Question 1

Which of the following account balances would not be classified as cash and cash equivalents in the financial statements of a grocery retailer?
A) Cash in the tills.
B) Cash in a bank deposit account requiring 60 days notice for withdrawals.
C) Cash in an investment bond repayable in 4 months' time.
D) Cash in the bank current account.

Accepted Answer

Cash in an investment bond repayable in 4 months' time is not considered cash and cash equivalents because it is not readily available for use.

Question 2

Which one of the following statements is not true?
A) Profit does not equal cash.
B) Without a steady inflow of cash, an entity will not be a going concern.
C) Entities should aim to receive cash from sales after cash for expenses is paid out to maximize cash and minimize financing costs.
D) The statement of cash flows enables users of financial statements to determine how quickly profits are turned into cash.

Accepted Answer

Entities should aim to receive cash from sales before or as expenses are paid out to ensure liquidity and minimize the need for external financing.

Question 3

Under the indirect method of preparing the statement of cash flows: Please select all that apply.
A) The operating profit for a period is adjusted for the effect of non-cash items.
B) The operating profit for a period is adjusted for increases or decreases in inventory, receivables, prepayments, payables and accruals.
C) All the cash inflows and outflows from operations are summarised to produce the net cash inflow from operating activities.
D) Total cash inflows and outflows from operations are ignored.

Accepted Answer

The answer of Under the indirect method of preparing the...

Question 4

Both the statement of profit or loss and the statement of cash flows are drawn up on the accruals basis of accounting.

Accepted Answer

The statement of profit or loss is prepared on an accrual basis, while the statement of cash flows is prepared on a cash basis.

Question 5

Which one of the following statements is not true?
A) The provision of astatement of profit or loss together with a statement of cash flows enables users to see much more clearly how quickly profit is turned into cash.
B) The provision of the statement of cash flows enables users of accounts to distinguish between different entities with the same level of profit.
C) The statement of cash flows on its own can still tell us how profitable an organisation is and how quickly profits are being turned into cash.
D) Statements of cash flows are not distorted by the effect of the accrual of income and expenditure into different accounting periods.

Accepted Answer

The statement of cash flows on its own does not provide information about profitability; it shows cash inflows and outflows, not profit.

Question 6

Which of the following statements are true? Please select all that apply.
A) Depreciation is an accounting adjustment that allocates the cost of non-current assets to the accounting periods benefiting from their use.
B) Cash flows associated with non-current assets are the cash paid to acquire the assets.
C) Depreciation is not a cash flow.
D) Cash received on disposal of non-current assets when they are sold or scrapped at the end of their useful lives is not recognised in the statement of cash flows.

Accepted Answer

The answer of Which of the following statements are true?...

Question 7

Not anticipating profits until they have been earned through a sale is a description of which accounting convention?
A) Accruals
B) Periodicity
C) Prudence
D) Realisation

Accepted Answer

The realisation convention in accounting states that profits should only be recognized when they are earned, typically through a sale, rather than when cash is received.

Question 8

Being cautious and expecting less favourable outcomes describes which accounting convention?
A) Realisation
B) Prudence
C) Accruals
D) Historic cost

Accepted Answer

Prudence is an accounting convention that requires accountants to be cautious in their estimates and to expect less favourable outcomes. This means that accountants should not overstate assets or income, and should not understate liabilities or expenses.

Question 9

The omission or misstatement of information in financial statements which could influence the decisions of users based on the financial information provided by an entity is a description of which accounting convention?
A) Business entity
B) Money Measurement
C) Materiality
D) Consistency

Accepted Answer

The materiality convention in accounting refers to the significance of an omission or misstatement of information in financial statements that could influence the economic decisions of users.

Question 10

Keeping the affairs of a business and the affairs of the owner of that business totally separate describes which accounting convention?
A) Business entity
B) Consistency
C) Dual aspect
D) Going concern

Accepted Answer

The business entity convention states that the transactions of a business should be kept separate from those of its owner, ensuring clear financial records for the business itself.

Question 11

The recognition of all income and expenditure in the accounting period in which they occurred, rather than in the accounting period in which cash is received or paid, describes which accounting convention?
A) Money measurement
B) Periodicity
C) Dual aspect
D) Accruals

Accepted Answer

The accruals convention states that income and expenses should be recorded in the period they occur, regardless of when cash transactions happen.

Question 12

The presentation or measurement of the same piece of accounting information on the same basis each year is a description of which accounting convention?
A) Historic cost
B) Dual aspect
C) Consistency
D) Periodicity

Accepted Answer

Consistency is the presentation or measurement of the same piece of accounting information on the same basis each year.

Question 13

The assumption that a business will continue in operational existence for the foreseeable future is a description of which accounting convention?
A) Prudence
B) Going concern
C) Realisation
D) Business entity

Accepted Answer

The going concern assumption is the assumption that a business will continue to operate in the foreseeable future. This assumption is important because it allows accountants to make estimates about the future that are necessary for financial reporting.

Question 14

Recording all assets and liabilities at their original cost to the business is a description of which accounting convention?
A) Historic cost
B) Consistency
C) Prudence
D) Money measurement

Accepted Answer

The historic cost convention involves recording assets and liabilities at their original purchase cost, without adjusting for changes in market value.

Question 15

Two figures change each time a new transaction is undertaken. Which accounting convention does this statement describe?
A) Realisation
B) Money measurement
C) Accruals
D) Dual aspect

Accepted Answer

The dual aspect convention states that every transaction affects at least two accounts, maintaining the accounting equation's balance.

Quiz 4: The Statement of Cash Flows

Which of the following account balances would not be classified as cash and cash equivalents in the financial statements of a grocery retailer?

Which one of the following statements is not true?

Under the indirect method of preparing the statement of cash flows: Please select all that apply.

Both the statement of profit or loss and the statement of cash flows are drawn up on the accruals basis of accounting.

Which one of the following statements is not true?

Which of the following statements are true? Please select all that apply.

Not anticipating profits until they have been earned through a sale is a description of which accounting convention?

Being cautious and expecting less favourable outcomes describes which accounting convention?

The omission or misstatement of information in financial statements which could influence the decisions of users based on the financial information provided by an entity is a description of which accounting convention?

Keeping the affairs of a business and the affairs of the owner of that business totally separate describes which accounting convention?

The recognition of all income and expenditure in the accounting period in which they occurred, rather than in the accounting period in which cash is received or paid, describes which accounting convention?

The presentation or measurement of the same piece of accounting information on the same basis each year is a description of which accounting convention?

The assumption that a business will continue in operational existence for the foreseeable future is a description of which accounting convention?

Recording all assets and liabilities at their original cost to the business is a description of which accounting convention?

Two figures change each time a new transaction is undertaken. Which accounting convention does this statement describe?