Test 1

Question 1

Basis Framework of Accounting

Answer 1

Assets and Expenses on the left
Liabilities, Equity and Income on the right
Increase on the left is a debit
Increase on the right is a credit

Question 2

Assets

Answer 2

what the business owns
valuable, measurable things

Question 3

Liabilities

Answer 3

what the business owes
obligation to pay creditors

Question 4

Income

Answer 4

what the business generates from
activities
value generating activities

Question 5

Expenses

Answer 5

what the business needs to
pay, to generate income
Value sacrificing activities

Question 6

Equity

Answer 6

Obligation to owners

Question 7

Statement of Profit or Loss

Answer 7

(Income Statement) –
Financial performance over the year

Question 8

Statement of Changes in Equity

Answer 8

(Capital Account) – Changes in ownership investment

Question 9

Statement of Financial Position

Answer 9

(Balance Sheet) – Position at a moment in time (generally the end of the
financial year)

Question 10

Statement of Cash Flows

Answer 10

(source and use of cash)

Question 11

Entity concept

Answer 11

recording transactions from the perspective of the business

Question 12

Distribution

Answer 12

A distribution is a company’s payment of cash, stock, or physical product to its shareholders

Question 13

Double entry system

Answer 13

Every transaction has two parts to it, the source of the funds and the
use of the funds.

Question 14

Accounting Equation

Answer 14

(A = O + L)

Question 15

Profit at the start of a new year

Answer 15

Equals zero

Question 16

Acrrual basis of accounting

Answer 16

ensuring that Income and Expenses (all
transactions) are recorded in the year in
which they occur and NOT when cash is
received or paid.

Question 17

Cost price

Answer 17

what it costs to bring the item to the
location and condition where it is ready for the
purpose for which intended.

Question 18

Carrying Amount

Answer 18

cost price less accumulated
depreciation

Question 19

Depreciable amount

Answer 19

cost price less what the
item can be sold for (scrap value or residual
amount) at the end of its useful life – i.e. cost less
scrap value, only this figure to be depreciated

Question 20

Useful life

Answer 20

‘period over which an asset is
expected to be available for use by an entity’ or
‘the number of production or similar units
expected to be obtained from the asset by an
entity’.

Question 21

Depreciation

Answer 21

Depreciation is ‘the systematic allocation of the
depreciable amount (cost*) of an asset over its
useful (economic) life’
it is an expense

Question 22

Bad debt journal entry

Answer 22

Dr Bad Debts Exp; Cr Accounts Receivable: Debtor’s
name (if avail

Question 23

Inventory

Answer 23

Assets to sell

Question 24

Is rent prepaid an asset or expense

Answer 24

Difference between asset and expense. Rent prepaid is asset because you haven’t had the use of the rent

Question 25

Accounts receivable

Answer 25

outstanding payment to be received

Question 26

Accounts payable

Answer 26

outstanding payment to be payed

Question 27

Journal entry for depreciation

Answer 27

When equipment depreciates journal entry is accumulated depreciation

Question 28

Journal entry for supplies being used up

Answer 28

When supplies are used up they are entered as supplies expense

Question 29

Allowance for bad debts is written journal entry

Answer 29

allowance for doubtful debts and as bad debts expense

Question 30

Capital account equation

Answer 30

Capital contribution + profit - drawings

Question 31

Sole Proprietorship

Answer 31

sole trader
* No formal procedures to establish
* No separate legal entity (persona)
* No separate taxation (owner draws and
is taxed on profits)

Question 32

Partnership

Answer 32

combining resources
(expertise and financial) of a group of
individuals
* No formal procedures to establish
* Legal relationship (generally max 20
individuals)
* Not separate legal entity – all partners
jointly & severally responsible for debts
incurred
* Not taxed separately – partners pay tax

Question 33

Company

Answer 33

an incorporated entity
* Separate legal entity – owns assets,
respondible for debts
* Separate tax entity
* Owners are shareholders – do not own
assets – benefit dividends; do not owe
liabilities – limited liability

Question 34

private company

Answer 34

shareholders restricted

Question 35

public company

Answer 35

often listed on stock
exchange

Question 36

a company must supply annual financial statements to…

Answer 36

shareholders

Question 37

who appoints the directors of a company

Answer 37

shareholders

Question 38

non current asset

Answer 38

A non-current asset is a long-term investment that a business owns and expects to generate income from, but that is not easily converted to cash within a year

Question 39

current asset

Answer 39

A current asset is a resource that a business can use, sell, or convert to cash within a year. Current assets are also known as short-term assets or liquid assets because they are easier to convert to cash than long-term assets.

Question 40

examples of non current asset

Answer 40

Examples of non-current assets include:
Fixed assets: Property, plant, and equipment
Long-term investments: Bonds and shares
Intangible assets: Copyrights and patents
Natural resources: Assets with no fixed expiry

Question 41

examples of current asset

Answer 41

Examples of current assets include:
cash, accounts receivable, inventory, marketable securities, prepaid expenses, and supplies

Question 42

when recording a sale of inventory, what is the entry on P/L statement

Answer 42

sales (asset) increases by quantity sold
income increases by quantity sold
cost of sales of cost of inventory bought, affects assets and expenses

Question 43

entry when you receive cash for credit purchase

Answer 43

cash from rec +the purchase amount
Acc receivable -the purchase amount

Question 44

what are expenses paid in advance in A = OL

Answer 44

asset

Question 45

Capital account formula

Answer 45

Capital contribution + gross profit - drawings

Question 46

Gross profit formula

Answer 46

Sales - cost of sales

Question 47

Selling inventory journal entry

Answer 47

Debit Bank
Credit Sales
Debit Cost of Sales
Credit Inventory

Question 48

Ownership interest

Answer 48

Ownership interest is a legal term that refers to a person or entity’s stake in a property, business, or other asset.