Question 1

A statement of financial position aims to show:&#10;A) The market value of the firm's net assets.&#10;B) That all the transactions have been recorded in the books of the business.&#10;C) The assets and liabilities of the business at a particular date and the capital invested in the business.&#10;D) How much a business is worth.

Accepted Answer

A statement of financial position, also known as a balance sheet, provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.

Question 2

Which of the following is NOT a current asset?&#10;A) Trade receivables&#10;B) Bank overdraft&#10;C) Inventories&#10;D) Prepayment

Accepted Answer

A bank overdraft is considered a current liability, not a current asset, as it represents an amount owed to the bank.

Question 3

The closing capital account balance is always equal to:&#10;A) Non-current assets PLUS current assets PLUS current liabilities LESS long-term liabilities.&#10;B) Non-current assets PLUS current assets LESS current liabilities LESS long-term liabilities.&#10;C) Non-current assets LESS current assets LESS current liabilities LESS long-term liabilities.&#10;D) Non-current assets PLUS current assets LESS current liabilities PLUS long-term liabilities

Accepted Answer

The closing capital account balance is calculated by taking total assets (non-current assets plus current assets) and subtracting total liabilities (current liabilities plus long-term liabilities).

Question 4

Which of the following is a current liability?&#10;A) An accrual&#10;B) Equipment&#10;C) Trade receivables&#10;D) Loan repayable in three years

Accepted Answer

An accrual is a current liability as it represents expenses that have been incurred but not yet paid, typically due within a year.

Question 5

Which of the following statements regarding trade receivables is true?&#10;A) Trade receivables owe money to the business.&#10;B) Cash sales give rise to trade receivables.&#10;C) Trade receivables are suppliers of the business who have supplied goods on credit.&#10;D) Trade receivables are a non-current asset of a business.

Accepted Answer

Trade receivables represent amounts owed to the business by customers who have purchased goods or services on credit.

Question 6

Lucy had the following balances on her trial balance at 30 June 2024: Trade receivables of £21,000, inventories of £34,500, balance at bank of £2,020, accruals of £1,200, loan of £11,000 repayable on 31 March 2025, and motor vehicles with a value of £30,000. What is the value of Lucy's non-current assets and current assets at 30 June 2024?

A) Non-current assets of £30,000 and current assets of £36,520.
B) Non-current assets of £nil and current assets of £58,720.
C) Non-current assets of £nil and current assets of £57,520.
D) Non-current assets of £30,000 and current assets of £57,520.

Accepted Answer

Non-current assets include motor vehicles valued at £30,000. Current assets include trade receivables (£21,000), inventories (£34,500), and balance at bank (£2,020), totaling £57,520.

Question 7

Josh has been trading for one year as at 31 December 2024 and during that year he paid electricity bills amounting to £760. On 14 January 2025 he received an electricity bill for the three months to 31 December 2024 for £310. He eventually paid the bill on 31 January 2025. His accounts for the year ended 31 December 2024 should show:

A) A statement of profit or loss charge for electricity of £1,070 and an accrual of £310 on the statement of financial position.
B) A statement of profit or loss charge for electricity of £760 and an accrual of £310 on the statement of financial position.
C) A statement of profit or loss charge for electricity of £1,070 and a prepayment of £310 on the statement of financial position.
D) A statement of profit or loss charge for electricity of £760 and a prepayment of £310 on the statement of financial position.

Accepted Answer

The total electricity expense for the year should include the £760 paid and the £310 accrued for the bill received after year-end, totaling £1,070. The £310 is an accrual because it relates to the period ending 31 December 2024 but was not paid until January 2025.

Question 8

Which of the following would NOT be classified as a liability on the statement of financial position?&#10;A) A loan&#10;B) An accrual&#10;C) Trade receivables&#10;D) Bank overdraft

Accepted Answer

Trade receivables are classified as an asset, not a liability, because they represent amounts owed to the company by customers.

Question 9

Which of the following would be a non-current asset of a bakery?&#10;A) The shop fittings&#10;B) The inventories of bread and flour&#10;C) The delivery van, hired from Special Wheels&#10;D) The capital put into the business by the owner

Accepted Answer

Non-current assets are long-term investments or assets that a company expects to use for more than one year. Shop fittings are considered non-current assets as they are used over a long period.

Question 10

Arjun's business pays rent quarterly in advance. The business year end is 31 December 2023 and the trial balance at that date shows a figure for rent of £2,150, before any adjustments. On 1 December 2023, Arjun had paid rent of £570 for the three months to the end of February 2024. His accounts for the year ended 31 December 2023 should show the following:

A) The rent expense charged in the statement of profit or loss should be £1,580.
B) The rent expense charged in the statement of profit or loss should be £2,150.
C) The rent expense charged in the statement of profit or loss should be £2,530.
D) The rent expense charged in the statement of profit or loss should be £1,770.

Accepted Answer

The answer of Arjun's business pays rent quarterly in advance....

Deck 3: Balancing the Basics