Final accounts for a sole trader

Question 1

Fundamental qualities characteristics

Answer 1

Relevance and faithful representation

Question 2

Supporting qualitative characteristics

Answer 2

Understandability
Timeliness
Verifiability
Compatibility

Question 3

Ethical principles

Answer 3

Integrity 
Objectivity 
Competence and due care
Confidentiality 
Professional behaviour

Question 4

Users of financial statements

Answer 4

Investors
Employees
Lenders
Suppliers 
Customers

Question 5

Characteristics of accounts

Answer 5

Relevance
Reliability
Comparability
Ease of understanding

Question 6

Going concern

Answer 6

The assumption that the business will continue trading.

Question 7

Accruals

Answer 7

Costs and revenues should be matched together and included in the period in which they relate to.

Question 8

Consistency

Answer 8

Treat similar items in the same way from period to the next.

If telephone costs are accounted for in general expenses one year they must be put in there the next.

Question 9

Prudence

Answer 9

Being cautious and not overstating revenues and profits and understating liabilities.

Revenue and profits are only recognised when they are certain and liabilities and expenses are only recognised when they are probable.

Question 10

Materiality

Answer 10

Statements are required to show a true and fair view.

They don’t have to be 100% accurate but must be materially correct.

Question 11

Relevance

Answer 11

Information that is useful to users of the financials statements

Question 12

Faithful representation

Answer 12

Informs corresponds to effect of transaction and should be complete, neutral and free from error.

Question 13

Compatibility

Answer 13

Comparing financial statements to other years and businesses

Question 14

Verifiability

Answer 14

Information is faithfully represented

Question 15

Timeliness

Answer 15

Receive information in good time

Question 16

Understandability

Answer 16

Presented clearly and concisely