Question 1

Commission was earned which will be paid for in 4 months' time.

Accepted Answer

When commission is earned, it is recognized as revenue, and since it will be paid in the future, it increases accounts receivable, which is an asset.

Question 2

A customer paid his account in full.

Accepted Answer

The answer of A customer paid his account in full.
...

Question 3

The company received cash dividends on investments.

Accepted Answer

When a company receives cash dividends, its cash (an asset) increases, and it recognizes dividend income, which increases revenue.

Question 4

After which of the following transactions will the accounting equation NOT balance?

Accepted Answer

Payment to a supplier recorded as an increase in an asset and a decrease from another asset will not balance the accounting equation because the total assets will not change.

Question 5

Assets at the end of the period are $120 000 and liabilities have increased by $36 000.Dividends of $12 000 were declared and paid,and no shares were issued during the period.The net profit or loss during the period is:

Accepted Answer

The answer of Assets at the end of the period...

Question 6

If at the end of the financial year,2 months' interest is owing to the company from the bank,the effect on the accounting equation is that:

Accepted Answer

The interest owed by the bank is considered accrued income, which increases assets (interest receivable) and also increases owners' equity as it represents income earned.

Question 7

Consider the following transactions. 
(i)Collect $100 000 from accounts receivable.
(ii)Receive $80 000 from a client for work to be done in the next accounting period.
(iii)Inventory (costing $50 000)sold on credit for $90 000.
(iv)Shares issued for $1 million.
Which of the above transactions do NOT increase revenue?

Accepted Answer

The answer of Consider the following transactions. 
(i)Collect $100 000...

Question 8

During the year,the liabilities of a company decreased by $32 034 and the assets decreased by $16 035.Consequently the owners' equity must have:

Accepted Answer

According to the accounting equation (Assets = Liabilities + Owners' Equity), if liabilities decrease by $32,034 and assets decrease by $16,035, the owners' equity must increase by the difference, which is $15,999.

Question 9

During the accounting period there were no share issues,liabilities increased by $45 000,assets increased by $90 000,expenses of $55 000 were incurred and net profit was $115 000.Therefore,dividends declared must have been:

Accepted Answer

Assets increased by $90,000, liabilities increased by $45,000, and expenses were $55,000. So, total increases were $90,000 + $45,000 + $55,000 = $190,000. Net profit was $115,000. So, the increase in equity must have been $190,000 - $115,000 = $75,000. Since there were no share issues, the increase in equity must have been due to retained earnings and dividends. So, dividends declared must have been $75,000 - $115,000 = $70,000.

Question 10

Given the following information,how much revenue would be recognised in June? (i)Credit sales of $100 000 in June,20% to be collected in June.
(ii)Collected $70 000 in June from customers for May sales.
(iii)Received a deposit in June from a customer for $30 000 for work to be carried out in August.

Accepted Answer

The answer of Given the following information,how much revenue would...

Question 11

A company's first transaction in 2012 was to pay $7500 cash for wages earned and recognised as an expense in 2011.Which of the following changes took place as a consequence of that transaction?

Accepted Answer

The payment of $7500 cash for wages that were recognized as an expense in 2011 reduces the company's liabilities, as the wages payable liability is settled.

Question 12

A company's first event in the year commencing 1 July 2012 was to pay $250 cash for stationery purchased in June 2012; this was recognised as an expense in that month.Which of the following changes took place as a consequence of this event?

Accepted Answer

The answer of A company's first event in the year...

Question 13

Consider the following information. 
(i)$20 000 of accounts payable was paid.
(ii)$100 000 from accounts receivable was received.
(iii)Inventory of $200 000 was purchased on credit.
(iv)Credit sales of $700 000 (cost of goods sold was $450 000)were made.
(v)$10 000 of prepayments expired during the month.
What is the profit for the period?

Accepted Answer

To compute the profit, we need to use the formula: 
Profit = Revenue - Expenses

Revenue: 
- From (ii), $100,000 was received from accounts receivable. 
- From (iv), credit sales of $700,000 were made. To get the actual revenue earned, we need to subtract the cost of goods sold (COGS). Since COGS was $450,000, we have: 
Revenue = $700,000 - $450,000 = $250,000

Expenses: 
- From (i), $20,000 of accounts payable was paid. 
- From (iii), inventory of $200,000 was purchased on credit. 
- From (v), $10,000 of prepayments expired during the month.

Total expenses = $20,000 + $200,000 + $10,000 = $230,000

Therefore, 
Profit = Revenue - Expenses 
Profit = $250,000 - $230,000 
Profit = $20,000

Therefore, the profit for the period is $20,000. Option B is the correct answer.

Question 14

A new managing director was appointed to commence in 3 months' time on a salary of $250 000 per annum.

Accepted Answer

The appointment of the managing director has no direct effect on the accounting equation, as no transactions have occurred yet. Therefore, there is no change to any assets, liabilities, or equity.

Question 15

At the end of the accounting period,3 months' interest is owing to the company on a term deposit with the bank.

Accepted Answer

Interest owing on a term deposit is accrued interest, which is considered as earned revenue not yet received. Therefore, it increases an asset (interest receivable) and increases revenue.

Question 16

An account was paid for stationery purchased in the previous accounting period.

Accepted Answer

When an account is paid, an asset (cash) decreases and a liability (accounts payable) decreases. This option states that an asset decreased (cash) and a liability decreased (presumably accounts payable for the stationery).

Question 17

Which of the following statements is NOT true?

Accepted Answer

The correct answer is B because the change in total liabilities is calculated as the change in total assets minus the change in owners' equity. In this case, the change in total assets is a $30,000 decrease and the change in owners' equity is a $35,000 decrease, so the change in total liabilities is a $65,000 increase.

Question 18

A cheque was drawn to pay an account payable.

Accepted Answer

When a cheque is used to pay an account payable, an asset (cash in the bank) is decreased, and a liability (account payable) is decreased as well.

Question 19

Which of the following items would decrease profit for the year?

Accepted Answer

None of the options directly decrease profit for the year. Purchasing equipment for cash affects cash flow, not profit. Payment or declaration of a dividend affects retained earnings, not profit.

Question 20

A customer was invoiced for services rendered.

Accepted Answer

When a customer is invoiced for services rendered, it means that the company has earned revenue. This increases the revenue account, which is an equity account that shows the total income earned by the company. It also increases the accounts receivable account, which is an asset account that shows the amount of money owed to the company by its customers. Therefore, an asset (accounts receivable) increases and revenue increases.

Quiz 3: The Double-Entry System