SECTION 3. THEORY QUESTIONS (30 MARKS = 30 MINUTES) Write a brief answer to each of the following, using clear and grammatical sentences. Each question is worth 10 marks. A. FINANCIAL STATEMENT INFORMATION Using the generally accepted accounting principles you have learned in this course, discuss the accuracy of the dollar amounts in the balance sheet for each of the following items: i) accounts receivable, ii) equipment (capital assets), il) bank loan payable. Also, items in the financial statements are often supplemented with detailed notes. Provido two examples of information that might be included in the notes for each of ii) equipment (capital assets) and iii) bank loan payable. B. ACCOUNTING FOR INVENTORY The valuation of inventory affects both the income statement and balance sheet. Explain how each of these accounting principles: i) historical cost and ii) prudence are related to the accounting for inventory. Explain the relationship between inventory and sales revenue. NOTE: Prudence means that whenever there is uncertainty, the accountant should choose an alternative that does not overstate assets or income. C. CASH FLOW STATEMENTS Comment on the following statement, "A statement of cash flows is unnecessary because the increase or decrease in cash for the period can easily be seen by looking at the cash account on two successive balance sheets". Your answer should include any benefits provided by a cash flow statement. SECTION 3. THEORY QUESTIONS (30 MARKS = 30 MINUTES) Write a brief answer to each of the following, using clear and grammatical sentences. Each question is worth 10 marks. A. FINANCIAL STATEMENT INFORMATION Using the generally accepted accounting principles you have learned in this course, discuss the accuracy of the dollar amounts in the balance sheet for each of the following items: i) accounts receivable, ii) equipment (capital assets), il) bank loan payable. Also, items in the financial statements are often supplemented with detailed notes. Provido two examples of information that might be included in the notes for each of ii) equipment (capital assets) and iii) bank loan payable. B. ACCOUNTING FOR INVENTORY The valuation of inventory affects both the income statement and balance sheet. Explain how each of these accounting principles: i) historical cost and ii) prudence are related to the accounting for inventory. Explain the relationship between inventory and sales revenue. NOTE: Prudence means that whenever there is uncertainty, the accountant should choose an alternative that does not overstate assets or income. C. CASH FLOW STATEMENTS Comment on the following statement, "A statement of cash flows is unnecessary because the increase or decrease in cash for the period can easily be seen by looking at the cash account on two successive balance sheets". Your answer should include any benefits provided by a cash flow statement
