Question 1

The two fundamental qualitative characteristics of accounting information are:
A) relevance and reliability.
B) relevance and faithful representation.
C) reliability and consistency.
D) faithful representation and comparability.

Accepted Answer

The two fundamental qualitative characteristics of accounting information are relevance and faithful representation. Relevance means that the information is capable of making a difference in the decisions made by users, while faithful representation means that the information is complete, unbiased, and accurate. While reliability and comparability are important characteristics as well, they are not considered to be fundamental.

Question 2

Which accounting assumption requires an accountant to be able to clearly identify the transactions to be recorded, classified and summarised into an entity's financial statements?
A) accrual basis assumption.
B) going concern assumption.
C) accounting equation assumption.
D) accounting entity assumption.

Accepted Answer

The accounting entity assumption requires that an accountant identifies a separate entity for which financial statements are to be prepared. As a result, the transactions should be clearly identified, classified, and summarized into that entity's financial statements.

Question 3

Helen decides to open her own ice-cream store and deposits $25 000 into her new business bank account on 1 October. The effect of this transaction on the accounting equation is:
A) Assets increase by$25 000; Equity increases by $25 000.
B) Assets increase by $25 000; Equity decreases by $25 000.
C) Assets increase by $25 000; Liabilities increase by $25 000.
D) Assets decrease by $25 000; Equity decreases by $25 000.

Accepted Answer

When Helen deposits $25,000 into her new business bank account, it increases the assets of the business by $25,000, as cash is an asset. At the same time, the equity of the business also increases by $25,000 as Helen has contributed her own money to the business. Therefore, the effect on the accounting equation is that assets increase by $25,000 and equity increases by $25,000.

Question 4

Which of the following is the most important consideration in ensuring that information is relevant for decision making?
A) A high degree of accuracy
B) Timeliness
C) Accrual basis
D) Materiality

Accepted Answer

Timeliness is the most important consideration in ensuring that information is relevant for decision making. Information that is not timely may be useless or even detrimental to the decision-making process. Accuracy, accrual basis, and materiality are also important considerations, but they are secondary to timeliness.

Question 5

Jane is a painting contractor operating as a sole proprietor. On 15 May she completes a job for a client who pays her $1500 in cash. The effect of this transaction on the accounting equation is?
A) Cash at bank increases by $1500; Accounts payable decreases by $1500.
B) Cash at bank increases by $1500; Equity increases by $1500.
C) Cash at bank increases by $1500; Accounts receivable decreases by $1500.
D) Cash at bank increases by $1500; Accounts payable increases by $1500.

Accepted Answer

As a sole proprietor, Jane's equity and personal finances are considered as one. Therefore, receiving cash payment directly impacts her equity account. The increase in cash at bank will be recorded as a debit to the cash account and the corresponding credit will be posted to her equity account. There is no accounts payable or accounts receivable involved in this transaction.

Question 6

On 1 September 2018 Streak-Free Window Cleaning pays $1800 in cash for supplies purchased on 22 July 2018. Assuming the business prepares monthly financial reports using the accrual basis, what effect does this payment have on the accounting equation?
A) Decrease in cash at bank $1800; decrease in liability accounts payable $1800.
B) Decrease in cash at bank $1800; increase in liability accounts payable $1800.
C) Decrease in cash at bank $1800; decrease in equity $1800.
D) Decrease in cash at bank $1800; increase in equity $1800.

Accepted Answer

The payment of $1800 for supplies purchased on 22 July on 1 September has the effect of decreasing the cash at bank by $1800 as the payment is made. At the same time, the liability, which was recorded as account payable, is reduced by the same amount as the payment is made against it. Hence, the accounting equation is affected as: 
Assets = Liabilities + Equity 
The payment decreases the asset (cash at bank), and this decrease is directly offset by a decrease in liabilities (accounts payable), leaving the equity unaffected. Thus, the correct option is A.

Question 7

Which qualitative characteristic improves the usefulness of financial reporting information by enabling the users to identify similarities in and differences between two sets of economic data?
A) relevance.
B) timeliness.
C) economic substance.
D) comparability.

Accepted Answer

Comparability is the qualitative characteristic that improves the usefulness of financial reporting information by enabling the users to identify similarities in and differences between two sets of economic data. Comparability allows users to make meaningful comparisons over time or across different entities. Relevance is the qualitative characteristic that ensures the information is capable of making a difference in the decisions of the users. Timeliness ensures that the information is available to the users in a timely manner, while economic substance ensures that the information accurately reflects the underlying economic reality of the transactions and events being reported.

Question 8

The assurance that the accounting information presented to users is complete, without bias or undue error, and neutral is knows as:
A) consistency.
B) verifiability.
C) faithful representation.
D) relevance.

Accepted Answer

Faithful representation refers to the assurance that accounting information is complete, without bias or undue error, and neutral. Consistency refers to the application of accounting principles over time, verifiability refers to the ability of an independent party to check and confirm the accuracy of the information, and relevance refers to the information being capable of making a difference in a decision-making process.

Question 9

Which of the following is not a possible effect on the accounting equation from a single transaction of $1000?
A) Assets increase by $1000; Equity increases by $1000.
B) Assets decrease by $1000; Liabilities decrease by $1000.
C) Liabilities increase by $1000; Liabilities decrease by $1000.
D) Liabilities decrease by $1000; Equity decreases by $1000.

Accepted Answer

The answer of Which of the following is not a...

Question 10

Bright Electronics divides their economic activities into time-frames of three months and prepares their financial statements for interested parties at the end of each time-frame. The accounting assumption being applied by Bright Electronics is:
A) Accounting entity
B) Going concern
C) Reliability
D) Accounting period

Accepted Answer

The accounting assumption being applied by Bright Electronics is the accounting period assumption, which divides the economic life of an enterprise into equal periods of time for financial reporting purposes. In this case, the Bright Electronics divides their economic activities into time-frames of three months and prepares their financial statements at the end of each time-frame.

Question 11

Genny is a small business owner. On 20 January she completes some work for a client on credit and sends the client an invoice for $250. On 10 February the client pays the account and Genny deposits the $250 into the business bank account. Assuming Genny prepares her financial statements each month, the receipt of cash on 10 February effects the accounting equation for Genny's business in the following way:
A) Cash at bank increases by $250; Equity increases by $250.
B) Cash at bank increases by $250; Accounts receivable decreases by $250.
C) Cash at bank increases by$250; Accounts receivable increases by $250.
D) Cash at bank increases by$250; Equity decreases by $250.

Accepted Answer

The receipt of cash increases the Cash at bank account, while simultaneously decreasing the Accounts receivable account by the same amount, with no immediate effect on Equity.

Question 12

Henry is an accountant operating as a sole proprietor. On 10 April he performs work for a client to the value of $400 on credit. The effect of this transaction on the accounting equation is:
A) Cash at bank increases by $400; Accounts payable decreases by$400.
B) Equity increases by $400; Accounts payable increases by $400.
C) Accounts receivable increases by $400; Equity increases by $400.
D) Cash at bank increases by$400; Equity decreases by $400.

Accepted Answer

Since the transaction is on credit, there is no effect on cash. Accounts receivable increases by $400 (an asset), and since the work is done by a sole proprietor, it increases his equity by $400. There is no effect on accounts payable since the transaction did not relate to any purchases on credit.

Question 13

Which of the following statements concerning the costs and benefits of financial reporting information is correct?
A) The benefits include better investment, credit and similar economic decisions.
B) The benefits result in more efficient markets and greater benefits for the economy as a whole.
C) The major constraint on reporting the absolute best information is the cost of generating that information and assuring that it is faithfully represented.
D) All of these options are correct.

Accepted Answer

All of the options are correct. Financial reporting information benefits investors, creditors, and other stakeholders in making better economic decisions. This, in turn, leads to more efficient markets and greater benefits for the overall economy. However, reporting the absolute best information is often constrained by the costs of generating and ensuring the faithful representation of that information.

Question 14

On 28 February Harold's Speedy Dry Cleaning received $100 for dry cleaning services provided on the same day. The effect on the accounting equation is:
A) Assets increase by $100; Equity increases by $100.
B) Assets increase by $100; Assets decrease by $100.
C) Assets increase by $100; Liabilities decrease by $100.
D) Assets decrease by $100; Equity decreases by $100.

Accepted Answer

When Harold's Speedy Dry Cleaning receives $100 for services provided, its assets increase because it now has $100 more in cash. This increase in assets is balanced by an increase in equity, since Harold's Speedy Dry Cleaning has earned $100 in revenue for providing its services. Therefore, the correct answer is A, where assets increase by $100 and equity increases by $100.

Question 15

Which accounting concept relates to the extent to which information can be omitted, misstated or grouped with other information without misleading the users of that information in their decision-making?
A) Verifiability
B) Relevance
C) Materiality
D) Economic substance

Accepted Answer

Materiality is the accounting concept that relates to the extent to which information can be omitted, misstated or grouped with other information without misleading the users of that information in their decision-making. Materiality is often judged in the context of the specific circumstances of the situation and based on the significance or impact that the information may have on users' decisions.

Question 16

__________________ is enhanced when information is classified, characterised, and presented clearly and concisely.
A) Understandability
B) Consistency
C) Verifiability
D) Reliability

Accepted Answer

Understandability refers to the degree to which information is accessible, easy to comprehend, and follows a logical sequence. When information is classified, characterised, and presented clearly and concisely, it enhances its understandability. Consistency refers to the extent to which information is presented uniformly and in a manner that is easy to compare and interpret. Verifiability refers to the ability to confirm the accuracy and reliability of information through independent analysis and testing. Reliability refers to the degree to which information is dependable, accurate, and consistent over time. While all of these choices may be important, the best answer for this specific question is A - Understandability.

Question 17

Lindy Jones withdrew $500 from her business bank account for personal use. The effect of this transaction on the accounting equation is:
A) Assets decrease by $500; Equity decreases by $500.
B) Assets decrease by $500; Equity increases by$500.
C) Assets decrease by $500; Liabilities decrease by $500.
D) Assets decrease by $500; Assets increase by $500.

Accepted Answer

Withdrawing money for personal use means a decrease in assets (cash) and a decrease in equity (owner's equity or retained earnings). It does not affect liabilities. So, option A is the correct choice.

Question 18

The four enhancing qualitative characteristics of accounting information are:
A) comparability, verifiability, timeliness and understandability.
B) consistency, timeliness, relevance and understandability.
C) materiality, comparability, economic substance and verifiability.
D) reliability, comparability, materiality, and timeliness.

Accepted Answer

The four enhancing qualitative characteristics of accounting information are comparability, verifiability, timeliness, and understandability, as stated in the International Financial Reporting Standards (IFRS). Choice B is incorrect because consistency is a fundamental qualitative characteristic, not an enhancing one. Choice C includes economic substance, which is not considered a qualitative characteristic. Choice D is incorrect because reliability is a fundamental qualitative characteristic, and materiality is not an enhancing one but a constraint.

Question 19

Information that is ____________ has a predictive role and a confirmatory or feedback role.
A) subjective
B) relevant
C) reliable
D) material

Accepted Answer

Information that is relevant is not only important but also plays a predictive role in helping us anticipate future outcomes. It also provides feedback or confirmation on whether we are on track towards achieving our goals. Therefore, relevance is a key factor in making informed decisions.

Question 20

When management plans the sale or liquidation of an entity, the going concern assumption is set aside and the financial statements are prepared on the:
A) accrual basis
B) cash basis
C) basis of estimated sales or liquidation values
D) basis of estimated expenses

Accepted Answer

When an entity plans to sell or liquidate, the going concern assumption is set aside, and the financial statements are prepared on the basis of estimated sales or liquidation values. This means that the financial statements will not reflect the company's operations as a going concern, and will instead reflect the assets and liabilities' estimated worth in their current state. The estimated values are effectively the expected cash inflows and outflows that will arise from selling off the assets and paying off the liabilities. Therefore, option C is the most appropriate choice.

Quiz 2: Financial Statements for Decision Making

The two fundamental qualitative characteristics of accounting information are:

Which accounting assumption requires an accountant to be able to clearly identify the transactions to be recorded, classified and summarised into an entity's financial statements?

Helen decides to open her own ice-cream store and deposits $25 000 into her new business bank account on 1 October. The effect of this transaction on the accounting equation is:

Which of the following is the most important consideration in ensuring that information is relevant for decision making?

Jane is a painting contractor operating as a sole proprietor. On 15 May she completes a job for a client who pays her $1500 in cash. The effect of this transaction on the accounting equation is?

On 1 September 2018 Streak-Free Window Cleaning pays $1800 in cash for supplies purchased on 22 July 2018. Assuming the business prepares monthly financial reports using the accrual basis, what effect does this payment have on the accounting equation?

Which qualitative characteristic improves the usefulness of financial reporting information by enabling the users to identify similarities in and differences between two sets of economic data?

The assurance that the accounting information presented to users is complete, without bias or undue error, and neutral is knows as:

Which of the following is not a possible effect on the accounting equation from a single transaction of $1000?

Bright Electronics divides their economic activities into time-frames of three months and prepares their financial statements for interested parties at the end of each time-frame. The accounting assumption being applied by Bright Electronics is:

Henry is an accountant operating as a sole proprietor. On 10 April he performs work for a client to the value of $400 on credit. The effect of this transaction on the accounting equation is:

Which of the following statements concerning the costs and benefits of financial reporting information is correct?

On 28 February Harold's Speedy Dry Cleaning received $100 for dry cleaning services provided on the same day. The effect on the accounting equation is:

Which accounting concept relates to the extent to which information can be omitted, misstated or grouped with other information without misleading the users of that information in their decision-making?

__________________ is enhanced when information is classified, characterised, and presented clearly and concisely.

Lindy Jones withdrew $500 from her business bank account for personal use. The effect of this transaction on the accounting equation is:

The four enhancing qualitative characteristics of accounting information are:

Information that is ____________ has a predictive role and a confirmatory or feedback role.

When management plans the sale or liquidation of an entity, the going concern assumption is set aside and the financial statements are prepared on the: