Chap 12, 13, 14

Question 1

Differences between a bank loan and bank overdraft

Answer 1

The business borrows a fixed amount and cash is transferred to the business bank account but for a bank overdraft, the business withdraws more than what it has deposited in its bank account, up to the limit which the business and the bank have agreed upon.

Question 2

Differences between a bank loan and bank overdraft

Answer 2

A bank loan is recorded as long-term borrowings under the non-current liabilities section while bank overdraft is under the current liabilities section

Question 3

Two reasons why the ending capital can be higher than the beginning capital

Answer 3

• Additional assets contributed to the business by the sole proprietor
• Profit earned by the business for the year

Question 4

Two reasons why the ending capital is lower than the beginning capital

Answer 4

• Withdrawal of assets by the sole proprietor for personal use
• Loss incurred by the business for the year

Question 5

Accounting entity theory

Answer 5

The business and owner are separate entities and all business transactions should be recorded from the business point of view

Question 6

Retained earnings

Answer 6

The accumulation of profits that have not been distributed to shareholders yet since the operation, accumulated losses refer to the accumulation of profits that have not been distributed to shareholders yet since operations.

Question 7

An increase in shareholder equity is due to

Answer 7

• issuance of new shares

- Profit earned by the business for the year

Question 8

Decrease in the shareholder’s equity is due to

Answer 8

• declaration of dividends

- Loss incurred by the business for the year

Question 9

2 advantages of being a PLC

Answer 9

• easier to transfer ownership as shareholders can sell their shares to an external investor
• Limited companies can also issue more shares to investors to raise funds