Financial Accounting

Question 1

How do you record an outgoing payment of goods purchased with credit (related to payable) in the balance sheet

Answer 1

Debit inventory assets and credit accounts payable

Question 2

How do you record a payment of interest on a loan in the balance sheet

Answer 2

Debit interest expense and credit the cash bank account asset

Question 3

How do you record the rental of an office/storage space in the balance sheet

Answer 3

Debit rent expense and credit cash bank account. Rent is considered an operating expense and not the consumption of the facility asset

Question 4

How do you record the sending invoices and booking receivables in the balance sheet

Answer 4

Debit account receivable assets and credit sales revenue

Question 5

How do you record the purchase of tangible asset in the balance sheet

Answer 5

Debit the asset account and credit the accounts payable or cash assets

Question 6

How do you record the payment of a (electricity) bill in the balance sheet

Answer 6

Debit accounts payable and credit cash or bank assets

Question 7

How do you record repayment of loan in the balance sheet

Answer 7

Debit loan liability and credit cash or bank assets, if you also have to pay interest that adds some expense debits

Question 8

How do you record the purchase of inventories in the balance sheet

Answer 8

Debit inventories assets and credit accounts payable liabilities if bought on credit, if bought with cash credit cash assets

Question 9

How do you record a purchase leading to booking of payables in the balance sheet

Answer 9

Debit the relevant asset and credit accounts payable

Question 10

How do you record an incoming payment related to receivables in the balance sheet

Answer 10

Debit cash assets and credit account receivables assets

Question 11

What is the definition of an asset

Answer 11

It is controlled, due to a past event and is expected to generate benefits in the future

Question 12

What is the difference between current and non current assets

Answer 12

Current assets will become cash in less than a year

Question 13

How do you record a provision in the balance sheet

Answer 13

Debit expense and credit provision liability

Question 14

Explain the link between profit in the income statement and the balance sheet. Start from revenues.

Answer 14

Revenues minus operating expenses becomes operating income. If you subtract interest payments you get income before tax. If you further subtract tax you get net income which is a part of equity in the balance sheet.

Question 15

What transactions do or do not affect the income statement.

Answer 15

Income statement does not change if assets changes type of if assets if assets and liabilities change by the same amount. It changes when assets as a whole changes or when there is a revenue or expense

Question 16

What is the top line item

Answer 16

Revenue, what is earned through main business activity

Question 17

Are costs brought to the current period when impairing costs of goods sold

Answer 17

Yes, COGS increase in the current period as a result of an impariment which allows for recording the future goods sold as of less value.

Question 18

How is the payment of dividends recorded in the balance sheet

Answer 18

Debit the retained earnings liability and credit the dividends payable liability. Then Debit the dividends payable liability and credit the cash asset

Question 19

How do you prepare a cashflow statement using the indirect method

Answer 19

You take the earnings from the income statement. You remove accruals such as depreciation, amortization for intangibles, impairments, capital losses/gains and changes in provisions to get cashflow from operating activities before changes in working capital. Than you add changes in working capital by recprding the cash payments of the change in inventory, operating recivables and liabilities. If liabilities increase it means you should add cash by the change while the others decrease in cash from an increase. Then you get total cashflow from operating activities.