Revision 2

Question 1

What is the going concern theory

Answer 1

Going concern = assuming the business will continue operating for the foreseeable future.

Question 2

Recording capital expenditure within non-current assets is an application of what

Answer 2

Going Concern.

Question 3

What’s included in non-current asset costs

Answer 3

Any cost directly involved to buying the asset, transporting it, having it set up and in working conditions. This includes legal fees but NOT training or breakdown cover/ insurance

Question 4

Would a year long subscription for an asset be part of the non-current asset cost (capital) or revenue expenditure

Answer 4

Revenue expenditure as it’s not directly involved in asset cost / installment and only lasts 1 year so is revenue expenditure.

Question 5

Will impacts on the accounting equation always effect both sides
(capital AND net assets)?

Answer 5

YES.

Must effect both sides of (capital = assets - liabilities)

So increase in assets increases capital.
Increase in liabilities decreases capital.

Question 6

Does receiving cash from Credit customers effect / change the accounting equation

Answer 6

No, this has no effect to capital assets or liabilities.

Question 7

Accounting for credit sales double entry

Answer 7

DR SLCA
CR Sales

Question 8

How are allowance for doubtful debts included in the financial statements

Answer 8

Allowance for DD Adj = DR IN SPL

Allowance for DD = CR IN SOFP

Question 9

How are discounts allowed and received included in financial statements

Answer 9

Discounts allowed = DR IN SPL (Expense)

Discounts Received = CR IN SPL

Question 10

How is profit recorded in financial statements

Answer 10

DR in SPL
CR in SofFP

Question 11

How is a net loss recorded in financial statements

Answer 11

CR in SPL
DR in SOFP

Question 12

Would a maintenance contract be part of the non-current assets cost

Answer 12

NO

Question 13

What is the carrying amount of a disposed asset on the non-current asset register

Answer 13

0 as this is cleared off to Disposal Account

Question 14

How does a purchase on credit effect the accounting equation

Answer 14

Reduces Capital
Increases liability

Question 15

Do control accounts AND subsidary accounts include VAT in there balances

Answer 15

YES

Question 16

Is accrued income & expense a DR or CR

Answer 16

Accrued income is a DR as this is money earned but not yet received so an asset.
Accrued Expense is a CR as this is something received but not paid for so a liability.