Set 1

Question 1

What is meant by net assets?

Answer 1

Net asset = total assets - total liabilities

Question 2

What is the accounting equation?

Answer 2

The increase in net assets = capital introduced + profit - drawings

Question 3

What are non-current assets?

Answer 3

Non-current assets are assets acquired on a long-term basis, not held for resale in the normal course of trading.

Question 4

What are current assets?

Answer 4

Current assets are assets which are expected to be realised in the normal course of trading.

Question 5

what are current liabilities?

Answer 5

Current liabilities payable within 12 months of the reporting date.

Question 6

What are non-current liabilities?

Answer 6

Non-current liabilities are liabilities payable more than 12 months after the reporting date.

Question 7

What is the definition of drawings (or withdrawals)?

Answer 7

Drawings is anything taken from the business by a sole trader, whatever he/she chooses to call it.

Question 8

What is the definition of capital?

Answer 8

Capital is the amount due to the owner(s) of the business.

Question 9

What is the separate entity concept?

Answer 9

The business is treated as separate from its owners.

Question 10

What is the definition of gross profit?

Answer 10

The gross profit is the sales revenue less the cost of goods sold.

Question 11

What is the definition of a liability?

Answer 11

A liability is an item owed by the business.

Question 12

What is the definition of an asset?

Answer 12

An asset is an item owned by the business.

Question 13

What does the Income Statement show?

Answer 13

The revenues, expenses and profit or loss of the business – the financial performance of the business over a period of time.

Question 14

What does the Statement of Financial Position show?

Answer 14

The assets, liabilities and capital of the business – the financial position of the business at one point in time.

Question 15

What user groups are interested in a company’s financial statements?

Answer 15

• Management* Investors and potential investors* Employees* Lenders* Government agencies* Suppliers* Customers* Competitors* The public

Question 16

What is a sole trader?

Answer 16

A sole trader is a business owned and operated by one person

Question 17

What is the difference between the Statement of Comprehensive Income and the Income Statement?

Answer 17

The Statement of Comprehensive Income is the same as the Income Statement but with the addition of any surplus on revaluation.(For later exams there are other differences, but the above is the only relevant one for Paper F3).

Question 18

What is meant by a gross margin?

Answer 18

The gross margin is the gross profit expressed as a percentage of the sales.

Question 19

What is meant by an early settlement discount?

Answer 19

An early settlement is a discount given if payment is made quickly.

Question 20

What is the double entry for the sale of goods on credit?

Answer 20

Debit receivables Credit sales

Question 21

What is the double entry for the purchase of goods for resale on credit?

Answer 21

Debit purchases Credit payables

Question 22

Will an increase in capital be a debit or a credit entry in the ledger account for capital?

Answer 22

An increase in capital will be a credit entry in the capital account.

Question 23

Will an increase in income be a debit or a credit entry in the ledger account for the income?

Answer 23

An increase in income will be a credit entry in the income account.

Question 24

Will an increase in a liability be a debit of a credit in the ledger account for the liability?

Answer 24

An increase in a liability will be a credit entry in the liability account.

Question 25

Will drawings be a debit or a credit entry in the drawings account?

Answer 25

Drawings will be a debit entry in the drawings account.

Question 26

Will an increase in an asset be a debit or a credit in the ledger account for the asset?

Answer 26

An increase in an asset is a debit entry in the asset account.

Question 27

Will an increase in an expense be a debit or a credit in the ledger account for the expense?

Answer 27

An increase in an expense is a debit entry in the expense account.