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IGCSE Accountings Theory Q&A 2018 > Theory > Flashcards

Theory Flashcards

1
Q

Explain the term Capital Expenditure and give an example

A

Explanation:
Money spent on acquiring, improving and installing non-current assets

Example:
Purchase of premises

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2
Q

Explain Revenue Expenditure and give an example

A

Explanation:
Money spent on running the business on a day-to-day basis

Example:
Payment of wages

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3
Q

Explain Revenue receipts and give an example

A

Explanation:
Amounts received in the day-to-day trading activities from revenue and other items of income

Example:
Rent received

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4
Q

Suggest 2 reasons why it is possible to have a debit balance on a purchases ledger control account

A
  • payment made in advance

- overpayment of the amount owing

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5
Q

Formula of the rate of inventory turnover

A

Cost of sales / average inventory

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6
Q

Suggest 2 problems when working capital inadequate

A
  • unable to pay debts when they fall due

- unable to take advantage of cash discount (prompt payment)

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7
Q

Explain why the outstanding loan interest should not be credited to the loan account

A
  • loan interest is an expense account / accrued interest is a current liability
  • loan is a non current liability
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8
Q

Suggest 2 reason why the rate of inventory turnover decreased

A
  • higher inventory levels

- lower sales activity

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9
Q

State the meaning of a contra entry in connection with control accounts and the reason such an entry is made

A

Meaning:
A contra entry is one which appears on the debit side of the purchases ledger control account and the credit side of the sales ledger control account

Reason: the entry is made when a sales ledger account is set off against a purchases ledger account of the same person/ business

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10
Q

Give 2 reasons why the sales ledger control account has a credit balance

A
  • overpayment by customer
  • payment made by customer without deducting cash discount
  • goods returned by customer after payment of balance due
  • payment made in advance by customer
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11
Q

States 1 disadvantage to the supplier when the trade payable payment period exceeds the payment period

A
  • adversely affects liquidity position

- increase risk of bad debt

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12
Q

State 1 advantage to the supplier when the trade receivables collection period exceeds the payment period

A
  • may charge interest on overdue account

- do not have to allow the customer cash discount

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13
Q

Formula for mark up

A

Gross profit / cost of sales X 100

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14
Q

Explain 2 factors to consider before comparing financial statements with other business’

A

(1 mark for point and 1 mark for development)

  • business in the same trade
  • business of approximately the same size
  • business of the same type(eg: sole trader)
  • businesses may operate different accounting policies
  • statements do not show non-monetary factors
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15
Q

Explain why a business should consider historical cost before comparing financial statements with others

A
  • the financial transactions are recorded at the actual cost
  • because of this it is difficult to compare transactions taking place at different times
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16
Q

Name 4 objectives a business should consider when selecting accounting policies

A
  • relevance
  • comparability
  • reliability
  • understandability
17
Q

Explain why the partners calculated the quick ratio as well as the current ratio

A
  • inventory is not included in the calculation of quick ratio
  • quick ratio shows the ability of the business to current liabilities from liquid assets
18
Q

Suggest 2 ways in which the profit for the year could be increased

A
  • control expenses
  • increase other income
  • reduce cost of manufacturing
  • increase sales activity
19
Q

Explain what is meant by income statement

A

A statement in which the profit or loss for the year is calculated

20
Q

Explain the term statement of financial position

A

A statement showing the assets and liabilities of a business on a certain date

21
Q

Explain the term non-current assets

A
  • assets which are purchased not for resale

- assets which will be kept by the business for more than 12 months

22
Q

Explain the term non-current liabilities

A

Liabilities which are not due for repayment within 12 months

23
Q

Explain the term capital

A
  • the amount the business owes the owner of the business

OR

  • any resources provided for a business by the owner of that business
24
Q

Give one example of an intangible asset

A
  • goodwill
  • patents
  • trademarks
25
Q

Comment on the current ratio

3.62 : 1

(CA more than CL)

A
  • it is much higher than the “benchmark” of 2:1
  • current liabilities can easily be paid from current assets
  • funds are not being used very effectively
26
Q

Explain why quick ratio is a better measurement of liquidity than the current ratio (2)

A
  • inventory is excluded from the calculation of quick ratio

- inventory is not regarded as a liquid asset

27
Q

Suggest 2 ways in which the rate of inventory turn over can be improved

Cost of sales / average inventory

A
  • reduce inventory levels

- increase sales activity

28
Q

Suggest 2 ways to increase gross profit margin (gross profit / revenue x 100)

A
  • increasing selling price
  • reduce trade discount allowed to customers
  • find cheaper supplier
  • obtain better trade discount
29
Q

State why it is not possible to have a credit balance in the cash column of the cash book

A

It is not possible to take out more cash than is in the cash box

30
Q

State 2 reasons for maintaining a petty cash book

A
  • reduce the number of entries in the main cash book
  • reduces the number of entries in the ledger
  • allows the chief cashier to delegate some of the work
31
Q

Explain the importance of return on capital employed

A
  • shows the profit earned for each $100 used in the business
  • the higher the percentage, the more efficiently the capital is being employed
32
Q

Define cost (inventory)

A

Cost is the purchase of the goods plus any additional costs incurred in bringing the inventory to its present condition and position

33
Q

Define net realisable value (inventory)

A

It is the estimated receipts from the sale of the inventory less any costs of completing or selling the goods

IGCSE Accountings Theory Q&A 2018 (7 decks)

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