Accounting 1.1

Question 1

Accounting Entity Concept

Answer 1

The financial affairs of the business must be kept separate and distinct to the personal financial affairs of the owner and other entities.

Question 2

Accounting Period

Answer 2

The time period reflected in a set of accounts, usually 1 year. These are of equal length to allow comparisons for decision making.

Question 3

Accrual Basis

Answer 3

The effects of transactions are reported and recorded in the financial statements of the period to which they relate.

Question 4

Accrued Expenses

Answer 4

These are expenses owing by the business on balance day. It therefore creates a liability on balance day.

Question 5

Accrued Income

Answer 5

This is income owing to the business on balance day. This creates an asset on balance day as someone owes money to us.

Question 6

Assets

Answer 6

An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Question 7

Balance Day Adjustments

Answer 7

Balance Day Adjustments ensure that all financial transactions are reported in the corrected financial year when the income and or expenditure were actually incurred, not when the cash was actually received or paid.

Question 8

Balance Sheet

Answer 8

Gives a snapshot of the business’s asset, liabilities and equity at one point in time.

Question 9

Budget

Answer 9

A budget is an outline of expected income and expenses. Budgets help the decision making process by identifying how much a particular project is expected to cost an how much money is available to spend on it.

Question 10

Capital Expenditure

Answer 10

This is expenditure incurred when purchasing or installing an asset that will generate future income e.g machinery, shop fittings

Question 11

Cash Budget

Answer 11

The cash budget allows the business to see in advance that they except the cash receipts and cash payments to be. This assists the decision making for users

Question 12

Cost of Goods Sold

Answer 12

opening inventory + net purchases + customs duty + freight inwards – closing inventory

Question 13

Current Assets

Answer 13

These are assets which will generate cash or are intended for sale within the next accounting period
e.g. inventory, bank, accounts receivable

Question 14

Current Liabilities

Answer 14

These are liabilities which are expected to be settled/paid within the next accounting period, e.g. power, phone, wages owing etc.)

Question 15

Deprecation

Answer 15

Depreciation is the systematic allocation of the cost of owning an asset over its useful life.

Question 16

Distribution costs

Answer 16

Distribution costs are expenses incurred in transferring ownership of finished goods to the consumer.
Those expenses incurred through the promotion, storage, selling and delivery of the inventory for sale.

Question 17

Expenses

Answer 17

Expenses are decreases in economic benefits during the accounting period in the form of outflows
OR depletion of assets OR increases in liabilities that result in decreases in equity, other than drawings.

Question 18

Equity

Answer 18

Equity is the residual interest in the assets of the entity after deducting all its liabilities.

Question 19

Finance Costs

Answer 19

Finance costs arise from an entity financing its operations from external sources. Finance Costs are
limited to different types of interest paid.

Question 20

Going Concern

Answer 20

The financial reports of a business are prepared on the assumption that the business will continue into
the foreseeable future.

Question 21

Gross Profit Percentage

Answer 21

This shows how many cents of each $1 of sales is gross profit

Question 22

GST

Answer 22

GST is goods and services tax that is charged on most goods and services bought and sold in New Zealand. The goods and services tax (GST) rate in New Zealand is 15%.

Question 23

Historical Cost

Answer 23

Assets are reported in the financial statements at their original purchase price.

Question 24

Income

Answer 24

Income is increases in economic benefits during the accounting period in the form of inflows of assets OR decreases in liabilities that result in increases in equity, other than those relating to contributions from the owner.

Question 25

Income Statement

Answer 25

Calculates the profit or loss made by a business for the period

Question 26

Intangible

Answer 26

This is an asset that we cannot see or touch e.g. goodwill, patents.

Question 27

Investment

Answer 27

This is an asset that will earn the business income from putting money into another business
e.g. term deposit, shares.

Question 28

Liability

Answer 28

A liability is a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity.

Question 29

Mark Up Percentage

Answer 29

This shows the percentage that is added to the cost price to get the selling price.

Question 30

Monetary Measurement

Answer 30

All items are stated in New Zealand dollar terms ($). Only items that can be given a dollar value will be
included in the financial statements.

Question 31

Non-Current Assets

Answer 31

These are assets which will generate future economic benefits beyond the next accounting period.

Question 32

Non-Current Liabilities

Answer 32

These are liabilities which are NOT expected to be settled/paid within the next accounting period.

Question 33

Other Income

Answer 33

These are all other forms of income the business receives.

Question 34

Percentage Income

Answer 34

This shows the percentage increase or decrease from the previous year

Question 35

Prepayments

Answer 35

These are expenses which have been paid in advance of balance day and belong to the next accounting period. An asset is created on balance day as the business will receive the benefit of the payment in the next accounting period.

Question 36

Profit for the year percentage

Answer 36

This shows the proportion of each sales dollar that ends up as profit for the year

Question 37

Property, Plant and Equipment

Answer 37

These are the non-current assets that the business owns e.g. land, buildings, and vehicles.

Question 38

Receipts

Answer 38

A receipt is given to a customer when they pay cash/cheques. It may be used to record a cash sale or a payment on an account. This may take the form of a till tape from a cash register or a hand written receipt.

Question 39

Reporting Period

Answer 39

The life of the business is divided into equal time periods (usually one year) in order to provide timely
information for decision-making.

Question 40

Revenue

Answer 40

The main form of income that a business will receive. It is called ‘fees’ for a service firm or ‘sales’
for a trading firm.

Question 41

Revenue Expenditure

Answer 41

This is expenditure which is incurred in the day-to-day running of the business and will not benefit the business beyond the current accounting period, e.g. postage, stationary, petrol, insurance.

Question 42

Sole Trader

Answer 42

A business that is owned and one by one person

Question 43

Trading Statement

Answer 43

A club will prepare a trading statement to determine the profitability of a trading activity,
i.e. operating a canteen or a bar.

Question 44

Unincorporated community organisation

Answer 44

A group of people agreeing to form an organisation for a specific purpose without the intention of making a profit.

Question 45

Trial Balance

Answer 45

We list all of the ledger account and their balances.