exam

Question 1

Entity

Answer 1

That the business and owner have separate entities and that their assets and liabilities are kept separate. If we are assessing the performance of the business, we can only include information that is relevant to the business.

Question 2

Going concern

Answer 2

Assumes that the business will continue to operate, which allows us to record transactions that affect the future of the business. Which allows the business to recognise transactions over more the one period of time. For examples selling goods on credit they will not get the cash until a later date.

Question 3

period

Answer 3

Reports that are prepared for a period of time like a month or a year to obtain comparability of results. The life of the business is assumed to be continuous so we can not calculate profit at the end of the business’s life.

Question 4

Accrual basis

Answer 4

will calculate profit by subtracting expenses incurred from revenue earned in a particular reporting period.

Question 5

relevance

Answer 5

It has to be related to an economic decision that is capable of making a difference in decisions made. it helps the business make decisions, predictions and confirm or change.

Question 6

Faithful representations

Answer 6

That the information presented is faithful to the real world and free from any errors. This assures that the decisions being made are made without fear or being misled.

Question 7

Comparability

Answer 7

That useful information in the financial reports are made consistently so the business has a way of comparing all reports with what is similar and different and be able to investigate the cause.

Question 8

Verifiability:

Answer 8

Assures the business that the information presented faithfully represents what is claims to be. Ensures that different knowledgeable and independent observers can reach the same conclusion.

Question 9

Timeliness

Answer 9

That the latest financial information is available to help with decision making.

Question 10

Understandability

Answer 10

that the financial reports make should be understandable to the business owner or anyone else that reads the report who is not an accountant with them not being able to understand.

Question 11

deprecation in an income statement

Answer 11

The amount that is consumed is reported in the income statement.

Question 12

deprecation in a cash flow

Answer 12

Depreciation is not a cash transaction therefore cannot be reported into the cash flow statement.

Question 13

deprecation in a balance sheet

Answer 13

Is recorded into three different sections. historical cost, accumulated depreciation and carrying value

Question 14

Historical cost

Answer 14

it is its original purchase price

Question 15

Accumulated depreciation

Answer 15

The total value of the asset that has been consumed over its life so far, the negative value has to be reported in the balance sheet to show that some of the assets value has been consumed.

Question 16

Carrying value

Answer 16

The value of the asset that is yet to be consumed plus the residual value.

Question 17

deprecation

Answer 17

Is the allocation of the cost of a non-current asset over its useful life.

Question 18

assets

Answer 18

Is a resource with economic value with the expectation that it will provide a future benefit. It is to create an increase in value or benefit in the business’ operations.

Question 19

expenses

Answer 19

The cost of operations that the company incurs to generate revenue.

Question 20

liabilities

Answer 20

Is what is owed usually a sum of money. They are settled over time through the transfer of economic benefits.

Question 21

revenue

Answer 21

Is the income generated from operations with it including discounts. It is an increase in assets or a deduction in liabilities which leads to an increase in owner’s equity.

Question 22

why would you use fifo instead of identified cost?

Answer 22

when it is impossible or impractical to label each unit of inventory with its original cost. identified cost method requires each unit of inventory to be marked with its original cost which is time consuming and expensive process.

Question 23

inventory loss

Answer 23

satisfies the definition of an expense because it decreases assets with it decreases owners equity.

Question 24

benefit of inventory cards

Answer 24

shows what products are slow and fast moving.

Question 25

link between gross profit and inventory turnout

Answer 25

gross profit my indicate there is an increase in selling price and an increase in selling price may show there is less being sold increase inventory turnout.