Question 1

Which of these does not fit the accounting definition of an asset?

Accepted Answer

Staff skill and experience is not a tangible or intangible resource that is owned or controlled by an entity and that can be used to produce value. It may be valuable to a business, but it is not considered an asset under accounting standards. The other options, accounts receivable, goodwill, and cash at bank, are all assets that meet the accounting definition.

Question 2

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For the local cricket club which of the following would be a financing activity?

Accepted Answer

Borrowing money from a bank is a financing activity as it involves acquiring funds from external sources to finance the club's operations or investments. Paying for lawn mowing and paying the annual subscription to the cricket association are operating activities, while renovating the clubhouse is an investing activity.

Question 3

Which of the following statements is true?

Accepted Answer

Equity represents the owner's claim on the assets of the entity after deducting all liabilities. The statement A is incorrect because profit can be represented by non-cash items as well such as depreciation expense. The statement B is incorrect because a withdrawal for private use is not a business expense and should not be included in the income statement. The statement D is incorrect because it is the formula for calculating profit as per the statement of changes in equity and not the income statement.

Question 4

If income is $180 000, rent expense is $120 000 and advertising expense is
$10 500, profit or loss is which of the following?

Accepted Answer

Profit = Income - Expenses
Profit = $180,000 - ($120,000 + $10,500)
Profit = $49,500

Question 5

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For a medical practice, which of the following would be an operating activity?

Accepted Answer

Billing a patient for a consultation is an activity directly related to the core operations of a medical practice, and thus it is classified as an operating activity. Purchasing new equipment and repaying a loan are typically classified as investing and financing activities, respectively. Selling an old computer could be either an investing or financing activity, depending on the circumstances.

Question 6

A balance sheet would normally balance at:

Accepted Answer

A balance sheet is a statement that shows the financial position of an entity. It lists the assets, liabilities, and equity of the entity. The total assets must equal the total liabilities and equity (i.e., the sum of liabilities and equity should be equal to the sum of assets), meaning that the balance sheet must balance. Therefore, the correct answer is A, total assets.

Question 7

Which of these is not an alternative term for equity?

Accepted Answer

Bank account balance is not an alternative term for equity. Proprietorship, Owners' equity, and Capital are all alternative terms for equity.

Question 8

__________ is/are resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Accepted Answer

Assets are the resources controlled by an entity that are expected to provide future economic benefits. Liabilities are obligations of the entity to transfer economic resources to other entities, equity represents the residual interest in the assets of the entity after deducting liabilities, and income is revenue minus expenses earned during a period. Therefore, the correct answer is B) Assets.

Question 9

Julio's opening capital at 1 July 2011 was $50 000, his profit for the year was
$18 000 and his drawings were $15 000. What is the final balance of his capital at the end of the year?

Accepted Answer

The final balance of capital is calculated as: Opening capital + Profit - Drawings = $50,000 + $18,000 - $15,000 = $53,000.

Question 10

Which of these is not income?

Accepted Answer

Additional capital contributed by the owner is not considered income but is considered equity. Income includes receipts from the sale of goods, receipts from the provision of services, and interest received.

Question 11

Which of these is not an alternative name for the income statement?

Accepted Answer

The income statement is also known as the operating statement or profit and loss statement. The statement of financial position, on the other hand, is the balance sheet. Therefore, option D is not an alternative name for the income statement.

Question 12

Which of these is not a liability?

Accepted Answer

Wages paid are not a liability because they have already been paid out by the business. Liabilities refer to obligations or debts that a company owes and has yet to pay. GST payable, bank overdraft, and creditor are all examples of liabilities as they represent amounts owed that have not been paid yet.

Question 13

The income statement reports the financial:

Accepted Answer

The income statement reports the financial performance of an entity over a specified period of time, usually for one year. It shows the revenues earned and expenses incurred by the entity during that period, as well as any gains or losses. The result of the income statement is the net income or net loss of the entity.

Question 14

Users of accounting information want to know about an entity's ______________________, that is, its control over economic resources, financial structure, capacity for adaptation and solvency.

Accepted Answer

Users of accounting information are interested in an entity's financial position, which includes its control over economic resources, financial structure, capacity for adaptation, and solvency. This information can be obtained by analyzing an entity's balance sheet and other financial statements, which provide information about its assets, liabilities, equity, and cash flows. The financial position of an entity is an important indicator of its ability to meet its financial obligations and to grow and thrive over time.

Question 15

On 31 July 2014 Comfy Heaters sells goods to Barker who agrees to pay for them within 45 days. On the balance sheet of Comfy Heaters at 31 July 2014 the amount owing by Barker would be reported as the asset:

Accepted Answer

The amount owing by Barker represents an account receivable, which is an asset for Comfy Heaters. Choice A (cash at bank) is incorrect because the payment has not been received yet. Choice B (accounts payable) is incorrect because this account represents the company's own debts to suppliers, not its customers' debts to the company. Choice D (creditor) is incorrect because this account represents the company's own debts to suppliers or lenders, not the debts owed to the company by its customers.

Question 16

If an entity has assets of $168 900 and liabilities of $70 000 its equity is:

Accepted Answer

Equity = Assets - Liabilities
Equity = $168 900 - $70 000
Equity = $98 900

Question 17

If the loss for the period is $15 000 and total income is $115 000, total expenses for the period are:

Accepted Answer

Total expenses for the period can be calculated by subtracting the loss from the total income: 
Total expenses = Total income - Loss 
Total expenses = $115 000 - $15 000 
Total expenses = $100 000 
Therefore, the correct answer is B) $130 000 as it is not among the options.

Question 18

The statement that measures an entity's financial position is the:

Accepted Answer

The balance sheet provides information about an entity's assets, liabilities, and equity, which together represent its financial position at a certain point in time. The income statement shows an entity's revenues and expenses over a certain period of time, the statement of cash flows shows the entity's cash inflows and outflows during a period, and the statement of changes in equity shows how the various components of equity have changed during a period. None of these statements provide a direct representation of an entity's financial position.

Question 19

From the point of view of a business entity, a person or business to whom a debt is owed is known as a:

Accepted Answer

A creditor is a person or business to whom a debt is owed by another person or business. The debtor is the one who owes the debt. "Debitor" is not a commonly used term and "bank" is not necessarily always the person or business to whom a debt is owed.

Question 20

The statement that explains the changes in equity and serves as a link between the balance sheet and the income statement is which of the following?

Accepted Answer

The statement of changes in equity shows the changes in equity over a period of time and acts as a bridge between the balance sheet and income statement by explaining the changes in equity that occurred during the period. The statement of cash flows shows the inflows and outflows of cash during the period, the operating statement is another term for the income statement, and the statement of financial position is another term for the balance sheet.

Quiz 2: Financial Statements for Decision Making