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.

Accepted Answer

The four steps of the accounting process are identifying, measuring, recording and communicating relevant transactions and events.

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.

Accepted Answer

Under the sole trader business structure the owner of the business has no separate legal existence from the business. The owner of the business is therefore personally liable 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.

Accepted Answer

The majority of business in Australia is transacted by 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.

Accepted Answer

A company is a separate legal entity and has an indefinite life that is independent of the shareholders. Shareholders of most companies have limited liability for the debts of the company and if there is more than one director, the decision making is usually a shared responsibility.

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.

Accepted Answer

There are initial costs associated with incorporation for a company and then ongoing fees and regulations to comply with. If there is more than one director, then the decision making is usually a shared responsibility. Shareholders of most companies have limited liability for the debts of the company.

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.

Accepted Answer

The objective of general purpose reporting forms the foundation of the Conceptual Framework. If we know why we need to report then who needs to report can be determined and then what and how the information is to be reported follow. All the other statements are correct.

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.

Accepted Answer

The purpose of financial reports is to provide information for decision making.

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.

Accepted Answer

Managers are internal users of accounting information.

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.

Accepted Answer

Beginning equity was $20,000 ($60,000 - $40,000), profit for the year is $45,000 ($100,000 - $55,000) therefore $20,000 + $45,000 - $10,000 = $55,000.

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

Accepted Answer

Profit is $45,000 ($100,000 - $55,000).

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.

Accepted Answer

Assets = Liabilities + Equity therefore assets = - $14,000 + $6,000 = -$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.

Accepted Answer

An annual report would not contain detailed information regarding the salaries or clerical staff. This type of information is for internal decision making only and is not available for external users.

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.

Accepted Answer

Operational review and information relating to dividends, and post balance day events is included in the directors' report.

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.

Accepted Answer

The main sections in the statement of financial position are assets, liabilities and equity.

Question 15

Cash is usually classified as:
A) revenue.
B) an expense.
C) retained earnings.
D) a current asset.

Accepted Answer

Cash is usually classified as 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.

Accepted Answer

Short term borrowings are debts that are due to be settled within 12 months and are included as current liabilities in a classified statement of financial position.

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.

Accepted Answer

The FRC is the body that advises the Commonwealth Government on the accounting standard-setting and auditing standard-setting processes.

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.

Accepted Answer

The accounting standards issued by the Australian Accounting Standards Board (AASB) are substantially consistent with those issued by the 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.

Accepted Answer

Members of the FRC appoint members of the AASB. Members of the FRC are appointed by the Commonwealth Treasurer and include key stakeholders from the business community, the professional accounting bodies, governments and regulatory agencies. All other statements are correct.

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.

Accepted Answer

The accounting entity concept states that every entity can be separately identified and accounted for.

Quiz 1: An Introduction to Accounting

The accounting process includes which steps:

The sole trader form of business organisation:

The majority of business in Australia is transacted by:

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

A company has the following set of characteristics:

Which of the following statements is false?

The purpose of financial reports is to:

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

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:

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:

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:

An annual report includes all of the following except:

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:

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

Cash is usually classified as:

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

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

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

Which of the following statements is false?

The accounting entity concept states that each entity: