Questions and Answers of Accounting For Non Accountants

Name the two key financial statements that measure a business’s financial performance and financial position.
List as many users of accounting information as you can and the purposes to which they put that information.
What are the main two or three branches of accountancy?
Which accounting standards apply to smaller entities?
What are the contents of a listed company’s annual report and accounts?
List as many accounting conventions as you can, stating their purpose.
Which system of bookkeeping is most suited to a self-employed plumber?
Define a receipts and payments account.
Prepare a receipts and payments account from the following information for Gosforth Gardeners Association, showing the cash balance at the end of the year:Cash at start of year £1,270 Bulk purchase
Identify whether the following are debit or credit account balances: expenses; liabilities; assets.
Name the two T accounts you would use to record the payment of a sum of money owed to a supplier (for goods bought on credit).
Prepare T accounts and a trial balance for John Deel, a market trader, who has provided you with the following information relating to his first year in business:Opened a business bank account with
Prepare a profit and loss account and balance sheet from the above trial balance relating to a baker’s shop. Ignore depreciation.Assume there was nil stock at the year-end and that any profit is
What is meant by a chart of accounts?
Explain the difference between a journal and a ledger.
Name three possible kinds of income statement.
A profit and loss account is a statement of all monies received during a period less all monies paid out. True or false? Give reasons.
Define depreciation.
What is the balance sheet value of an asset after three years if its original cost of £16,000 is depreciated at 20 per cent pa on the reducing balance method?
On inheriting £9,000, you decided to open a shop and paid three months’ rent, in advance, on 1 October. The annual rental is £6,000.In the first week you fitted out the shop at a cost of £4,800
Why must a balance sheet always balance?
What are the two main groups of assets called?
What are the main two sources of long-term capital for a company?
Why is the goodwill of a company, built up over many years, not shown as an asset in its balance sheet?
Distinguish between operating leases and finance leases.
Name the three main types of stocks.
Why will there be a difference between the total value of customers’ invoices outstanding and the amount shown as debtors in a company’s balance sheet?
Differentiate between ordinary shares and preference shares.
Why do companies prepare a cash flow statement in addition to a profit and loss account and balance sheet?
What is the difference between the operating profit and the net cash inflow from operating activities?
Which figures would you compare in a cash flow statement to discover whether a company was merely replacing old fixed assets or making additions to them?
If a cash flow statement shows a final cash inflow for the period, is it therefore trading profitably?
Why does a self-employed person not normally show drawings in their profit and loss account list of expenses?
Subject to any partnership agreement, in what ways may partners share out the profit between themselves?
Is the retained profit for the year of a limited company, the profit before or after charging tax and dividends?
Why are consolidated accounts prepared for a group of companies?
What are minority interests in a group balance sheet?
What is the difference between a historic cost profit and a current cost profit?
What happens if a firm distributes all of its historic cost profit as dividends at a time of high inflation?
Name the four adjustments to historic cost profit that appear in a current cost profit and loss account.4 . If an asset is revalued, how does a balance sheet still balance?
Define value added.
A value added statement is based on the same concepts, and uses the same information, as which statement?
How might a firm use the value added to measure changes in productivity and efficiency?
Name the four parties to whom value added is distributed.
Even when firms do not include a value added statement in their annual reports, they may distribute one to which party?
What is an accounting ratio?
Complete the following equation:Return on capital = profit margin × ........................?
Is there an ideal value for each ratio? If not, how are ratios used?
Which ratio would you use to examine whether a company was short of cash if you knew it could not borrow any more money?
Which company is more vulnerable? Company A, which pays annual interest of £50,000 and makes a profit of £100,000, or Company B, which pays £150,000 interest and makes £500,000 profit?
What ratios are used to measure performance in public sector services?
What is the purpose of a Z score?
Suggest three performance measures suitable for measuring quality in a manufacturing industry.
What is meant by a balanced scorecard?
Name three types of benchmarking.
Is costing primarily concerned with revenue or capital costs?
Which documents typically convey basic cost data to accountants in an organization?
Distinguish a cost unit from a cost centre.
Give an example of a variable cost for: a leisure centre; a firm making cosmetics; and an electricity supply company.
In what ways can direct labour be remunerated?
What bases can be used to price materials drawn from an internal store?
In what ways does an activity-based costing system differ from a departmental overhead recovery system?
Prepare a price quotation for the jobbing printer (mentioned early in the chapter) who has now received an order for 10,000 A5 menu cards. Direct materials are estimated at £180 and machine time
What size profit margin is required to give a return on capital of 30 per cent when the turnover of capital is two times?
What costing method is most suited to oil refining?
How would a local authority know if its unit cost for providing a particular service was high, low, or indifferent?
What two bases can be used to split the common costs of joint products up to the separation point?
What is the purpose of target costing?
Draw a break-even chart to decide from which firm you would hire a car. Firm A charges £50 per day plus 28p per mile while Firm B charges £36 per day plus 40p per mile.
Draw the break-even chart shown in Figure 13.3 and read off the amount of profit made when output equals 18,000 units.
Referring to the information in Figure 13.7, would you advise the directors of Imet Ltd to discontinue product C if they could use the same resources to produce 80 per cent more of product A? (Assume
Your repair yard has been asked to tender for an immediate repair to a damaged ship, which will provide work for the next few weeks. The yard is short of work, with many workers idle, although being
A firm sells a product for £25 which has a variable cost of £14.Fixed overheads amount to £800,000 in total and the firm requires a return of 20 per cent on the £1.5 million capital employed. How
A firm has sales of £200,000, £300,000, and £400,000 for its three product lines X, Y, and Z and variable costs of £100,000,£180,000, and £280,000 respectively. Owing to a skilled labour
Assuming cost is the sole consideration, when is it preferable to buy in rather than source internally?
What is meant by throughput?
What is the difference between throughput and contribution?
What performance indicator would you use to measure changes in throughput efficiency?
Define the activity ratio.
Name some management techniques which may be used when setting a standard cost specification.
Variances are either favourable or ...?
Define and give the formula for the labour efficiency variance.
The standard cost specification for a product is as follows:Selling price £31 Less: Factory costs:Direct material – 12 kg at £0.50 £6 Direct labour – 2 hours at £6.00 £12 Variable overhead
The standard material cost of fabric specified for a particular garment is £4.50, comprising three metres at £1.50 per metre.Last week, 1,000 garments were made using 3,200 metres of fabric bought
What is a key or limiting factor in budgeting?
What factors would you consider when fixing the sales budget for the coming year?
What have budgetary control and standard costing systems got in common?
A firm has 350 kg of a raw material in stock at the beginning of a budget period. Production will use 10,000 kg of the material during the period and the firm wants the stock level to increase to 750
How does PPBS differ from budgetary control?
How does activity-based budgeting differ from traditional methods of budgeting?
What is meant by a high level of gearing?
Using the illustration in Figure 16.2, calculate the return on equity in the high gearing case when the profit is £1,000,000 and the tax rate is 50 per cent.
What is the current cost of interest on a new loan if a firm has an existing 8 per cent loan repayable in three years’ time and is quoted at £75 per £100 nominal value?
What is the after-tax cost of interest for a company paying 35 per cent rate of corporation tax if it pays 12 per cent interest on a bank loan?
Canny plc ordinary shares sell at £1.50 at the present time and the growth of profits and dividends has averaged 10 per cent pa in recent years. What is its cost of equity capital if the latest
Calculate the nominal weighted average cost of capital in Figure 16.5 when the proportion of loan capital to equity is 40:60.
What are the situations where an investment appraisal is relevant?
What is the payback period for the annual cash flows contained in Figure 17.3?
What is the present value of £4,000 receivable in three years’time if the cost of capital is 12 per cent?
What is the net present value of an investment of £20,000 now, with an annual cash return of £5,000 for each of 10 years, if the cost of capital is 15 per cent?

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