Question 1

During 2016,a company makes credit sales of $600 000,of which $350 000 is collected at year-end.It pays $220 000 in expenses and owes $20 000 for electricity used during 2016.What would the profit be if cash accounting rather than accrual accounting were used?

Accepted Answer

Under cash accounting, only cash transactions are recorded. Therefore, the profit is calculated as cash collected from sales ($350,000) minus cash paid for expenses ($220,000), which equals $130,000. The electricity bill owed is not considered since it hasn't been paid yet.

Question 2

Which type of information would be of most interest to shareholders?

Accepted Answer

Shareholders are primarily interested in profitability as it directly affects their returns on investment through dividends and stock value appreciation.

Question 3

Which of the following statements about accrual accounting is NOT true?

Accepted Answer

Accrual accounting recognises the impact of transactions on the financial statements when revenue is earned or expenses are incurred, regardless of when cash is received or paid.

Question 4

Which of the following statements is NOT true?

Accepted Answer

The impact of transactions is not always recognized when cash is received or paid. In accrual accounting, revenue and expenses are recognized when they are earned or incurred, regardless of the timing of cash flows. Therefore, it is possible for revenue to be recognized before cash is received or for expenses to be recognized before cash is paid.

Question 5

Which of the following statements about external company auditors is NOT true?

Accepted Answer

External company auditors aim to provide reasonable assurance that the financial statements are free of material misstatement, not a guarantee of no mistakes.

Question 6

Financial performance means:

Accepted Answer

Financial performance refers to how well an entity is able to generate resources and profits from its operations over a period of time, which is captured by choice D.

Question 7

Which type of information would be of most interest to trade creditors?

Accepted Answer

Trade creditors are primarily interested in a company's ability to pay its debts, as this directly impacts their likelihood of receiving payments for goods or services provided.

Question 8

ABC is a company that commenced business on 1 January 2016.Below are the balances in the 30 June 2016 financial statements. 
- What is the balance of assets?

Accepted Answer

The total assets balance is calculated by adding up the balances of each category of assets, which in this case is $8000 (cash) + $2000 (accounts receivable) + $4000 (inventory) + $2000 (prepaid rent) + $2000 (property, plant and equipment) = $16000. Therefore, the correct answer is C.

Question 9

Use the information given below to answer the following question.  
-What is the cash flow from operations for 2016?

Accepted Answer

Net income + Depreciation and amortization - Increase in working capital = Cash flow from operations$40,000 + $12,000 - $10,000 = $52,000

Question 10

During 2016,a company makes credit sales of $500 000,of which $375 000 is collected at year-end.It pays $200 000 in expenses and owes $25 000 for electricity used during 2016.Accrual profit is:

Accepted Answer

The answer of During 2016,a company makes credit sales of...

Question 11

During 2016,a company makes credit sales of $500 000,of which $375 000 is collected at year-end.It pays $200 000 in expenses and owes $25 000 for electricity used during 2016.What would the profit be if cash accounting rather than accrual accounting was used?

Accepted Answer

If cash accounting is used instead of accrual accounting, then revenue is recognized only when cash is received, and expenses are recognized only when cash is paid. Therefore, in this case, the company's revenue would be $375 000 (amount collected in cash), and its expenses would be $225 000 ($200 000 paid for expenses and $25 000 owed for electricity, but not yet paid in cash). Therefore, the profit would be $150 000 ($375 000 - $225 000).

Question 12

Financial statements provide useful information for shareholders to:

Accepted Answer

Financial statements provide information on a company's financial position, performance, and cash flows. Shareholders can use this information to evaluate the company's current and future profitability, liquidity, and stability, which can help them determine whether to buy, sell or hold shares of the company. Financial statements are not primarily intended to provide day-to-day operational information, nor are they typically used for creating business planning strategies. While lenders may also use financial statements to evaluate a company's creditworthiness, this is not the primary focus for shareholders.

Question 13

During 2016,a company makes credit sales of $600 000,of which $350 000 is collected at year-end.It pays $220 000 in expenses and owes $20 000 for electricity used during 2016.Profit according to accrual accounting is:

Accepted Answer

The revenue earned during the year was $600,000, but only $350,000 was collected at year-end, so the remaining $250,000 is still owed and is considered Accounts Receivable. 
The expenses were $220,000, so the company's net revenue is $600,000 - $220,000 = $380,000. 
However, the company also owes $20,000 for electricity used during the year, which is considered an Accounts Payable. 
Therefore, the company's profit according to accrual accounting is $380,000 - $20,000 = $360,000.

Question 14

Which of the following organisations may use financial statements?
 1)Australian Taxation Office
2)A church congregation
3)A university

Accepted Answer

All listed organizations, including the Australian Taxation Office, a church congregation, and a university, may use financial statements for various purposes such as financial analysis, reporting, and decision-making.

Question 15

Which type of information would be of least interest to employees?

Accepted Answer

Dividends declared are mostly relevant to shareholders and not of immediate significance to employees. The other options, such as the proposed expansion of the business, long-term financial stability, and profitability, directly relate to the company's growth and success and, therefore, are more relevant to employees.

Question 16

Does measuring economic performance involve: (i)estimates; (ii)adjustments;and/or (iii)judgements?

Accepted Answer

Measuring economic performance involves all three elements: (i) estimates because many economic statistics are based on sample surveys and other methods that involve extrapolating from a smaller population to estimate the entire population, (ii) adjustments because certain statistical methods are used to standardize or adjust data so that they are consistent across sectors or time periods, and (iii) judgments because in some cases, subjective decisions must be made about how to classify or measure certain economic activities. Hence, option (D) is the best choice.

Question 17

Which of the following use accounting information? 
1)Shareholders
2)Banks
3)Trade unions

Accepted Answer

All listed entities, including shareholders, banks, and trade unions, use accounting information. Shareholders use it to assess the value of their investment, banks for credit assessment, and trade unions to negotiate wages or understand the financial health of the employer.

Question 18

A user's main demand is for credible periodic reporting of an enterprise's financial position and performance.Credible means:

Accepted Answer

Credibility means that the financial statements are sufficiently trustworthy and competently prepared for it to be used to make decisions. While accuracy is important, it is not always feasible to achieve 100% accuracy in financial reporting due to estimation and measurement uncertainties. The financial statements must also be relevant to the needs of decision-makers and easily understandable, but these factors do not necessarily ensure credibility on their own.

Question 19

Use the information given below to answer the following question. 
- What is the net profit for 2016?

Accepted Answer

The answer of Use the information given below to answer...

Question 20

What is the net profit for 2016 given the following information?

Accepted Answer

Net profit is calculated using the formula:
Total revenue - Total expenses = Net profit

Total revenue = cash sales + credit sales = $10,000 + $30,000 = $40,000
Total expenses = wages paid + wages owing at year-end = $8,000 + $5,000 = $13,000
Cash received from accounts receivable is not included in the calculation as it is already a part of the credit sales figure.

Therefore, net profit = $40,000 - $13,000 = $27,000.

Hence, the answer is B, $27,000.

Quiz 1: Introduction to Financial Accounting