Deck 4: The Income Statement and the Cash Flow Statement

Question 1

The realization principle requires that the earning process should be complete.

Answer 1

False

Question 2

In the absence of new equity being introduced the profit or loss for a period equals the change in wealth from the start to the end of the period.

Answer 2

True

Question 3

The matching principle requires that revenue must be matched with all expenses incurred in creating that revenue.

Answer 3

True

Question 4

The profit and loss account and income statement are different names for the same thing.

Question 5

An expense is an expired cost.

Question 6

Freddie a taxi driver has been in business from 1 July but has decided that his accounting year ends on 31 December provides the following information about his expenses. Receipts from fares £ 16000, repairs £600, cost of taxi £12000, road fund licence £ 240 paid on 1 July, Insurance £1 200 paid on 1 July, petrol £1 800. The profit for the six months is:

A) £160
B) £880
C) £12880
D) £12260
E) None of the above

Question 7

To be classified as an expense of an enterprise certain conditions have to be met these are:

A) A cost has to be incurred
B) A benefit has to accrue to the enterprise
C) The benefit has to be used in the period
D) All of the above

Question 8

In the case of a shipbuilder engaged in a government contract which of the following would be the earliest point at which it would be reasonable to recognise revenue?

A) At the point the contract is signed
B) As payments on account are received
C) As invoices for work done are raised
D) When the work is complete and the ship has been delivered
E) When final payment is received

Question 9

The income statement and the cash flow statement are different names for the same thing.

Question 10

Which of the following statements is incorrect?

A) Revenue minus expenses = profit or loss
B) Receipts minus payments = profit or loss
C) Wealth at the end of the period minus wealth at the start = profit or loss
D) Assets at the end of the period - liabilities at the end of the period = owners' equity at the start of the period plus or minus the profit or loss for the period
E) None of the above

Question 11

The realization principle states that revenue should be recognised:

A) When the earning process is complete and money due is received
B) When the earning process is complete and the receipt of money is reasonably certain
C) When the earning process is substantially complete and most of the money due has been received
D) When the earning process is substantially complete and the receipt of money is reasonably certain

Question 12

Using the information in question 20 above. What should the figure for accruals be?

A) £o
B) £450
C) £600
D) £1300
E) £1750

Question 13

Using the information in question 20 above. What should the figure for prepayments be?

A) £0
B) £450
C) £1750
D) £1150
E) £1350

Question 14

The income statement records the revenue and expenses relating to a period of time.

Question 15

The realization principle requires that monies earned have been received.

Question 16

Revenue is all moneys arising from the sale of an enterprise's assets.

Question 17

Expenses always relate to the period in which they are incurred.