Financial Accounting Questions

Question 1

Define an asset

Answer 1

An asset is a resource that is controlled by an entity as a result of a past transaction that is expected to bring economic benefits, (generate profits).
Assets can be split into two categories:
Non-current assets – are to be owned for longer than 12 months.
Buildings , furniture, machinery and motor vehicles. These are tangible assets.
Brands, patents and goodwill. These are intangible assets.
Current assets – owned at the reporting date but are to be used by the business to make
profits in the next 12 months. Inventory=stock Trade receivables= Debtors

Question 2

Define an expense

Answer 2

An expense is a period cost. It is costs that are incurred in the year and that the business has benefited from in the year. They have no future economic benefit. For example electricity, cost, advertising, accountancy fees and training costs.

Question 3

Outline the matching or accurals concepts

Answer 3

Accruals concept - expenses are matched to the revenues that they help generate. Expenses, costs , income and revenue are accounted for when they are earned or incurred not when cash flows in or out of the company. For example the cost of a non-current asset is spread over the years that are expected to benefit from its use.