Financial Statement Flashcards
This is prepared to determine the gross profit or gross loss:
A. Trading account
B. Profit or loss account
C. Balance sheet
D. None of these
A
2- It is prepared to determine the net profit or net loss
A. Trading account
B. Profit or loss account
C. Cash book
D. Balance sheet
3-
B
Which of the following discloses the financial position of the business
A. Trading account
B. Profit or loss account
C. Profit or loss appropriation account
D. Balance sheet.
4-
D.
Gross profit equals to:
A. Net profit minus expenses
B. Sales minus closing stock
C. Purchases minus closing stock
D. Sales minus cost of goods sold
5-
D
Cost of sales is equal to:
A. Sales - purchase
B. Purchases – return +closing stock.
C. Opening stock +Purchases (Net) – closing stock
D. Sales +Opening stock – (Purchases +closing stock)
6-
C
Net profit is equal to:
A. Gross profit - Expenses
B. Sales - Cost of goods sold.
C. Sales - expenses
D. Capital – Expenses
7-
A
The price of goods sold or services rendered to the customers is called:
A. Sale
B. Profit
C. Expense
D. Revenue
8-
D
Profit or loss appropriation account is not prepared in the case of:
A. Joint Stock company
B. Partnership
C. Sole tradership
D. Partnership at will .
9-
C
The valuation of closing stock is at:
A. Cost Price
B. Cost or Market Price whichever is lower
C. Market Price
D. Sale Price
B
Which account is a summary of direct expenses and direct revenue
A. Profit and loss account
B. Trading and profit or loss account
C. Balance sheet
D. Trading account
11-
D
Net profit plus expenses is equal to:
A. Purchases
B. Capital
C. Gross profit
D. Sales
C
If the gross profit is Rs.5, 000 and the net profit is 35% of the gross profit be:
A. 3250
B. 1250
C. 3750
D. 2250
13- Position statement is similar to a:
A. Trial balance
B. Balance sheet
C. Financial Statement
D. Bank Reconciliation Statement
3- If sales are Rs.12, 000, Gross profit is 10% of sales and net profit is 5% of sales then the expenses will be:
A. 1200
B. 600
C. 1800
D. 700
15- Drawings are deducted from:
A. Sales
B. Income
C. Capital
D. Expenses
16- Assets which have no physical existence are called:
A. Tangible assets
B. Fictitious Assets
C. Liquid assets
D. Intangible assets
17- An operating statement is similar to a:
A. Balance sheet
B. Bank Reconciliation Statement
C. Financial Statement
D. Profit or loss statement
18-Stock in trade is a:
A. Current asset
B. Non-current asset
C. Quick asset
D. Intangible asset
19-Assets which have no market value are called
A. Wasting assets
B. Fictitious assets
C. Intangible assets
D. Tangible asset
20-Net sales are equal to sales minus:
A. Returns inwards
B. Cost of goods sold
C. Goodwill
D. Return Outward
1-Debts which are repayable in the course of less than one year but more than one month are called:
A. Quick liabilities
B. Deferred liabilities
C. Contingent liabilities
D. Liquid liabilities
2-Expenses related to sale of goods are shown in: -
A. Trading account
B. Profit or loss account
C. Balance sheet
D. Sales account
** 3- A balance sheet is a:
A. Statement of income and expenditure
B. Statement of debtors and creditors
C. Financial statement of a business on a particular date
D. Statement of profit earned by a business **
4-Closing stock is recorded in
A. Income statement only
B. Trading account only
C. Profit or loss account only
D. Trading account and balance sheet.
5- A liability depends upon certain future event is called:
A. Quick liability
B. Deferred liability
C. Contingent liability
D. Current liability
6- Marshaling of balance sheet means:
A. Totaling of assets
B. Totaling of liabilities
C. Ordering of assets and liabilities
D. Excess of assets over liabilities
7-Bank overdraft is an example of:
A. Current liability
B. Liquid liability
C. Quick liability
D. All of these
8- Income tax paid by a sole trader is shown on:
A. Debit side of trading account
B. Debit side of profit or loss account
C. By way of deduction from capital in the balance sheet
D. Credit side of trading account
9-If the profit is 25% of cost price then it is of what percentage of sale price.
A. 20%
B. 33-1/3%
C. 66 1/3%
D. 25%
10-Gross profit is credited to:
A. Trading account
B. Profit or loss account
C. Balance sheet
D. None of these
11- Net profit is transferred to:
A. Creditor’s account
B. Debtor’s account
C. Drawing account
D. Capital account
12- It is a statement of assets, liabilities and owner’s equity on a particular date.
A. Financial Statement
B. Balance sheet
C. Bank Reconciliation Statement
D. Cash Flow
13-Excess of assets over liabilities is called:
A. None of these
B. Profit
C. Income Expense
D. Capital
14-All the expenses connected with management of the business are called
A. Office expenses
B. Selling expenses.
C. Financial expenses
D. Other expense
15-The method, under which the assets and liabilities are shown in Balance Sheet in the order permanence is called:
A. Liquidity Preference method
B. Permanency preference method
C. Mixed method
D. None of these
16- Permanence preference method is adopted by:
A. Sole tradership.
B. Partnership
C. Joint Stock company
D. None of these
17-The method under which assets and liabilities are shown in the order other liquidity is called:
A. Permanence preference method
B. Liquidity preference method
C. Mixed method
D. Co-Operative societies
18-Liquidity preference method is usually adopted by
A. Joint Stock company
B. Sole Tradership and partnership
C. Banks
D. Insurance companies
19-Assets, which have physical existence, are called.
A. Tangible assets
B. Intangible assets
C. Quick assets
D. Current assets
20- From the business point of view, interest on drawings is:
A. An expense
B. An asset
C. A revenue
D. A Liability
A
B
B
C
D
C
A
B
A
B
B
C
D
C
C
D
C
A
B
D
B
D
A
B
C
B
B
A
C
Define Opening Entries.
Opening entries are accounting journal entries made at the beginning of a new accounting period to bring forward the balances of
o Assets: Cash, accounts receivable, inventory, etc.
o Liabilities: Accounts payable, loans, etc.
o Equity: Owner’s capital or retained earnings.
from the previous period. These entries are crucial for preparing the books of accounts for the current period, ensuring continuity in financial reporting.
What is Trading Account?
A trading account is a financial statement prepared by businesses, typically as part of the final accounts, to calculate the gross profit or gross loss earned during a specific accounting period. It serves as the first part of the Income Statement, providing a summary of the trading activities of a business.
Purpose of a Trading Account:
- To determine the gross profit or gross loss, which is the difference between net sales and cost of goods sold (COGS).
- To analyze the efficiency of the core trading operations of the business.
- To provide a foundation for calculating net profit in the subsequent Profit and Loss Account.
Write a note on the components of trading account
Components of a Trading Account:
- Opening Stock: The value of stock held at the beginning of the accounting period.
- Purchases: The total cost of goods bought for resale during the period, including carriage inwards, less purchase returns.
- Direct Expenses: Expenses directly attributable to the production or procurement of goods (e.g., wages for factory workers, freight charges, power used in production).
- Sales: Revenue earned from selling goods, including cash and credit sales, less sales returns.
- Closing Stock: The value of unsold stock at the end of the accounting period, which is deducted from COGS.
Formula for Gross Profit:
Gross Profit=Net Sales−Cost of Goods Sold
Where:
COGS=Opening Stock+Purchases+Direct Expenses−Closing Stock
Write a note on the trial balance.
Trial Balance is simply a list of ledger accounts balances at the end of an accounting period. This summary of the ledger at the end of an accounting period, is a convenient starting point in the preparation of the Final Accounts. i.e. Trading and profit and loss Account, and Balance Sheet.
A Trial Balance usually contains the following types of balances
1. Balances from Expenses Accounts
2. Balances from Revenue Accounts
3. Balances from Assets Accounts
4. Balances from Liabilities Account
5. Balance from Capital or Owner’s Equity Account
The first two types of balances are transferred to Trading and Profit and Loss Account to find out profit or loss.
The other three types of balances are transferred to the Balance Sheet to know the financial position of the business.
Write a note on Revenue.
In a business concern revenue means “Sale proceeds of goods or services or it is the price of goods sold or services rendered to customers.
The revenue for a given period is equal to the inflow of Cash and (Debtors) from sales made in that period. Thus,
Revenue= Amount received in Cash + Receivable
SOURCES OF REVENUE:
The sources of revenue are:
1. Sale proceeds of goods or services. (Sales A/c).
2. Interest received on investment. (Interest A/c Cr. balance)
3. Dividend received on share (Dividend A/c)
4. Discount received from creditors. (Discount Received A/c Cr. balance)
5. Commission received from customers. (Commission A/c Cr. balance)
6. Profit on sale of assets (except goods)
The revenue earned out the normal business activities belongs to this source. For example, for a trader, sales proceeds of goods is a major source of revenue; for a property dealer, commission earned is a major source of income.
FINANCIAL SOURCES OR MINOR SOURCES OR INDIRECT SOURCES OF FREVENUE
Any revenue arising from sources other than the normal business activities belongs to this category e.g. Interest, dividend, profit on sale of fixed assets.
Write a note on expenses.
Expenses means the expired cost incurred for earning revenue of a certain accounting period.
They are the cost of the goods and services used up in the process of obtaining revenue.
For example, purchase of goods, wages salaries, rent, carriage, customs duty etc. we have to incur all these expenses in order to earn revenue.
Expenses are mainly divided into two categories;
(1) Direct Expenses
(2) Indirect Expenses.
Write a note on direct expenses.
Expenses connected with purchases of goods are known as “Direct expenses”. For example, Freight, insurance of goods in transit, carriage, wages, customs duty import duty, Octori duty etc. Without incurring Such expenses, it is not possible to bring the goods from the purchase point to the go-down of the business.
Write a note on indirect expenses.
All the expenses other than direct expenses are assumed as indirect expenses. Such expenses have no relationship with purchase of goods. For example, rent of building insurance of building, depreciation, printing charges etc, salaries to employees, legal charges, printing charges, rent paid and insurance of building etc.
Write a note on Matching Revenue And Expenses.
Revenues of the relevant accounting period should be matched against the expenses of the same period to ascertain profits or losses made by the business. In the form of an equation it may be stated that;
Profit = Revenue - Expenses.
Write a note on Profit and Loss Account
A Profit and Loss Account (P&L), also known as an Income Statement, is a financial document that summarizes the revenues, costs, and expenses incurred by a business over a specific period, typically a month, quarter, or year. Its primary purpose is to calculate the net profit or loss of a business during that period.
Write a note on Gross Profit
Gross Profit is a key financial metric used to evaluate a company’s profitability from its core business activities. It is calculated by subtracting the Cost of Goods Sold (COGS) from the Revenue generated during a specific period. Gross profit reflects how efficiently a business is producing and selling its goods or services before accounting for other expenses such as operating costs, taxes, and interest.
Formula:
Gross Profit=Revenue−Cost of Goods Sold
Write a note on Net Profit
Net Profit is the amount of money that remains after all expenses have been subtracted from total revenue during a specific accounting period. It is a key indicator of a business’s financial health and profitability.
Net Profit = Gross Profit – All Indirect Expenses.
Define Balance Sheet.
Write down the features of balance sheet.
Balance sheet is a statement of Assets liabilities and owner’s equity (Capital ) on a particular date.
It is the last stage of Final Accounts.
It is prepared on the last day of an accounting year.
It is not an account under the Double Entry System-it is a statement only.
It has two sides - left-hand side known as Asset side and right-hand side known AS liabilities side.
The totals of both sides are always equal.
The balances of all Asset accounts and liability accounts are shown in it. No expense accounts and revenue accounts are shown here.
It discloses the financial condition and solvency of the business.
It is prepared after the preparation of Trading and Profit and Loss A/c because the profit or net loss of a concern is included in it through Capital A/c.
Write down the classification of assets.
Webmap
Explain different kinds of assets.
- REAL ASSETS: Assets which have some market value are called real assets, e.g. Building, machinery, Stock, Debtors, Cash, and Goodwill etc. Real assets may be divided into two according to their permanence.
(a) Fixed Assets: Assets which have long life and which are bought for use for a long period me time are called Fixed Assets. These are not bought for selling purposes, e.g. Land, Building, Plant Machinery, Furniture etc.
Fixed assets are again sub-divided into two
(i) Tangible Assets: Assets which have physical existence and which can be touched and felt are called ‘Tangible Assets’, e.g. Building, Plant, and Machine Furniture etc.
(ii) Intangible Assets: Assets which have no physical existence and which cannot be seen, touched or felt are called ‘Intangible Assets’, e.g. Goodwill, Patent Right, Trade-mark etc.
(b) Current Assets: Assets which are short-lived and which can be converted into cash quickly to meet short-term liabilities are called “Current Assets’, e.g. Stock, Debtors, Cash etc. Such assets change their form repeatedly and so, they are also known as Circulating or floating Assets. For example, on purchase of goods cash is converted into stock and on sale of goods, stock is converted into debtors, on collection from debtors, debtors take the form of cash etc.
Out of the current assets those which can be converted into cash very quickly or which are already in the form of cash are called ‘Liquid or Quick Assets’, e.g. debtors, cash in hand, cash at bank etc. - FICTITIOUS ASSETS: Assets which have no market value are called “fictitious assets’, e.g. Preliminary expenses, Loss on issue of shares or debentures etc. They also known as ‘nominal assets’.
Beside these, there is another type of assets whose value gradually reduces on account of use and finally exhausts completely. This type of assets is called “Wasting Assets”, e.g. Mine, Forest etc. .
Define Liabilities.
In accounting, liabilities are obligations that a business owes to external parties, typically as a result of past transactions. These are classified as current liabilities, due within one year (e.g., accounts payable), or non-current liabilities, due after a year (e.g., long-term loans). Liabilities represent claims against the company’s assets and are recorded on the balance sheet.
Write a note on classification of liabilities.
Liabilities may be classified as follows
Internal Liabilities:- The total amount of debts payable by a business to its owner is called “Internal Liability’, e.g. Owner’s equity (capital), Reserves etc. From practical viewpoint, internal liabilities should not be regarded as liabilities, since there is no question of meeting such liabilities as long as the business
External Liabilities:- All debts payable by a business to the outsiders (other than the owner) are called ‘External Liabilities’, e.g. Creditors, Debentures, Bills Payable, Bank overdraft etc.
External liabilities are further divided into two.
(a) Fixed or Long-Term Liabilities:- The liabilities which are repayable after a long period of time are called ‘Fixed or Long-Term Liabilities’, e.g. Debentures, Loan on mortgage etc.
(b) Current or Short-Term Liabilities:- The debts which are repayable within a short period of time are called ‘Current or Short-Term Liabilities’, e.g. Creditors, Bills Payable, Bank overdraft etc.
Current liabilities may again be divided into two:
(i) Deferred Liabilities:- Debts which are repayable in the course of less than one year but more than one month, are called “Deferred Liabilities”, e.g. Short-Term Loan etc.
(ii) Liquid or Quick Liabilities:- Debts which are repayable in the course of a month are called “Liquid or Quick Liabilities”, e.g. Bank overdraft, outstanding expenses, creditors etc.
Write a note on contingent liabilities.
It is one which is not a liability at present, but which may or may not become a liability in future. It depends upon certain future event. For example, suppose the buyer of goods filed a suit in the court against the seller claiming damage of Rs. 10,000 for breach of contract. This will be regarded as a contingent liability to the seller until the receipt of court’s order. To the buyer, this is a “Contingent Asset”. Both contingent liability and contingent asset are not recorded in the Balance Sheet. They are generally mentioned in the Balance Sheet as a note.
What do you mean by grouping and marshaling of assets & liabilities in balance sheet .
An arrangement is made in which assets and liabilities are shown in the Balance Sheet. Such an arrangement is called “Marshaling of Assets and Liabilities”.
There are three methods of marshaling:
1. Permanency Preference Method: Under this method the assets and liabilities are shown in Balance Sheet in the order of their permanence
2. Liquidity Preference Method: Under this method assets and liabilities are shown in order of liquidity. The more liquid the assets (Which can be quickly converted into cash) the earlier they shown. The sooner the liabilities are to be paid off, the earlier are they shown.
3. Mixed Method: Under this method the assets are shown in order of their permanence and liabilities are shown in order of liquidity.
