accounting exam revision

Question 1

What is accounting?

Answer 1

Accounting is a management information systems that involves the collecting, sorting, classifying and recording of financial data to produce and report financial information to assist business owners in decision making.

Question 2

accounting process

Answer 2

the process of taking financial data and converting it into financial information in order to be able to make decisions

source documents -> recording -> reporting -> advice

Question 3

source documents

Answer 3

documents that provide evidence that a transaction has occurred and the details of the transaction itself.

Question 4

recording

Answer 4

sorting, classifying and summarising the data contained in the source documents so that it is more useable

Question 5

reporting

Answer 5

the preparation of financial statements that communicate financial information to the owner

Question 6

advice

Answer 6

the provision to the owners of a range of options available to their aims/objectives, together with recommendations as to the suitability of those aims/objectives

Question 7

accounting equation

Answer 7

A = L + OE

Question 8

current assets

Answer 8

A present economic resource controlled by the entity (as a result of past events) that is reasonably expected to be converted to cash, sold or consumed within the next 12 months after the end of the reporting period.​

Question 9

non-current asset

Answer 9

A present economic resource controlled by the entity (as a result of past events) that is not held for resale and is reasonably expected to be used for more than the next 12 months after the end of the reporting period.​

Question 10

current liabilities

Answer 10

A present obligation of the entity (arising from past events) that are reasonable expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period.​

Question 11

non-current liabilites

Answer 11

A present obligation of the entity (arising from past events) that are not expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period.​

Question 12

GST Received

Answer 12

any GST amount that is received from a customer

Question 13

GST Paid

Answer 13

any GST amount that is paid to a supplier

Question 14

GST receivable

Answer 14

GST owed by the ATO to the business when the amount of GST the business has received on its fees is less than the GST and is to be paid to suppliers.
GST RECEIVABLE CLASSIFIED AS CURRENT ASSETS

Question 15

GST Payable

Answer 15

GST owed by the business to the ATO when the amount of GST the business has received on its fees is greater than the GST it has paid to its suppliers.
GST PAYABLE IS CLASSIFIED AS CURRENT LIABILITY

Question 16

GST Settlement

Answer 16

a payment made to the ATO by a small business to settle GST Payable (cash payment)

Question 17

GST Refund

Answer 17

a cash receipt from the ATO to clear GST Receivable (cash receipt)

Question 18

Revenue

Answer 18

An increase in assets or reduction in liabilities that leads to an increase in owner’s equity (except for a capital contribution) arise in daily activities and include items such as sales, fees and interest. recognised in reporting period where service is provided or earned

Question 19

expense

Answer 19

Expense is a decrease in assets (or increase in liabilities) that reduces owner’s equity (except for drawings). they are economic benefits consumed and thus gone eg. electricity - no lasting benefit, used up and gone, more is needed

Question 20

Liquidity

Answer 20

Liquidity measures the ability of the business to meet its short term debts as they fall due by comparing current assets with current liabilities

Question 21

Stability

Answer 21

Stability measures the business ability to meet its total liabilities and continue operating in the long-term

Question 22

NET PROFIT MARGIN

Answer 22

(a profitability indicator) Net Profit Margin = Net Profit ⁄ Total Sales (revenue) x 100

Question 23

WORKING CAPITAL RATIO

Answer 23

(a liquidity indicator)
Working Capital Ration = Current Assets ⁄ Current Liabilities

Question 24

DEBT RATIO

Answer 24

(a stability indicator)
Debt Ratio = Total Liabilities ⁄ Total Assets x100

Question 25

RETURN ON ASSETS

Answer 25

(profitability indicator)
Return on Assets = Net Profit ⁄ Total Assets x100

Question 26

purpose of budgeting

Answer 26

Budgeting is the process of predicting/estimating the financial consequences of future events. This assists with planning and decision making.​

Question 27

budeting process

Answer 27

budgeted reports -> actual reports -> variance reports -> decisions

Question 28

Cash Budget

Answer 28

An accounting report which predicts future cash receipts and payments, determines the expected cash surplus or deficit, and thus estimates the bank balance at the end of the budget period.​

Question 29

Budgeted Income Statement

Answer 29

An accounting report which predicts revenues earned and expenses incurred, and thus the expected Net Profit, for the budget period.​

Question 30

Variance Report

Answer 30

An accounting report that compares actual and budgeted figures, highlighting variances so that problems can be identified, and corrective action taken.​

Variance – the difference between the actual figure and a budgeted figure, expressed as ‘favourable’ or ‘unfavourable’.​

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Question 31

favourable variances (F)

Answer 31

cash receipts are higher than expected, cash payments are lower than expected or bank is higher than expected

Question 32

unfavourable variances (U)

Answer 32

cash receipts are lower than expected, Cash Payments are higher than expected, or bank i slower than expected