a decrease in liabilities.
c) A revenue represents a future benefit, while a gain represents a past benefit.
d) A revenue represents a past benefit, while a gain represents a future benefit.

61. What is the purpose of the statement of retained earnings in accounting?

a) To calculate the earnings per share.
b) To track the inflows and outflows of cash in a company.
c) To summarize a company's revenue and expenses over a specific period.
d) To show the changes in a company's retained earnings over a specific period.
62. What is the formula for calculating return on assets (ROA)?
a) Net Income / Total Liabilities
b) Net Income / Total Assets
c) Total Assets / Net Income
d) Total Liabilities / Net Income
63. What is the difference between a debit and a credit in accounting?
a) A debit represents an increase in assets and a decrease in liabilities, while a credit represents a decrease
in assets and an increase in liabilities.
b) A debit represents a decrease in assets and an increase in liabilities, while a credit represents an
increase in assets and a decrease in liabilities.
c) A debit represents a future benefit, while a credit represents a past benefit.
d) A debit represents a past benefit, while a credit represents a future benefit.

64. What is the purpose of the cash flow statement in accounting?

a) To show the changes in a company's retained earnings over a specific period.
b) To calculate the earnings per share.
c) To track the inflows and outflows of cash in a company.
d) To summarize a company's revenue and expenses over a specific period.

65. What is the difference between an expense and a loss in accounting?

a) An expense represents an operating decrease in assets or an increase in liabilities, while a loss
represents a non-operating decrease in assets or an increase in liabilities.
b) An expense represents a non-operating decrease in assets or an increase in liabilities, while a loss
represents an operating decrease in assets or an increase in liabilities.
c) An expense represents a past cost, while a loss represents a future cost.
d) An expense represents a future cost, while a loss represents a past cost.

66. What is the formula for calculating the quick ratio (acid-test ratio)?
a) (Current Assets - Inventory) / Current Liabilities
b) Current Assets / Current Liabilities
c) Current Liabilities / Current Assets
d) (Current Liabilities - Inventory) / Current Assets

67. What is the difference between gross profit and net profit in accounting?
a) Gross profit is calculated before deducting operating expenses, while net profit is calculated after
deducting operating expenses.
b) Gross profit is calculated after deducting operating expenses, while net profit is calculated before
deducting operating expenses.
c) Gross profit represents a company's revenue, while net profit represents a company's expenses.
d) Gross profit represents a company's expenses, while net profit represents a company's revenue.

68. What is the purpose of the income statement in accounting?

a) To track the inflows and outflows of cash in a company.
b) To calculate the earnings per share.
c) To summarize a company's revenue and expenses over a specific period.
d) To show the changes in a company's retained earnings over a specific period.
69. What is the formula for calculating the debt ratio?
a) Total Debt / Total Equity
b) Total Debt / Total Assets
c) Total Equity / Total Debt
d) Total Assets / Total Equity

70. What is the difference between accounts payable and accounts receivable in accounting?
a) Accounts payable represents money owed to a company, while accounts receivable represents money
owed by a company.
b) Accounts payable represents money owed by a company, while accounts receivable represents money
owed to a company.
c) Accounts payable represents a decrease in resources, while accounts receivable represents an increase
in resources.
d) Accounts payable represents an increase in resources, while accounts receivable represents a decrease
in resources.

We hope you find these questions helpful for your preparation!

The correct answers for the last 10 questions are the following: the rest figure it out by yourselves!
61. d) To show the changes in a company's retained earnings over a specific period.
62. b) Net Income / Total Assets
63. a) A debit represents an increase in assets and a decrease in liabilities, while a credit represents a
decrease in assets and an increase in liabilities.
64. c) To track the inflows and outflows of cash in a company.
65. a) An expense represents an operating decrease in assets or an increase in liabilities, while a loss
represents a non-operating decrease in assets or an increase in liabilities.
66. a) (Current Assets - Inventory) / Current Liabilities
67. a) Gross profit is calculated before deducting operating expenses, while net profit is calculated after
deducting operating expenses.
68. c) To summarize a company's revenue and expenses over a specific period.
69. b) Total Debt / Total Assets
70. a) Accounts payable represents money owed to a company, while accounts receivable represents
money owed by a company.

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