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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

Each ledger account is formatted like the Cash account, divided into two sides – a debit side and a credit side. However, whereas each side of the Cash account has five columns, each side of a
Joe Cameron extracted the following balances from his books of account on 31.12.2010:Required: Assuming that the only balance he did not extract is the one from the Capital account, set out these
The accounting entries for recording £100,000 cash introduced by the owner of a business are:(a) Debit Cash account and credit Investments account(b) Credit Cash account and debit Investment in
Remember that every cash transaction is:1. Recorded in the Cash Book, the receipts being entered on the debit side and the payments on the credit side;2. Posted to a ledger account, ensuring that the
Philip McDonald commenced business as a dealer in cellphones. How should the following transactions of his business be accounted for? Transactions 1. Commenced business bringing £25,000 in
Accounting entries for recording payment of a telephone bill are:(a) Debit Capital and credit Cash account(b) Debit Cash account and credit Telephone expenses account(c) Credit Cash account and debit
On 31 December 2010, the last day of the accounting period, Bernard’s Retail Stores reports the balances in all the accounts as follows:Required: Prepare a Trial Balance as at 31 December 2010.
When Alan Rayan failed the finals of his Business Administration degree, he opened a shop near the university selling secondhand books. The bookkeeper who maintained his ledger resigned shortly after
On completion of one week of trading Mike Burton extracted a Trial Balance from his books of account as shown. He informs you that:(a) All goods bought for sale have been sold;(b) All expenses have
Accounting entries for recording payment of a loan to Jill, working as manager:(a) Debit Jill’s Loan account and credit Cash account(b) Debit Cash account and credit Jill’s Loan account(c) Credit
In a retail shop owned by Daisy Hall, all transactions were correctly recorded in the Cash Book and posted strictly in compliance with the rules of double-entry accounting to appropriate ledger
Which of the following would you say is the essential quality of an asset?(a) The business should own it(b) It should be possible to see, feel and use it(c) It should bring economic benefit to
The year-end Trial Balance extracted from the books of a business owned by Joe Cameron is shown. You are informed as follows:(a) All goods purchased for sale have been sold by the year-end.(b) All
You, as the cashier, check the accuracy of your Cash account by ascertaining whether the cash in hand matches the amount stated as the balance in the Cash account. Tick the appropriate grid to
The Cash account of a confectioner records the sales as £216,480 and the purchases as £196,475 in the first year of business. Sales are always made at cost plus 20% and no confectionery remains
Transactions had been recorded and posting was up to date as at 17 May 2010. Four of the ledger balances are shown. The following amounts were received on 18 May:Received from sales £1,500.Received
Which of the following is an asset?(a) Capital(b) Cash(c) Sales(d) Salaries
Bernard owns a retail outlet. His qualified bookkeeper who maintained his accounting records has resigned by the year-end. Bernard was so confident that he had sufficient knowledge of double-entry
State in Column A the side on which each of the accounts listed below would have its balance, and in column B whether you would classify each of the named accounts as an asset account, liability
Which of the following accounts reports an asset?(a) Bank loan account(b) Bank account(c) Sales account(d) Capital account
On 31 March 2010, the last day of his accounting period, Jim Barrymore, a retailer, extracted the following balances from all accounts in his books:Required:(a) Set out the above balances in the form
In Chapter 3 we accounted for Angela’s transactions during the first week of her business and extracted a Trial Balance showing the balances in all her accounts at close of business on that day, as
Peter Roger, who owns and operates a retail outlet, has extracted the year-end Trial Balance from the books of his business as shown. He explains that all amounts stated have been rounded off to the
Which of the following statements describes a liability?(a) Amount by which expenses exceed income of a business(b) Amounts which have to be repaid within the accounting period(c) Amounts owed(d)
Which of the following is a liability?(a) Bank loan(b) Stationery(c) Land and buildings(d) Sales
Richard owns a newsagents shop. One day a week he employs a relief manager. He wants to be confident that all amounts received from sales are being fully recorded and every amount paid out is for a
In a retail shop, selling confectionery, which of the following transactions may be expected to occur most frequently on a daily basis:(a) Payment of rent(b) Sale of confectionery(c) Receiving money
Arnold commenced business on 3 January 2010. His receipts and payments have been recorded in a Cash account as shown on the right.Required: Post each transaction to the appropriate account in
Identify the impact of each of the following accounting errors on the Trial Balance:(a) £1,200 paid as rent has been entered in the Cash account but has not been posted;(b) £150 received from sales
Assuming that each of the errors stated below is the only accounting error, identify by placing a tick in the appropriate box the amount by which the Trial Balance will fail to balance.(a) £360
Stated below is a list of account balances extracted from the books of a trader on the last day of his accounting period.Required:(a) Set out the account balances in the form of a Trial Balance and
The following information relates to four different businesses – A to D.Required: On the basis of the information provided in respect of each, calculate what the total assets of each business
Which of the following is not an expense of an estate agent?(a) Rent for business premises(b) Commission earned by the business(c) Staff salary(d) Advertising
Fill the blank grid with the appropriate values, bearing in mind that the assets of a business less its liabilities would be the amount of the owner’s capital. Business
The balance in the Capital account represents:(a) The total of all assets of the business(b) Cash and any other assets introduced by the owner at commencement of business(c) The amount of cash
What is an accounting period?(a) A calendar year(b) Twelve months ending exactly on the anniversary of commencing business(c) A period of one year(d) Any regular period, usually of 12 months’
Which of the following accounts will have a credit balance?(a) Motor vehicle account(b) Sales account(c) Cash account(d) Salaries account
Which of the following accounts will have a debit balance?(a) Sales account(b) Furniture account(c) Capital account(d) Commission earned account
Which pair of accounts stated below will have balances on opposite sides?(a) Sales account and Capital account(b) Furniture account and Cash asccount(c) Capital account and Purchases account(d)
Birdland paid cash to purchase bird cages for re-sale. Which of the following is correct?(a) Total assets of the business would increase(b) Owner’s capital will decrease(c) There will be no effect
The owner of Birdland paid in additional capital amounting to £50,000 in cash.As a result of this:(a) The assets and capital will decrease(b) The liabilities and capital will increase(c) The assets
If the effect of a transaction is that it reduced both the assets and the liabilities of a business by £100,000, which of the following is that transaction likely to be:(a) Discharge of a loan(b)
Will the total assets increase, decrease or remain unchanged by each of the following transactions?(a) Additional cash introduced as capital by the owner(b) Salary paid to staff(c) Loan received from
Which of the following transactions would cause £50,000 increase in both total assets and total liabilities of a business:(a) Acquisition of a computer for office use for £50,000 on delayed payment
The owner of a business transferred her private car into the business for use by her staff.The effect of this transaction would be:(a) Decrease owner’s capital and increase assets(b) Increase
Which of the following is known as the accounting equation?(a) Liabilities = assets + owner’s capital(b) Assets = liabilities − owner’s capital(c) Assets − liabilities = owner’s capital(d)
How would you define the ‘net assets’ of a business?(a) Total assets − owner’s capital(b) Total assets + liabilities(c) Total assets − liabilities(d) Owner’s capital + liabilities
If, as at the year-end, the total assets of a business were £189,000 and business liabilities were £126,000, what would be the owner’s capital as at that date?(a) £63,000(b) £126,000(c)
If the net assets of a business totalled £540,000 and its liabilities totalled £316,800, its total assets on that date would amount to:(a) £223,200(b) £540,000(c) £633,600(d) £856,800
If net assets of a business totalled £200,000 and its total assets on that date amounted to £325,000, its liabilities would amount to:(a) £125,000(b) £200,000(c) £525,000(d) Not sufficient
Bernard’s Retail extracted a Trial Balance from their books of accounts on 31 December 2010, the last day of its accounting period, as shown on the right. You are informed that:(a) All goods
Rahim started a mobile car wash service – The Visit and Shine. As capital he introduced £2,000. The effect of bringing that amount on the accounting equation would be:(a) Liabilities and assets
Rahim received £40 when he carried out his first car wash job. The effect of this transaction on the accounting equation is:(a) Liabilities and assets are both increased by £40(b) Liabilities and
Which of the following would be an appropriate description of £40 received by Rahim for his first car wash job?(a) Revenue expenditure of £40(b) Capital expenditure of £40(c) A capital receipt of
Place a tick in the appropriate grid to identify the balance that would be brought down in each of the following named accounts, in the books of Rizwy Mohamed:(a) In the Cash account: if Rizwy
Which of the following would be an appropriate description of £9 Rahim paid to advertise his services:(a) Revenue expenditure of £9(b) Capital expenditure of £9(c) A capital receipt of £9(d) A
The effect of a credit entry on the balance in a ledger account is(a) Increase the balance in an asset account(b) Decrease the balance in a liability account(c) Increase the balance in asset and
Which of the following statements is incorrect? According to the rules of double-entry:(a) A debit entry increases the balance in assets and expenses accounts(b) A credit entry increases the balance
What type of accounting error has occurred when a payment of £1,570 for advertising was entered in the Cash account as £5,170?(a) Error of principle(b) Error of omission(c) Entry error(d) Error of
What type of accounting error has occurred when payment for office stationery is posted to the Purchases account?(a) Error of duplication(b) Double-entry error(c) Entry of principle(d) Error of
What type of accounting error has occurred when the cost of redecorating office premises is posted to the Land and buildings account?(a) Entry error(b) Error of duplication(c) Error of principle(d)
What type of accounting error has occurred when the same payment of £32 for office cleaning is recorded twice in the Cash account?(a) Error of principle(b) Entry error(c) Entry of principle(d) Error
What type of accounting error has occurred when £,4500 paid for purchases is not posted?(a) Double-entry error(b) Error of principle(c) Error of commission(d) Compensating error
Every business prepares its annual financial statements using the balance/balances in(a) All accounts in the ledger and the balance in the Cash account(b) In the Cash Book(c) The Trial Balance(d) All
The list of balances in all the accounts remaining after the income and expense accounts have been closed by transfer of their balances to the Statement of income is called:(a) The List of
Which of the following statements is correct: A Statement of financial position reports:(a) How well off a business is as at that date(b) The wealth of the one owning the business(c) The assets and
Accounting entries for repayment of a loan received from Richard, the owner’s friend:(a) Debit Cash account and credit Richard’s Loan account(b) Debit Cash account and credit Capital account(c)
Bennett, a wholesale dealer in toys, commenced business on 1 April 2010 with a capital of £12,000 which he deposited immediately in a Bank account. His transactions in the first week have already
As the bookkeeper, to which side of the appropriate ledger account will you post the following transactions already recorded in the Cash account:(a) Payment of rent for business premises(b) Receipt
A trader, who commenced business in the year, extracted his Trial Balance on the last day of the first month as shown on the right. It failed to balance. Which of the following would explain the
Which of the following errors would have caused a difference in the Trial Balance?(a) Posting payment of £21,000 for stationery as £12,000 to the Stationery account(b) Not recording in the Cash
Which of the following errors will a Trial Balance fail to reveal?(a) Payment of £240 for stationery being posted as £420(b) Payment of £2,800 for goods to be sold being posted to the Stationery
Mike Burton commenced trading on 3 January 2010 with a capital in cash of £10,000. His transactions during the first week were as follows:Required:(a) Record these transactions in the Cash account
The total of the debit balances listed in a Trial Balance will not be equal to that of credits:(a) If an amount entered in the prime entry book is not posted(b) If an amount paid for purchases is
Which of the following statements is correct:(a) A Trial Balance is a list of all entries made in the books of account(b) A Trial Balance is a list of balances in all ledger accounts(c) A Trial
Faisal Ahmed commenced business on 7 November 2010 selling flat panel computer monitors. He buys them for £180 each and sells them at £250 each. The Cash account shown below records his receipts
Which of the following statements is correct:(a) A Trial Balance will always balance(b) A Trial Balance reports the profit or loss made by a business(c) A Trial Balance reports the financial position
The list of account balances, stated below, has been extracted from the books of a newsagent ‘First with the News’ as at the year-end on 31 March 2010. The only balance not included in the list
Listed below are the names of some ledger accounts. State whether you would expect to find a debit balance or a credit balance in each. Name of ledger account Capital account Purchases
Jeremy opened a vehicle repair garage with a capital of £10,000. He made the following payments on the first day:(a) Paid £1,000 as rent for the premises.(b) Paid £3,000 for furniture.(c) Paid
To which class of account would the bookkeeper post each of the payments listed below?(a) Payment for paper for the office photocopier(b) Payment of rent for office premises(c) Repayment of part of a
Identify whether you need to make a debit entry or credit entry in each of the five accounts stated below to increase and decrease the balance in that account. The account name Capital account Staff
Faisal Ahamed carries on a business selling flat panel computer monitors. He buys each monitor at £180 and sells each at £250. His transactions during the first week of business, ending 12 November
Thelma Splash is the owner of Waterways4U, a business hiring out kayaks. The following payments made by the business have been all credited in the Bank account. Thelma wishes to know whether each
To which class of account would you post each of following amounts received?(a) Receipt from sale of goods(b) Receipt of capital from the owner of the business(c) Recovery of part of a loan given to
What are the responsibilities of the directors and auditors in relation to the OFR?
What is the Combined Code?
The following is a summarized balance sheet of Nithsdale Ltd.The company is considering three possible changes to its capital structure:(a) Issue for cash 50,000 additional ordinary shares at £1 per
Why does the company not record the buying and selling of shares in its balance sheet?
What is meant by:(a) Offer for sale(b) Capitalization issue(c) Rights issue?Explain the effect of each of the above on the balance sheet of a company.
Why is financial gearing riskier for a company which has fluctuating profits?
Explain the use of the pyramid of ratios in analysis of performance.
What is the objective of the operating and financial review?
Why is there no prescribed format for the OFR?
What are the main principles set by the ASB for the OFR?
What are the main elements of the disclosure framework for the OFR?
What are the particular requirements of the OFR Regulation that must be reported in an OFR?
What is the definition of ‘cash equivalent’?
Why has it been found impossible to write a definitive guide on the meaning of ‘a true and fair view’?
What are the three main sections of a cash flow statement?

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