Chapter 1- Intro to accounting

Question 1

statement of profit or loss reflects…

Answer 1

performance of a business over a period of time. (revenue + expenses)

Question 2

Statement of financial position reflects…

Answer 2

position of a business at a point in time. (assets + liabilities)

Question 3

Sole trader is a business owned…

Answer 3

and operated by one person. Fully and personally liable (unlimited liability)

Question 4

Partnership is a business owned…

Answer 4

and operated by two or more people. Each partner is jointly and severally liable for losses (unlimited liability)

Question 5

Limited liability partnership (LLP)

Answer 5

only person who makes mistake is liable (cap on amount they can lose). Separate legal identity from owners.

Question 6

In a LLP shareholders liability is limited to…

Answer 6

the nominal value of the shares they own

Question 7

Company is a business owned…

Answer 7

by any number of shareholders and operated by directors. (directors can also be shareholders)

Question 8

Characteristics of a company:

Answer 8

• owned by shareholders
• shareholders elect directors to run business
• nearly always have limited liability
• shareholders are not personally liable for losses company incurs
• shareholders maximum loss is the nominal value of their shares
• company is a completely separate legal identity from owners

Question 9

A full set of financial statements is made up of…

Answer 9

statement of P+L
statement of FP
statement of changes in equity 
statement of cash flow 
notes to financial statement

Question 10

Assets…

Answer 10

items the business owns

Question 11

Liabilities…

Answer 11

items the business owes

Question 12

net assets

Answer 12

assets - liabilities

Question 13

Revenue - cost of sales =

Answer 13

gross profit

Question 14

Gross profit - expenses =

Answer 14

net profit

Question 15

Capital is…

Answer 15

total amount business owes owner

Question 16

Which of the following should be accounted for as capital expenditure?

• The annual cost of painting a factory floor
• The repair of a window in a building
• The purchase of a vehicle by a garage for re-sale
• Legal fees incurred on the purchase of a building

Answer 16

Legal fees incurred on the purchase of a building

The others are revenue expenditure

Question 17

capital expenditure is incurred either:

Answer 17

• to acquire LT assets (includes laptop)

- to improve earning capacity of LT assets

Question 18

Capital expenditure is recorded…

Answer 18

in statement of FP within non-current assets

Question 19

revenue expenditure is incurred either:

Answer 19

• for trade purposes (raw materials, items for resale, wages, distribution + selling expenses, finance + admin costs)
• to maintain existing earning capacity of LT assets

Question 20

revenue expenditure is recorded…

Answer 20

in statement of P+L

Question 21

Companies that are most closely regulated are…

Answer 21

Limited liability companies

Question 22

judgement may vary when:

Answer 22

• Valuating a building when property prices are changing

- determining if expenditure is revenue or capital

Question 23

IESBA code of ethics:

Answer 23

• Confidentiality
• Objectivity
• Professional behaviour
• Professional competence + due care
• Integrity

Question 24

Ethical guidance is a…

Answer 24

framework containing a combination of rules and principles, the application of which is dependent on the professional judgement of the accountant based on the specific circumstances

Question 25

A code based on principles…. contain specific rules which a professional accountant must comply with

Answer 25

Does not

Question 26

A rules based code… require a professional accountant to adhere to a set of principles

Answer 26

does not

Question 27

ICAEW uses a …. approach

Answer 27

principles based