ITBK - Unit 1

Question 1

Statement of Financial Position

Answer 1

Summary of assets and liabilities and equity of the business at a specified date

Question 2

Statement of Profit or Loss

Answer 2

• Summary of the business’s transactions (income and expense) for a given period
• Summary of income and expenditure for an accounting period

Question 3

Trial Balance

Answer 3

To summarise the balances on each of the general ledger accounts to begin the preparation for financial statements

Question 4

Bank Statement

Answer 4

Detailing all of the transactions with a credit customer during the period and advising the credit customer of the balance outstanding on their account

Question 5

Credit note

Answer 5

To correct an invoice that has been prepared incorrectly by overstating the value of goods supplied

Question 6

DEAD CLIC

Answer 6

Debit
Expenses
Assets
Drawings

Credit
Liabilities
Income
Capital

Question 7

Sundry income

Answer 7

Other types of income that aren’t generated by the primary trading activities of the business

Question 8

Asset

Answer 8

Something owned of controlled by a business, available for use in the business

Question 9

Non current asset

Answer 9

an asset required for long term use in the business and not resold as part of trading activities for example the purchase of a van

Question 10

Current asset

Answer 10

a short term asset of the business which is used in the business in the near future ie cash or something that will soon be converted into cash

Question 11

Non current liability

Answer 11

an amount owed by the business and due to be repaid after more than 12 months

Question 12

A liability

Answer 12

an amount owed by the business ie an obligation to pay money at some future date

Question 13

Capital

Answer 13

the amount which the owner has invested in the business. This is owed back to the owner and could be regarded as a special liability of the business

Question 14

Drawings

Answer 14

amounts withdrawn by the business owner for their own personal use: drawings may be of cash or items of inventory

Question 15

Capital Expenditure

Answer 15

purchase of or improvement of non current assets

Question 16

Revenue Expenditure

Answer 16

day to day running costs of the business

Question 17

Capital Income

Answer 17

Income from the sale of capital assets of the business

Question 18

Revenue Income

Answer 18

income generated from the sale of goods or services

Question 19

Capital Income examples

Answer 19

Receipt from sale machinery
Receipt from sale of fixtures & fittings
Receipt from sale of motor vehicle

Question 20

Revenue Income examples

Answer 20

Receipt from cash sales
Receipt from receivables
Receipt from customers
Receipt from credit sales

Question 21

Capital Expenditure examples

Answer 21

Purchase of building
Purchase of machinery
Purchase of new computer system

Question 22

Revenue Expenditure examples

Answer 22

Payment of electricity bill
Purchase of goods for resale
Payment of telephone bill
Payment of salaries to staff
Payment of cleaning materials

Question 23

Capital or Revenue Expenditure?
1) Replacement of some damaged tiles following a recent storm
2) Repainting the factory office
3) Modifications to the factory to enable a large item of plant and equipment to be installed
4) Work to install cabling so that additional plant and equipment can become operational

Answer 23

1) Revenue
2) Revenue
3) Capital
4) Capital

Question 24

Accounting Equation - true statments

Answer 24

• Assets less capital is equal to liabilities
• Capital plus liabilities are equal to assets
• Assets less liabilities are equal to capital

Question 25

Accounting Equation - false statements

Answer 25

• Assets plus liabilities are equal to capital
• Capital is equal to assets plus liabilities
• Liabilities are equal to capital plus assets