Deck 1: An Introduction to Accounting

Question 1

The accounting process includes which steps:

A) identifying, measuring, recording and communicating.
B) identifying, recording, communicating and justifying.
C) measuring, adjusting, recording and communicating.
D) measuring, evaluating, recording and communicating.

Answer 1

identifying, measuring, recording and communicating.

Question 2

The sole trader form of business organisation:

A) must have at least two owners.
B) combines business records with the personal records of the owner.
C) results in the owner having personal liability for the debts of the business.
D) is a separate legal entity.

Answer 2

results in the owner having personal liability for the debts of the business.

Question 3

The majority of business in Australia is transacted by:

A) sole traders.
B) partnerships.
C) government units.
D) companies.

Answer 3

companies.

Question 4

One advantage of the company form of business structure is that:

A) it has limited life.
B) the liability of the owners is unlimited.
C) it provides the owners with shared control.
D) it makes higher profits.

Question 5

A company has the following set of characteristics:

A) provides owners with shared control, simple to establish.
B) simple to set up, owner retains control.
C) complex to set up, provides owners with shared control.
D) provides owners with shared control, unlimited liability.

Question 6

Which of the following statements is false?

A) The definition of reporting entity forms the foundation of the Conceptual Framework as all other elements flow from it.
B) A reporting entity must prepare general purpose financial reports that comply with accounting standards.
C) Political or economic importance is a factor in determining whether an entity is a reporting entity.
D) The objective of general purpose financial reports is to provide information that is useful to existing and potential investors, creditors and other external users.

Question 7

The purpose of financial reports is to:

A) provide information for decision making.
B) report profit.
C) pay tax to the ATO.
D) report to the bank.

Question 8

Which of the following user groups is an internal user of accounting information for the XYZ Company Ltd?

A) auditors from the Australian Taxation Office.
B) management of XYZ Company.
C) creditors of XYZ Company.
D) customers of XYZ Company.

Question 9

Johnny's Car Repairs had total assets of $60,000 and total liabilities of $40,000 at the beginning of the year. During the year the business recorded $100,000 in revenues, $55,000 in expenses, and dividends of $10,000 were distributed. Equity at the end of the year is:

A) $55,000.
B) $35,000.
C) $65,000.
D) $45,000.

Question 10

Johnny's Car Repairs had total assets of $60,000 and total liabilities of $40,000 at the beginning of the year. During the year the business recorded $100,000 in revenues, $55,000 in expenses, and dividends of $10,000 were distributed. Profit reported by Johnny's Car Repairs for the year was:

A) $35,000
B) $45,000
C) $20,000
D) $90,000

Question 11

If total liabilities decreased by $14,000 during a period of time and equity increased by $6,000 during the same period, then the change in total assets is:

A) an increase of $14,000.
B) an increase of $20,000.
C) a decrease of $8,000.
D) an increase of $8,000.

Question 12

An annual report includes all of the following except:

A) chairman and directors' reports.
B) notes to the financial statements.
C) an auditor's report.
D) detailed salary package of clerical staff.

Question 13

A company's reviews of operations, dividend details and information about important events after the date of the financial statements are all found in the:

A) auditor's report.
B) directors' report.
C) notes to the financial statements.
D) income statement.

Question 14

Categories usually found on the face of a classified statement of financial position include:

A) assets, liabilities, equity.
B) revenues, expenses, profit.
C) cash receipts, cash payments.
D) retained earnings dividends.

Question 15

Cash is usually classified as:

A) revenue.
B) an expense.
C) retained earnings.
D) a current asset.

Question 16

Included among current liabilities on a classified statement of financial position would be:

A) cash.
B) property, plant and equipment.
C) deferred tax assets.
D) short-term borrowings.

Question 17

The Financial Reporting Council (FRC) is responsible to the government for:

A) the broad oversight of the accounting standard-setting process.
B) urgent accounting issues.
C) development of a conceptual framework for financial reporting.
D) taxation issues for companies.

Question 18

Accounting standards issues by the Australian Accounting Standards Board (AASB) are consistent with those issued by the:

A) Financial Reporting Council (FRC).
B) Australian Taxation Office.
C) Urgent Issues Group.
D) International Accounting Standards Board.

Question 19

Which of the following statements is false?

A) GAAP in Australia is a combination of accounting standards and interpretations as well as concepts and principles that have developed over time.
B) The Australian Securities and Investments Commission monitors a company's compliance with accounting standards and the Corporations Act.
C) Members of the FRC are appointed by the Australian Accounting Standards Board.
D) Listed public companies must comply with Australian Securities Exchange listing rules which, for financial reporting purposes, focus on disclosure of information.

Question 20

The accounting entity concept states that each entity:

A) can be separately identified and accounted for.
B) cannot reasonably report all of its activities in financial statements.
C) cannot distinguish events of the business from its owners.
D) will remain in operation for the foreseeable future.

Question 21

What are the qualitative characteristics that enhance the decision usefulness of relevant information faithfully represented in financial statements?

A) Generally accepted accounting principles (GAAP).
B) Accounting entity concept and the cost principle.
C) Comparability, verifiability and understandability.
D) Comparability, verifiability, understandability and timeliness.

Question 22

Accounting information is relevant if it:

A) would influence a business decision.
B) makes no difference to a business decision.
C) is not material to a business decision.
D) is immaterial.

Question 23

Comparability of financial information results when:

A) different entities use different accounting principles.
B) different entities use the same accounting principles.
C) that information can be depended upon to be relevant.
D) the financial reports are understandable.

Question 24

Liquidity ratios measure:

A) the ability of a company to pay its obligations that are due within the next year or operating cycle.
B) the operating success of a company for a period of time.
C) the ability of a company to survive over a long time.
D) the extent to which a company's assets are financed by debt.

Question 25

Solvency measures the ability of a business to:

A) repay its long-term debts at maturity and interest as it becomes due.
B) meet its short-term obligations.
C) pay its obligations that will fall due within the operating cycle.
D) turn its inventory into cash.

Question 26

A debt to total assets ratio of 80%:

A) means that 20% of investment in assets has been provided by lenders.
B) is undesirable for creditors .
C) is desirable for creditors.
D) is likely to be supported by cyclical entities that have fluctuating profits, such as many high-tech companies.

Question 27

Select whether each item would appear on the statement of cash flows as :

-Cash receipts from customers.

A)(O) operating activity
B)(I) investing activity
C)(F) financing activity

Question 28

Select whether each item would appear on the statement of cash flows as :

-Issuing shares for cash.

A)(O) operating activity
B)(I) investing activity
C)(F) financing activity

Question 29

Select whether each item would appear on the statement of cash flows as :

-Cash purchase of equipment.

A)(O) operating activity
B)(I) investing activity
C)(F) financing activity

Question 30

Select whether each item would appear on the statement of cash flows as :

-Cash payments to suppliers.

A)(O) operating activity
B)(I) investing activity
C)(F) financing activity

Question 31

Select whether each item would appear on the statement of cash flows as :

-Sale proceeds of old machine for cash

A)(O) operating activity
B)(I) investing activity
C)(F) financing activity

Question 32

Prepare an income statement, statement of changes in equity, and a statement of financial position for the dental practice of Jerry Cole, from the items listed below for the month of October 2018.

Question 33

Use the following accounts and information to prepare an income statement, a statement of changes in equity, and a statement of financial position for Lazares Services Ltd for the month ended 31 July 2018.

Question 34

Listed below in alphabetical order are statement of financial position items of Rowen Ltd at 31 December 2018. Prepare a classified statement of financial position.

Question 35

Select whether each item would appear on :

-Service Revenue

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 36

Select whether each item would appear on :

-Water and Light Expense

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 37

Select whether each item would appear on :

-Cash

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 38

Select whether each item would appear on :

-Accounts Payable

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 39

Select whether each item would appear on :

-Office Supplies

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 40

Select whether each item would appear on :

-Wage Expense

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 41

Select whether each item would appear on :

-Accounts Receivable

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 42

Select whether each item would appear on :

-Share Capital

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 43

Select whether each item would appear on :

-Equipment

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 44

Select whether each item would appear on :

-Advertising Expense

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 45

Select whether each item would appear on :

-Dividends paid

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 46

Select whether each item would appear on :

-Income Tax Payable

A) Income Statement (IS)
B)Statement of Financial Position (SFP)
C)Statement of Changes in Equity (SCE)

Question 47

The directors of Tomas Sanchez Ltd were reviewing the company business activities at the end of the year (2018) and decided to prepare a Statement of Changes in Equity. At the beginning of the year company assets were $500,000, liabilities were $150,000, and share capital was $100,000. Profit for the year was $420,000. Dividends paid of $220,000 were paid during the year. Prepare a Statement of Changes in Equity for Tomas Sanchez Ltd.

Question 48

At 1 September 2018, the Statement of Financial Position for Arnold's Restaurant Ltd contained the following items:
The following transactions occurred during the next two days: shareholders invested an additional $22,000 cash in the business and accounts payable were paid in full. Prepare a statement of financial position for Arnold's Restaurant Ltd at 3 September 2018.

Question 49

From the following list of selected items taken from the records of Downing Clinic Ltd, identify those that would appear on the Statement of Financial Position.

Question 50

Determine the missing items.

Question 51

For the items listed , select the appropriate code letter whether the item is :

-Rent Expense

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 52

For the items listed , select the appropriate code letter whether the item is :

-Office Equipment

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 53

For the items listed , select the appropriate code letter whether the item is :

-Accounts Payable

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 54

For the items listed , select the appropriate code letter whether the item is :

-Share capital

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 55

For the items listed , select the appropriate code letter whether the item is :

-Insurance Expense

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 56

For the items listed , select the appropriate code letter whether the item is :

-Cash

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 57

For the items listed , select the appropriate code letter whether the item is :

-Accounts Receivable

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 58

For the items listed , select the appropriate code letter whether the item is :

-Retained earnings

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 59

For the items listed , select the appropriate code letter whether the item is :

-Service Revenue

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 60

For the items listed , select the appropriate code letter whether the item is :

-Loan Payable

A) Asset (A)
B) Liability(L)
C) Equity item (E)

Question 61

Classify each of these items as :

-Accounts receivable

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 62

Classify each of these items as :

-Accounts payable

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 63

Classify each of these items as :

-Share capital

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 64

Classify each of these items as :

-Office Supplies

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 65

Classify each of these items as :

-Retained earnings

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 66

Classify each of these items as :

-Cash

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 67

Classify each of these items as :

-Loan Payable

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 68

Classify each of these items as :

-Equipment

A) Asset (A)
B) Liability (L)
C) Equity (E).

Question 69

At the beginning of the year, Wise Company Ltd had total assets of $700,000 and total liabilities of $300,000.
1. If total assets increased $225,000 during the year, and total liabilities decreased $100,000, what is the amount of equity at the end of the year?
2. During the year, total liabilities increased $315,000 and Equity decreased $130,000. What is the amount of total assets at the end of the year?
3. If total assets decreased $60,000 and Equity increased $180,000 during the year, what is the amount of total liabilities at the end of the year?

Question 70

Reinhart's Carpet Cleaning Ltd has the following statement of financial position items:

Question 71

On 1 June 2018, Lewis Company Ltd prepared a Statement of Financial Position that shows the following:
Shortly thereafter, all of the assets were sold for cash. How would the statement of financial position appear immediately after the sale of the assets for cash for each of the following cases?

Question 72

Presented below are the qualitative characteristics of information contained in general-purpose financial reports.
a. relevance
b. reliability
c. comparability
d. understandability
Identify the qualitative characteristic that fits the statement below:
-Information in general-purpose financial reports should be_____________ to users who have the proficiency to comprehend the significant accounting practices.

Question 73

Presented below are the qualitative characteristics of information contained in general-purpose financial reports.
a. relevance
b. reliability
c. comparability
d. understandability
Identify the qualitative characteristic that fits the statement below:
-Information that can be depended on and without undue error is said to be _________.

Question 74

Complete the following statements:
-The claim of owners on the assets of a business is known as ________________.

Question 75

Complete the following statements:
-If different entities use the same accounting principle, the financial reports of those entities are _________________.

Question 76

Match the items by selecting the appropriate code letter :

-Financial information is collected quickly so that it does not lose its relevance.

A) Internal users
B) Directors' report
C) Annual report
D) Sole trader
E) Timeliness
F) Australian Securities Exchange
G) Assets
H) Liabilities
I) Expenses
J) Retained earnings

Question 77

Match the items by selecting the appropriate code letter :

-Consumed assets or services.

A) Internal users
B) Directors' report
C) Annual report
D) Sole trader
E) Timeliness
F) Australian Securities Exchange
G) Assets
H) Liabilities
I) Expenses
J) Retained earnings

Question 78

Match the items by selecting the appropriate code letter :

-Ownership is limited to one person.

A) Internal users
B) Directors' report
C) Annual report
D) Sole trader
E) Timeliness
F) Australian Securities Exchange
G) Assets
H) Liabilities
I) Expenses
J) Retained earnings

Question 79

Match the items by selecting the appropriate code letter :

-Officers and others who manage the business.

A) Internal users
B) Directors' report
C) Annual report
D) Sole trader
E) Timeliness
F) Australian Securities Exchange
G) Assets
H) Liabilities
I) Expenses
J) Retained earnings

Question 80

Match the items by selecting the appropriate code letter :

-Creditor claims against the assets of the business.

A) Internal users
B) Directors' report
C) Annual report
D) Sole trader
E) Timeliness
F) Australian Securities Exchange
G) Assets
H) Liabilities
I) Expenses
J) Retained earnings