qs i got wrong 2

Question 1

1 The accounting equation is correctly expressed as:
A Assets + profits – drawings – liabilities = closing capital
B Assets – liabilities – drawings = opening capital + profit
C Assets – liabilities – opening capital + drawings = profit
D Opening capital + profit – drawings – liabilities = assets

Answer 1

Correct answer(s):
C Assets – liabilities – opening capital + drawings = profit
The accounting equation is most commonly expressed as assets = capital + liabilities. Capital can be
expanded to opening capital + profit − drawings. This can then be rearranged as: Assets – liabilities –
opening capital + drawings = profit.

Question 2

3 A business can make a profit and yet have a decreased bank balance. Which of the following might
cause this to happen?
A The sale of non-current assets at a loss
B The charging of depreciation in the statement of profit or loss
C The lengthening of the period of credit given to customers
D The lengthening of the period of credit taken from suppliers

Answer 2

3 Correct answer(s):
C The lengthening of the period of credit given to customers
Extending the credit period given to customers means that while there are increased profits as the
level of sales increases, it takes longer to collect cash from those customers.

Question 3

4 The purpose of the financial statement that lists an entity’s total assets and total capital and liabilities
is to show:
A the financial performance of the entity over a period of time
B the amount the entity could be sold for in liquidation
C the amount the entity could be sold for as a going concern
D the financial position of the entity at a particular point in time

Answer 3

4 Correct answer(s):
D the financial position of the entity at a particular point in time
A defines the statement of profit or loss, B and C suggest that the statement of financial position
represents a valuation which is incorrect, while D is correct in that it is the definition of a statement of
financial position’s purpose.

Question 4

A sole trader borrows £10,000 from a bank.
Requirement
Which element(s) of the accounting equation will change due to this transaction?
A Assets and liabilities
B Assets and capital
C Capital and liabilities
D Assets only

Answer 4

7 Correct answer(s):
A Assets and liabilities
The bank account (asset) will increase on receipt of the loan funds, and liabilities will increase as the
loan is a liability