Accounting Principles & Techniques

Question 1

5 categories of accounts

Answer 1

ALICE

assets liabilities income capital expenses

Question 2

Accounting equation

Components

Answer 2

A&E = LIC

assets & expenses

=

liabilities + income + capital

Question 3

Definition: accounting equation

Answer 3

The accounting equation is the basis used to record financial information,
& it shows
what the firm owns (assets) on one side and
the funding used to buy those assets on the other side.

The accounting equation underpins the dual aspect concept.

Question 4

Write a sentence defining each of the following terms:

a) debtor
b) creditor

Answer 4

A debtor is a customer
who owes the firm money for goods/services
which have been sold on credit.

A creditor is a supplier to whom
the firm owes money for goods/services
which have been purchased on credit.

Question 5

What is a statement of financial position?

dating?

Answer 5

A statement of financial position is a statement of a firm’s assets & liabilities on a specific date.

It is based on the accounting equation:
assets - liabilities = capital

Dating: as at 30th September 2020

Question 6

Name the five sections of a typical statement of financial position (balance sheet) &
a recognised order in which they appear.

Answer 6

Non-current asset
Current assets
Current liabilities 
Non-current liabilities 
Capital

Question 7

Name two examples of different categories of assets & liabilities.

Answer 7

Non-current Assets
• premises
• plant/machinery
• fixtures/fittings
• motor vehicles 

Current assets
• stock of goods for resale
• debtors
• bank
• cash

Current Liabilities
• creditors
• bank overdraft
• VAT

Non-current liabilities
• bank loan
• debenture (loan)
• mortgage

Question 8

Explain the difference between a non-current asset & a current asset.

Answer 8

The difference between a non-current & a current asset is the time period of which the asset will be used.

Non-current asset is kept & used
over more than one accounting year.

Current asset is used
within one accounting year.

Question 9

Define a current liability.

Answer 9

A current liability is an amount owed to a third party, which will be repaid within one accounting year.

Question 10

Dual aspect concept

Answer 10

Dual aspect concept
states that every business transaction requires recording in two different accounts.
This concept is the basis of double entry accounting which is required by all accounting frameworks in order to produce reliable financial statements.
The concept is derived from the accounting equation:
ALICE

A&E = LIC

assets & expenses

=

liabilities + income + capital

Business transactions are recorded in the accounts twice - once as DR once as CR

  GAIN                 LOSS
    DR                  CR
   Debit               Credit