Question 1

The statement that measures an entity's financial position is the:
A) statement of changes in equity.
B) statement of cash flows.
C) balance sheet.
D) income statement.

Accepted Answer

The balance sheet provides information on an entity's assets, liabilities, and equity, which is used to determine its financial position at a specific point in time. The other statements provide information on an entity's financial performance over a period of time (income statement) and its cash flows (statement of cash flows) but do not necessarily provide a snapshot of their financial position. The statement of changes in equity only provides information on changes in equity over a period of time.

Question 2

The income statement reports the financial:
A) position of an entity at a specific period of time.
B) position of an entity over a specified period of time .
C) performance of an entity at a specific period of time.
D) performance of an entity over a specified period of time.

Accepted Answer

The income statement shows the financial performance of an entity over a specified period of time, typically a year. It reports the revenues, expenses, gains, and losses during that period and calculates the entity's net income or loss. It does not reflect the entity's financial position at a specific point in time, which is shown in the balance sheet.

Question 3

On 31 May 2018 Creature Comforts Ltd purchases gas heaters from their supplier and agrees to pay for them within 45 days. Assuming the amount is still owing at 30 June 2018, the balance sheet of Creature Comforts Ltd will report the amount owing as:
A) accounts payable.
B) accounts receivable.
C) cash at bank.
D) debtors.

Accepted Answer

The amount owing to the supplier for the purchase of gas heaters represents a liability for Creature Comforts Ltd and should be reported on the balance sheet as accounts payable. Accounts payable is a current liability account that represents amounts owed to suppliers or creditors for goods or services that have been received but not yet paid for.

Question 4

Which of these is not a liability?
A) Wages payable
B) Bank overdraft
C) Accounts payable
D) Rent paid

Accepted Answer

Rent paid is a past expense and is not a liability. Liabilities are obligations to pay for goods or services received in the future. Wages payable, bank overdraft, and accounts payable are all examples of current liabilities.

Question 5

An entity's ______________________ is represented by its control over economic resources, financial structure, capacity for adaptation and solvency.
A) financial performance
B) financial position
C) equity
D) accounting equation

Accepted Answer

A company's financial position is directly related to its control over economic resources, financial structure, capacity for adaptation and solvency. Financial performance refers to how well the company is performing financially, equity refers to ownership in the company, and the accounting equation is Assets = Liabilities + Equity.

Question 6

A balance sheet would normally balance at:
A) net assets and total equity.
B) total liabilities and total equity.
C) the bank balance.
D) total assets and total equity.

Accepted Answer

The answer of A balance sheet would normally balance at:
A)...

Question 7

If the loss for the period is $38 000 and total expenses are $110 000, total income for the period is:
A) $ 72 000.
B) $138 000.
C) $148 000.
D) $ 62 000.

Accepted Answer

The loss is calculated as total expenses minus total income. Therefore, total income = total expenses - loss = $110,000 - $38,000 = $72,000.

Question 8

An income statement can also be referred to as a(an):
A) Profit report
B) Profit and loss statement
C) All of these options
D) Operating statement

Accepted Answer

An income statement is known by several names, including a profit report, a profit and loss statement, and an operating statement. These terms are used interchangeably to describe the financial statement that summarizes a company's revenues, expenses, and profits/losses over a specific period.

Question 9

Which of the following statements is not true?
A) The profit of an entity is calculated as income less expenses.
B) A withdrawal of cash for private use by the owner is shown as a reduction of equity in the balance sheet.
C) Equity can be thought of as the owner's claim to the income of the entity after deducting all liabilities.
D) Income can be measured not only be cash, but by receipt of other assets.

Accepted Answer

Equity is the owner's claim to the assets of the entity after deducting all liabilities, not just the income.

Question 10

The basis upon which the personal assets of the owner are excluded from the business's balance sheet is referred to as which assumption?
A) Materiality
B) Accounting entity
C) Accrual basis
D) Going concern

Accepted Answer

The accounting entity assumption states that the business is a separate entity from its owners, and therefore the personal assets of the owner are excluded from the business's balance sheet.

A) Materiality refers to the principle that only significant and material transactions should be recorded in the financial statements. 
C) Accrual basis refers to the method of accounting that records revenues and expenses when they are earned or incurred, regardless of when the cash transaction occurs. 
D) Going concern assumption states that the business will continue operating indefinitely and is not expected to liquidate in the near future.

Question 11

Governments and not-for-profit entities will prepare a(an)________________ statement to report their financial performance for a specific period of time.
A) equity
B) operating
C) financial
D) balance

Accepted Answer

Governments and not-for-profit entities prepare an operating statement, often referred to as a statement of activities or statement of operations, to report their financial performance for a specific period.

Question 12

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For a small medical practice which of the following would be a financing activity?
A) Paying for medical supplies.
B) Borrowing $20 000 from a financial institution.
C) Billing a patient for a consultation.
D) Adding an extension to allow for 2 additional consultation rooms.

Accepted Answer

Borrowing money from a financial institution is a common financing activity for small businesses, as it involves obtaining external funds to support operations. Option A (Paying for medical supplies) is an operating activity, as it relates to ongoing expenses directly related to providing services. Option C (Billing a patient for a consultation) is a revenue-generating activity and is also considered an operating activity. Option D (Adding an extension to allow for 2 additional consultation rooms) is an investing activity, as it involves longer-term investments in assets that will generate income over time.

Question 13

From the point of view of a business entity, a person or business from which a debt is owing is known as a:
A) debtor.
B) creditor.
C) debitor.
D) bank.

Accepted Answer

A debtor is a person or business that owes money or a debt to another person or business. This is the perspective of the business entity, which would be owed money by the debtor.

Question 14

Which of these does not fit the accounting definition of an asset?
A) Goodwill
B) Employee skills and experience
C) Land
D) Accounts receivable

Accepted Answer

Employee skills and experience are intangible assets and may be valuable to a company, but they do not meet the accounting definition of an asset because they do not have a physical existence and cannot be objectively measured or valued on a balance sheet.

Question 15

Which of these is not an alternative term for equity?
A) Accumulated funds
B) Owners' equity
C) Capital
D) Overdraft

Accepted Answer

Overdraft refers to a financial arrangement where an individual or business is allowed to withdraw more money than what is available in their account, resulting in a negative balance. It is not an alternative term for equity. On the other hand, accumulated funds, owners' equity, and capital are all alternative terms for equity, which refers to the residual interest in the assets of an entity after deducting all its liabilities.

Question 16

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For a local soccer club, which of the following would be an operating activity?
A) Receipt of membership fees from players.
B) Purchasing new soccer goals for all fields and age groups.
C) Repaying a loan for the clubhouse.
D) Purchasing a new coffee machine for the clubhouse.

Accepted Answer

Receipt of membership fees from players is an operating activity as it relates to the primary source of the club's revenue, which is the participation in soccer activities.

Question 17

The assumption which assumes that the entity is able to pay its debts when they fall due for the near future is the:
A) reliability.
B) going concern.
C) accounting entity.
D) accrual basis.

Accepted Answer

The going concern assumption is the assumption that a business entity will continue to operate indefinitely, without the need for liquidation or bankruptcy, and will have sufficient resources to meet its obligations as they become due. This assumption is important because it allows financial statements to be prepared on a basis that assumes the entity will continue to operate in the foreseeable future, which is necessary for meaningful analysis and decision-making by users of financial information.

Question 18

Jacob's opening capital at 1 July 2017 was $75 000, his profit for the year was
$22 000 and his drawings were $8 000. What is the final balance of his capital at the end of the year?
A) $89 000
B) $105 000
C) $53 000
D) $45 000

Accepted Answer

The final balance of the capital can be calculated by adding the opening capital, adding the profit and then subtracting the drawings. 
Calculations:

Opening capital = $75,000 
Profit = $22,000 
Less: Drawings = $8,000

Final Capital = $75,000 + $22,000 - $8,000 
Final Capital = $89,000

Therefore, the final balance of Jacob's capital at the end of the year is $89,000, which is option A.

Question 19

Which of these is not recognised as income?
A) Provision of services.
B) Interest received.
C) Capital contributed by the owner.
D) Sale of goods.

Accepted Answer

Capital contributed by the owner is considered equity and not income. Income is defined as revenue earned through the provision of goods or services, as well as any other sources such as interest received or the sale of goods.

Question 20

Which assumption requires transactions to be recognised in the accounting reports when they occur and not when the cash is received or paid?
A) faithful representation.
B) accounting period.
C) accrual basis.
D) accounting entity.

Accepted Answer

The accrual basis assumption requires that transactions should be recognized in the accounting reports when they take place, regardless of whether cash is received or paid. This means that revenues are recorded when earned, and expenses are recorded when incurred. The accounting period assumption refers to the time period over which financial statements are prepared. The faithful representation assumption requires that financial information should be complete, neutral, and free from material errors or bias. The accounting entity assumption states that the financial affairs of the business should be kept separate from the personal affairs of the owners or other entities.

Quiz 2: Financial Statements for Decision Making

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

The income statement reports the financial:

On 31 May 2018 Creature Comforts Ltd purchases gas heaters from their supplier and agrees to pay for them within 45 days. Assuming the amount is still owing at 30 June 2018, the balance sheet of Creature Comforts Ltd will report the amount owing as:

Which of these is not a liability?

An entity's ______________________ is represented by its control over economic resources, financial structure, capacity for adaptation and solvency.

A balance sheet would normally balance at:

If the loss for the period is $38 000 and total expenses are $110 000, total income for the period is:

An income statement can also be referred to as a(an) :

Which of the following statements is not true?

The basis upon which the personal assets of the owner are excluded from the business's balance sheet is referred to as which assumption?

Governments and not-for-profit entities will prepare a(an) ________________ statement to report their financial performance for a specific period of time.

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

From the point of view of a business entity, a person or business from which a debt is owing is known as a:

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

Which of these is not an alternative term for equity?

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

The assumption which assumes that the entity is able to pay its debts when they fall due for the near future is the:

Jacob's opening capital at 1 July 2017 was $75 000, his profit for the year was $22 000 and his drawings were $8 000. What is the final balance of his capital at the end of the year?

Which of these is not recognised as income?

Which assumption requires transactions to be recognised in the accounting reports when they occur and not when the cash is received or paid?