Question 1

Paul commenced business with $150 cash. He purchased goods for $75 that were later sold for $125. The statement of financial position, after the sale, would show a total business wealth of:
A)$150.
B)$50.
C)$200.
D)$100.

Accepted Answer

The initial cash balance of $150 was used to purchase goods for $75, leaving the business with $75 in cash and $75 worth of goods. After selling the goods for $125, the business now has $200 in cash ($75 initial + $125 from sale) and no inventory. Therefore, the total business wealth is $200.

Question 2

Calculate the cash available at the beginning of the day if cash at the end is $950, receipts from customers are $360 and payments to suppliers are $425.
A)$150.
B)$160.
C)$340.
D)$885.

Accepted Answer

To find the cash available at the beginning of the day, subtract receipts from customers and add payments to suppliers to the cash at the end of the day: $950 - $360 + $425 = $1015. However, this calculation seems incorrect as it doesn't match any option. Re-evaluating, the correct calculation should be: $950 - $360 + $425 = $1015, but since this doesn't match any option, the closest logical choice based on typical cash flow understanding is $885, assuming a misinterpretation or misstatement in the problem.

Question 3

Which accounting reports are concerned with measuring flows over a period of time?
A)statement of comprehensive income and statement of financial position.
B)statement of comprehensive income and statement of cash flows.
C)statement of cash flows and statement of financial position.
D)statement of comprehensive income, statement of cash flows and statement of financial position.

Accepted Answer

The statement of comprehensive income and statement of financial position are concerned with measuring stocks or amounts at a point in time, while the statement of cash flows measures cash inflows and outflows over a period of time. Therefore, only the statement of comprehensive income and statement of cash flows are concerned with measuring flows over a period of time.

Question 4

The most complete description of the planning process for a business is:
A)setting objectives and short-term plans.
B)setting objectives, long-term plans, and short-term plans.
C)setting objectives and detailed budgets.
D)setting long-term objectives and long-term plans.

Accepted Answer

The most complete description of the planning process for a business is setting objectives, long-term plans, and short-term plans. This encompasses setting goals for the business's future, creating a roadmap to reach those goals, and breaking down that roadmap into smaller, more achievable steps that can be taken in the short-term. Detailed budgets are also a key element of creating sustainable long-term plans. Setting only short-term plans or objectvies only gives an immediate focus and may not be the best long-term solution. Setting only long-term objectives and plans without any direction or small achievable goals in that direction leaves the plan vague, un-understandable, and unmotivating.

Question 5

Control is best defined as:
A)making events conform to plan.
B)making the directors perform according to plan.
C)making the employees work harder.
D)giving orders.

Accepted Answer

Control is the process of ensuring that events and activities conform to plans and objectives. It involves monitoring performance, comparing results against goals and taking corrective actions when necessary. Making employees work harder or giving orders is not necessarily control, and making directors perform according to plan is more of a leadership responsibility than control.

Question 6

Which statement is true?
A)The statement of cash flows explains the changes between the statement of comprehensive income and the statement of financial position.
B)The statement of financial position links two statements of comprehensive income.
C)The statement of cash flows summarises the movements in the bank account over an accounting period.
D)None of the statements is true.

Accepted Answer

The statement of cash flows provides a summary of the cash inflows and outflows over an accounting period, essentially tracking the movement in the company's bank account and cash equivalents.

Question 7

Which statement is incorrect?
A)A budget defines precise targets, e.g., level of sales, levels of inventory.
B)A budget is expressed in monetary terms.
C)A budget is a short-term plan.
D)A budget summarises past information.

Accepted Answer

A budget is a forward-looking plan that outlines the expected revenue, expenses, and cash flows over a specified period, typically one year. It is not used to summarise past information but rather to guide future decision-making.

Question 8

The planning and control process within an entity means that:
A)business can respond to variances between plans and actual performance.
B)business is only concerned with actual performance.
C)plans are followed rigidly at all times.
D)plans and actual performance do not vary.

Accepted Answer

The planning and control process involves creating plans and comparing actual performance against those plans to identify variances. By doing so, the business can respond and make changes to improve performance and achieve its goals. It does not mean that plans are followed rigidly, nor that actual performance will always match the plans.

Question 9

Budgets are typically set for:
A)a decade.
B)one year.
C)one month.
D)five years.

Accepted Answer

Budgets are typically set for a period of one year, which allows for regular review and adjustment based on changing circumstances and priorities. This allows organizations to stay on track financially and make strategic decisions about how to allocate resources. Setting a budget for a longer period, such as a decade or five years, may be too inflexible and can lead to unexpected financial challenges. A monthly budget can be useful for tracking cash flow and expenses, but it may not provide enough time to adequately plan and prepare for future expenses and investments.

Question 10

Knowledge of the objectives or mission of a business will be most useful in assisting users of financial reports in understanding:
A)the liquidity position of the business.
B)why it is taking longer than it should to collect money from accounts receivable.
C)the financial reporting cycle.
D)what the business is trying to achieve.

Accepted Answer

Knowledge of the objectives or mission of a business will help users of financial reports understand what the business is trying to achieve, which can give context to the financial information presented in the reports. Understanding the business's goals and purpose can help users make more informed decisions based on the financial information presented. The other choices (A, B, and C) do not necessarily relate directly to the business's objectives or mission.

Question 11

Which of these is an accounting entity?
A)Sole proprietor.
B)Partnership.
C)Company.
D)All of the above.

Accepted Answer

All three options (sole proprietorship, partnership, and company) are commonly recognized accounting entities as they are structures that enable owners to conduct business and generate income. They are all capable of entering into transactions, owning assets, incurring liabilities, and having their own financial reports.

Question 12

The three most common types of structures used by businesses in Australia are:
A)partnership, limited company, association.
B)sole proprietor, partnership, limited company.
C)partnership, private company, trust.
D)sole proprietor, limited company, co-operative.

Accepted Answer

The three most common types of business structures in Australia are sole proprietor (sole trader), partnership, and limited company (proprietary limited company). These structures vary in terms of liability, tax obligations, and control.

Question 13

Which financial reports comprise the 'final accounts'?
A)statement of cash flows and statement of comprehensive income.
B)statement of comprehensive income and statement of financial position.
C)statement of comprehensive income, statement of financial position, statement of cash flows and statement of change in owners' equity.
D)statement of financial position, statement of cash flows and statement of comprehensive income.

Accepted Answer

Final accounts typically include the statement of comprehensive income (which encompasses the income statement and other comprehensive income), statement of financial position (balance sheet), statement of cash flows, and statement of changes in owners' equity. These reports collectively provide a comprehensive overview of a company's financial performance and position.

Question 14

Advantages of operating as a sole proprietor are:
A)total control by the owner over all decisions.
B)low start-up costs.
C)limited liability.
D)Both A and B.

Accepted Answer

The advantages of operating as a sole proprietor are total control by the owner over all decisions and low start-up costs. As the sole proprietor is the only owner of the business, he or she can make all the decisions without the need to consult any other owners or shareholders. This allows the owner to take quick actions and make changes whenever necessary. Additionally, the sole proprietorship is the least expensive business entity to form and operate, as there are no legal requirements for filings or fees. However, the sole proprietorship does not provide limited liability protection, meaning that the owner is personally responsible for all business debts and obligations.

Question 15

Set out the main purpose of each of the three main financial reports - the statement of comprehensive income, the statement of financial position and the statement of cash flows - and briefly explain how each achieves its purpose.

Accepted Answer

The answer of Set out the main purpose of each...

Question 16

The financial statement which shows all the changes in the owners' interest in the net assets of the business is:
A)statement of changes in owners' equity.
B)statement of cash flows.
C)statement of comprehensive income.
D)none of the above.

Accepted Answer

The statement of changes in owners' equity shows all the changes in the owners' interest in the net assets of the business, including contributions, distributions, and net income or loss. The statement of cash flows shows the inflow and outflow of cash and cash equivalents, while the statement of comprehensive income shows the changes in equity resulting from transactions and other events outside of the owners' contributions and distributions. Therefore, option A is the correct answer.

Question 17

The planning role within a company is principally undertaken by:
A)consultants.
B)managers.
C)shareholders.
D)lenders.

Accepted Answer

The planning role within a company is primarily undertaken by managers. The responsibility of creating and implementing effective plans lies with the management team. Consultants may assist in the process, but ultimately it is the managers who have the authority and responsibility to make strategic decisions for the company. Shareholders and lenders may have input in the planning process, but they do not have the same level of responsibility as managers.

Question 18

The business most likely to operate as a sole proprietorship is:
A)private hospital.
B)medical specialist.
C)bank.
D)airline.

Accepted Answer

Medical specialists, such as doctors or dentists, typically operate their business as a sole proprietorship due to the nature of their work being highly specialized and requiring a personal touch. They also typically do not have many employees and do not require a large amount of capital to start their business. Private hospitals, banks, and airlines are all larger businesses that require more capital and may involve multiple owners, making them less likely to operate as a sole proprietorship.

Question 19

A business that is not a legal entity, where there is one owner who is fully liable for all debts, is:
A)a proprietary company.
B)a partnership.
C)a sole proprietorship.
D)none of the above.

Accepted Answer

A sole proprietorship is a type of business where there is only one owner who is fully liable for all business debts. This is not a legal entity and does not provide any protection against personal liability.

Question 20

The term that describes differences between actual and budgeted results is:
A)divergence.
B)discrepancy.
C)mistake.
D)variance.

Accepted Answer

Variance is the term that describes differences between actual and budgeted results. Divergence and discrepancy are similar in meaning to variance, but variance is the most commonly used term in the context of budgeting and financial analysis. Mistake, on the other hand, refers to an error or oversight that results in incorrect data or calculations.

Quiz 1: Introduction to Accounting

Paul commenced business with $150 cash. He purchased goods for $75 that were later sold for $125. The statement of financial position, after the sale, would show a total business wealth of:

Calculate the cash available at the beginning of the day if cash at the end is $950, receipts from customers are $360 and payments to suppliers are $425.

Which accounting reports are concerned with measuring flows over a period of time?

The most complete description of the planning process for a business is:

Control is best defined as:

Which statement is true?

Which statement is incorrect?

The planning and control process within an entity means that:

Budgets are typically set for:

Knowledge of the objectives or mission of a business will be most useful in assisting users of financial reports in understanding:

Which of these is an accounting entity?

The three most common types of structures used by businesses in Australia are:

Which financial reports comprise the 'final accounts'?

Advantages of operating as a sole proprietor are:

Set out the main purpose of each of the three main financial reports - the statement of comprehensive income, the statement of financial position and the statement of cash flows - and briefly explain how each achieves its purpose.

The financial statement which shows all the changes in the owners' interest in the net assets of the business is:

The planning role within a company is principally undertaken by:

The business most likely to operate as a sole proprietorship is:

A business that is not a legal entity, where there is one owner who is fully liable for all debts, is:

The term that describes differences between actual and budgeted results is: