Chapter 2- Accounting Equation

Question 1

Non-current assets are…

Answer 1

acquired for on-going LT use (eg, land, buildings, vehicles, plant + machinery, intangibles + LT investments)

Question 2

Current assets are…

Answer 2

acquired for resale or expected to be realised (turned into cash). Eg, inventory, receivables, cash

Question 3

Non-current liabilities are…

Answer 3

payable more than 1 yr after statement of FP date (eg, loan)

Question 4

Current liabilities are…

Answer 4

payable within 12 months of statement of FP date (eg, payables + overdraft)

Question 5

Business entity concept

Answer 5

business entity is treated as separate from owners. If business owner puts anything into business the business owes this back to the owner

Question 6

closing capital =

Answer 6

starting capital + injections + net profit - drawings

Question 7

assets =

Answer 7

liabilities + capital (equity)

Question 8

revenue is…

Answer 8

income generated from sales (includes sales made on credit + cash)

Question 9

Revenue =

Answer 9

Sale price x number of goods sold

Question 10

cost of sales =

Answer 10

Opening inventory + purchases - closing inventory + delivery inwards

Question 11

If a sole trader purchases goods on credit…

Answer 11

Assets (inventory) increases and liabilities (payables) increases

Question 12

If a sole trader borrows £10,000 from a bank…

Answer 12

Assets (cash) increases and liabilities (payables) increases

Question 13

If a sole trader sells goods for cash for £500 which had cost £300…

Answer 13

Capital (profit) increases and assets (inventory) decreases

Question 14

If a sole trader increases the business’s number of motor vehicles by adding his own car to the business’s fleet…

Answer 14

Capital (injections) increase and assets (vehicles) increases