Part A 10 Multiple Choice Questions (1 mark each - 10 marks in total) 1. Which of these effects of a single transaction on the accounting equation is not possible? a. Increase in assets at the same time as an equal increase in equity. b. Decrease in assets at the same time as an equal decrease in liabilities. c. Increase in liabilities at the same time as an equal decrease in liabilities. d. Decrease in liabilities and at the same time an equal decrease in equity. answer here: 2. The bookkeeper recorded wages for the month as a debit to the Sales account rather than as a debit to wages expense. This error will result in: a. no effect on profit of the period. b. understated liabilities at the end of the period. c. understated assets at the end of the period. d. overstated profit for the period. answer here: 3. Which statement concerning accrual accounting is true? a. Profit is the excess of cash inflows from income over cash outflows for expenses. b. Income from sales is recognised in the period when the cheque is cashed. c. For most businesses the cash approach gives a better measure of economic performance than does the accrual approach. d. Income is recognised in the period when the flow of economic benefits can be reliably measured. answer here: 3 4. Which of the following statements about closing entries is true? a. Closing entries are made at the end of each accounting period whatever its length. b. Closing entries are only made at the end of the accounting year. c. With computerised accounting systems there is no need to close off the expense and income accounts. d. The profit or loss summary account is used regularly when processing transactions for sales and expenses. answer here: 5. How many of these are advantages of using a subsidiary ledger and control account system? Removal of a mass of detail from the general ledger Ease of operation by responsible staff Improved internal control a. 0 b. 1 c. 2 d. 3 answer here: 6. Select the incorrect statement concerning accounting standards. a. They guide the preparation of reliable financial reports. b. They evolve with changes in business requirements. c. They improve the comparability of financial reports. d. They only apply to companies. answer here: 4 7. Which statement relating to reserves is not true? a. They represent items of equity other than share capital. b. They represent cash set aside to be drawn on in hard times. c. Retained earnings is a type of reserve account. d. When a non-current asset is revalued upwards a revaluation reserve is created. answer here: 8. Which statement relating to financial reports for a partnership is not true? a. Partners' salaries are normally treated as an allocation of profit. b. Income tax expense is deducted from the partnership profit at the end of the income statement. c. Each individual partner's equity in the business is reported separately. d. Interest on capital contributions is treated as an allocation of profits. answer here: 9. How many of these are areas where there are major differences in accounting treatment by sole traders and partnerships and accounting treatment by companies? Distributions to owners Accumulation of profits Accounting for income tax Accounting for equity Accounting for GST Accounting for inventory a. 3 b. 4 c. 5 d. 6 answer here: 5 10. Which statement is untrue? a. The statement of cash flows can provide information about the causes of changes in the entity's cash position over the period. b. Analysis of an entity's cash flow position requires an examination of trends in statement of cash flows items over several years. c. The statement of cash flows can explain the effects of operating activities on the entity's cash position. d. The statement of cash flows effectively duplicates the function of the cash budget. answer here: