1. The Basic Concepts of Accounting

Question 1

Financial statements helps end-users to make ….

Answer 1

Financial statements helps end-users to make decisions.

Question 2

Historical cost of assets are … if they become impaired.

Answer 2

Historical cost of assets are reduced if they become impaired.

Question 3

Historical costs of liabilities are … if they become onerous.

Answer 3

Historical costs of liabilities are increased if they become onerous.

Question 4

How do you apply a historical cost measurement basis to financial assets and financial liabilities?

Answer 4

To measure them at amortised cost.

Question 5

How do you know whether information is relevant or not?

Answer 5

When it influences economic decisions the information is relevant.

Question 6

How is expenses increased in terms of assets and liabilities?

Answer 6

1. When assets decrease.

2. When liabilities increase.

Question 7

How is income increased in terms of assets and liabilities?

Answer 7

1. When assets increase.

2. When liabilities decrease.

Question 8

Information must … represent the substance of what it claims to represent.

Answer 8

Information must faithfully represent the substance of what it claims to represent.

Question 9

Name five types of business ownerships?

Answer 9

1. Sole traders
2. Partnerships
3. Closed corporations
4. Profit companies
5. Non-profit companies

Question 10

Name four types of profit companies?

Answer 10

1. State owned companies (SOC Ltd)
2. Private companies (Pty (Ltd))
3. Personal Liability companies (Inc)
4. Public companies (Ltd)

Question 11

Name the four financial statements that you get?

Answer 11

1. Statement of financial position
2. Statement of profit or loss and other comprehensive income
3. Statement of changes in equity
4. Statement of cash flow

Question 12

Name three examples of external users of information?

Answer 12

1. Investors
2. Creditors
3. Government

Question 13

Name three examples of trading entities?

Answer 13

1. Florists
2. Cafes
3. Hardware stores

Question 14

Name two examples of internal users of financial information?

Answer 14

1. Management

2. Employees

Question 15

Name two types of business activities?

Answer 15

1. Service entities

2. Trading entities

Question 16

Name two types of users of financial information?

Answer 16

1. Internal users

2. External users

Question 17

The recording of transactions helps you with the preparation and presentation of …

Answer 17

The recording of transactions helps you with the preparation and presentation of financial statements.

Question 18

The statement of cash flows reports on the …

Answer 18

The statement of cash flows reports on the change in financial position.

Question 19

The statement of financial position is used to report on the … of a business entity.

Answer 19

The statement of financial position is used to report on the financial position of a business entity.

Question 20

The statement of profit or loss an other comprehensive income reports on the …

Answer 20

The statement of profit or loss an other comprehensive income reports on the financial performance.

Question 21

The … is when business transactions have to be measured, classified, summarised and recorded continously.

Answer 21

The financial accounting cycle is when business transactions have to be measured, classified, summarised and recorded continously.

Question 22

Three examples of service entities are?

Answer 22

1. Transport & storage
2. Repairs by electricians
3. Plumbers

Question 23

What are two fundamental qualitative characteristics of useful financial information?

Answer 23

1. Relevance

2. Faithful representation

Question 24

What characteristics would represent faithful representation?

Answer 24

1. Completeness
2. Neutrality
3. Free from error

Question 25

What formula is used to determine the financial position of an entity?

Answer 25

Assets = Equities + Liabilities

Question 26

What is the formula used to determine the financial performance of an entity?

Answer 26

Income - Expenses

Question 27

What is the main difference between bookkeeping and accounting?

Answer 27

Accounting involves bookkeeping but bookkeeping does not involve accounting.

Question 28

What is the universal accounting denominator?

Answer 28

Money and it is expressed in Rand.

Question 29

… has to be disclosed in an entities financial statements to show how they dealt with certain things such as depreciation on property, plant & equipment.

Answer 29

Accounting policy has to be disclosed in an entities financial statements to show how they dealt with certain things such as depreciation on property, plant & equipment.

Question 30

… is the recording of transactions of an individual or business.

Answer 30

Accounting is the recording of transactions of an individual or business.

Question 31

… is concerned with the daily recording of business transactions from source documents in such a way that entities or individuals can determine their exact financial position.

Answer 31

Bookkeeping is concerned with the daily recording of business transactions from source documents in such a way that entities or individuals can determine their exact financial position.

Question 32

… is also described as the part of the entity that belongs to the owners of the entity.

Answer 32

Equity is also described as the part of the entity that belongs to the owners of the entity.