Deck 2: Analysing Transactions and Preparing Year End Financial Statements

Question 1

A balance sheet:

A) Discloses all financial factors affecting an organisation at a particular moment in time.
B) Provides a record of today's worth of an organisation's assets, liabilities and owners equity.
C) Reveals how an organisation's assets and liabilities have changed over a period of time
D) Provides a listing of an organisation's assets, liabilities and owner's equity as at a particular date.
E) All of the above

Answer 1

D

Question 2

Imagine you are reviewing a financial report which has the following words in its heading "As at 30^th June 2009". This signifies that the report:

A) Could be a balance sheet
B) Could be a profit and loss statement
C) Could be a statement of owners' equity.
D) Could be a cash flow statement.
E) Could not be any of the above

Answer 2

A

Question 3

Identify which of the following statements is untrue.

A) A balance sheet is always presented with assets on the left and liabilities and owners' equity on the right.
B) The balance sheet can be seen as a reflection of the accounting equation.
C) The total of all assets must be the same as the total of liabilities and owners' equity.
D) Assets are generally listed on the balance sheet in order of their liquidity.
E) The balance sheet shows the total amount of money owed to creditors.

Answer 3

A

Question 4

The Mosaic hotel hosts an afternoon seminar for Brief Conventions Ltd. Brief Conventions has received an invoice from Mosaic for $1,200 to cover the event. Following the event, but prior to receiving Brief Conventions' payment, Mosaic would report the amount owing on its balance sheet as:

A) A liability
B) An account payable
C) A customer advance payment
D) Revenue
E) An account receivable

Question 5

Inventory should be listed on the balance sheet under what heading?

A) Assets
B) Liabilities
C) Owners' equity
D) Revenue
E) Expense

Question 6

With respect to owners' equity, which of the following statements is true?

A) It represents assets minus liabilities.
B) It is only affected by owners investing capital in their business or owners taking money out of the business.
C) It reflects the owners' liquidity in the business.
D) It does not change once owners invest and the business starts operations.
E) None of the above statements are true

Question 7

If a hotel buys $800 of wine on 30 days credit in July, the following would occur:

A) In July expenses would increase by $800 and accounts payable would increase by $800.
B) In July expenses would increase by $800 and the hotel's bank account would decrease by $800.
C) In July wine inventory would increase by $800 and the hotel's bank account would decrease by $800.
D) In July cost of wine sales would increase by $800 and accounts payable would increase by $800.
E) In July wine inventory would be increased by $800 and accounts payable would be increased by $800.

Question 8

Accountants refer to a reduction in owner's equity following the consumption of resources in connection with making sales as:

A) An equity deficit
B) An expense
C) Depreciation
D) A liability
E) Asset degradation

Question 9

Which of the following statements is correct?

A) Liabilities - Assets = Owner's Equity
B) Liabilities = Assets + Owner's Equity
C) Assets = Owner's Equity - Liabilities
D) Assets - Owner's Equity = Liabilities
E) None of the above

Question 10

A hotel purchased a new vending machine for $14,000. Half of the cost was paid in cash and the other half was financed through a bank loan. To record this transaction which of the following statements is correct?

A) Assets and liabilities would each increase by a total of $14,000.
B) There would be an increase to an asset account and a decrease to a liability account.
C) Assets and liabilities would each increase by a total of $7,000.
D) The vending machine account would be increased by half of its cost as only half of the asset is owned.
E) None of the above are correct.

Question 11

Net profit in the profit and loss statement is determined by:

A) The amount of cash held in the business.
B) Deducting the total of all payments made during the accounting period from the total of all receipts for the accounting period.
C) The total of all revenue received for the accounting period less the total of all expenses paid for the accounting period.
D) Deducting the total of all expenses incurred for the accounting period from the total of all revenue earned during the accounting period.
E) The total of all assets less the total of all liabilities.

Question 12

With respect to cash, which of the following statements is true?

A) The balance of the cash at bank account is the same as the net profit made for the period.
B) The cash account records all expenses and revenues for the period.
C) All receipts and payments during the period will affect the cash at bank account.
D) Every business transaction affects the cash at bank account.
E) An owner taking money out of the business does not affect the cash available.

Question 13

Retained earnings at the end of a financial year are:

A) The amount of cash held in the business at year end that has not been utilised in the running of the business.
B) The balance of owners' equity.
C) Capital contributed by owners plus profits (or minus any losses incurred) minus any drawings taken by owners.
D) The sum of all yearly profits made since the business began less any losses incurred in any year of operation.
E) The retained earnings balance from the previous period plus the current period's profit (or minus current period losses) less any dividends paid out to shareholders.

Question 14

Which of the following statements regarding owner's equity is false?

A) Owners' equity is equal to assets minus liabilities.
B) Owner's equity represents what an owner will recoup if the business is sold.
C) Owners' equity represents the owners' financial investment in the business.
D) For a company, owners' equity is equal to shareholders' capital plus retained earnings.
E) For an owner operated business, owner's equity represents all capital contributed by the owner plus profits generated minus losses incurred and drawings taken from the business.

Question 15

Which of the following statements regarding business expenses is correct?

A) Expenses represent the consumption of resources.
B) Expenses occur when payment is made for resources used.
C) An expense has no effect on owner's equity.
D) Expenses are added to revenue to determine profit for the period.
E) Cash at bank decreases when an expense is incurred.

Question 16

Which of the following statements regarding revenue is correct?

A) Revenue arises when payment is received for goods or services provided.
B) Cash at bank increases when revenue is earned.
C) Revenue is deducted from expenses to determine profit for the period.
D) Revenue arises from the sale of goods, provision of services and investing activities of a business.
E) Revenue has no effect on owner's equity.

Question 17

On the 2nd January an events company received an invoice for $2,500 from an employment agency for the hire of casual staff in December. On the 31^st January the invoice was paid. How would the balance sheet accounts be affected by the 31^st January transaction?

A) Cash (assets) would increase $2,500 and profit and loss (owner's equity) would increase $2,500.
B) Cash (assets) would decrease $2,500 and accounts payable (liabilities) would decrease $2,500.
C) Cash (assets) would increase $2,500 and accounts receivable (assets) would increase $2,500.
D) Cash (assets) would decrease $2,500 and profit and loss (owners' equity) would decrease $2,500.
E) Profit and loss (owners' equity) would decrease $2,500 and accounts payable (liabilities) would increase $2,500.