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Accounting is BEST described as:
The collection and use of financial and non-financial data
The use of financial data
The collection and use of financial data only
The collection of financial data
1 Accounting is BEST described as:
Your Answer:
The collection and use of financial and non-financial data
Which of the following statements BEST describes a limited liability company?
It is normally owned by just one person
It is normally owned and managed by the same persons
It is normally a non-profit making organization
In law it is regarded as having a separate existence from its owners
Which of the following statements BEST describes a limited liability company?
Your Answer:
In law it is regarded as having a separate existence from its owners
Which of the following statements is TRUE?
External auditors are appointed by an entity's management
External auditors are responsible for preparing accounts
An external audit is required for all types of entity
External auditors are responsible for checking accounts
Which of the following statements is TRUE?
Your Answer:
External auditors are responsible for checking accounts
The restrictions relating to the formation and running of companies are:
Found in the Companies Act of 1965
Not to be found in law
Found in the Companies Act 1985 (as amended by the Companies Act 1989)
Found in accounting standards issued by the Accounting Standards Board
The restrictions relating to the formation and running of companies are:
Your Answer:
Found in the Companies Act 1985 (as amended by the Companies Act 1989)
Which branch of accounting is MOST concerned with the collection of detailed financial data for use in planning and controlling an entity?
Auditing
Taxation
Management accounting
Financial accounting
Which branch of accounting is MOST concerned with the collection of detailed financial data for use in planning and controlling an entity?
Your Answer:
Management accounting
Which branch of accounting is MOST closely associated with acquiring and deploying the short term and long term finance required by an entity?
Financial accounting
Management accounting
Auditing
Financial management
Correct Answer:
Financial management
Financial accounting is concerned with presenting information for the benefit of the owners of the business. Auditing relates to the checking of the financial accounts and reporting on them. Management accounting deals with the collection of detailed financial data for internal management purposes. Financial management is a relatively new branch of accounting. Financial managers are more heavily involved in the management of the entity than financial or management accountants.
Which of the following is NOT one of the major professional accountancy bodies in the UK?
Institute of Chartered Accountants in Scotland
Chartered Association of Certified Accountants
Institute of Chartered Accountants in England and Wales
Institute of Company Accountants
Which of the following is NOT one of the major professional accountancy bodies in the UK?
Your Answer:
Institute of Company Accountants
Which of the following activities is NOT an accounting function?
Taxation
Management consultancy
Costing
Auditing
Which of the following activities is NOT an accounting function?
Your Answer:
Management consultancy
Which economic sector in the UK has appeared to be in decline over the past few decades?
Health
Services
Manufacturing
Education
Which economic sector in the UK has appeared to be in decline over the past few decades?
Your Answer:
Manufacturing
In preparing accounting statements accountants adopt a number of basic rules. These rules can be classified into three categories: boundary, measurement and ethical. Which one of the following is not a measurement rule?
Historic cost
Dual aspect
Matching
Comparability
Correct Answer:
Comparability
The comparability rule requires financial statements in such a way that users can 'discern and evaluate similarities in, and differences between, the nature and effects of transactions and other events over time and across different reporting entities' (ASB, Statement Of Principles For Financial Reporting, 1999, p.8). It can, therefore, be classified as one of the ethical rules as it requires financial statements in such a way that meaningful comparisons can be made different sets of accounts. Matching, historic cost and dual aspect are clearly all measurement rules.
Reliability
Going concern
Consistency
Matching
Your Answer:
Reliability
The goods are produced
An order is received from a customer
The goods are delivered to the customer
The cash is received from the customer
Correct Answer: The goods are delivered to the customer
Revenue is normally recognised in the accounts when the legal title to the goods (or services) is transferred to the customer (normally when they take possession) and they become obliged to pay for them. The date of cash settlement does not determine when the revenue is realised. The manufacturer will, therefore, record sales in his books of account when the goods are delivered to customers. An invoice will be issued to them summarising the credit terms (e.g. 'pay within 30 day of the invoice date'). The manufacturer will record the amount owed from the customer as a trade debtor in his accounts, and when the cash is received the amount that was owed will be removed from the books of accoun
Which of the following is the correct terminology for the right hand side of a hand-written ledger account?
Negative
Credit
Debit
Positive
Your Answer:
Credit
Where will a decrease in an asset be recorded in a hand-written account?
Nowhere in the ledger accounts
On the credit side of the ledger account for the asset
On both sides of the ledger account for the asset
On the debit side of the ledger account for the asset
Your Answer:
On the credit side of the ledger account for the asset
A trial balance is a list of:
All the firm's debtors and creditors
All the debit and credit balances in the accounts
All the transactions in a ledger
All the firm's assets and liabilities
A trial balance is a list of:
Correct Answer:
All the debit and credit balances in the accounts
The accuracy of the book-keeping is tested by preparing a trial balance. The trial balance is simply a list of all the debit and credit balances (rather than all the individual transactions) in the ledger system.
A supermarket purchases food items for resale on credit from a supplier, Goldman Ltd. The entries in the supermarket's accounts should be: Debit Credit
a. Purchases Goldman Ltd
b. Goldman Ltd Purchases
c. Purchases Cash
d. Goldman Ltd Sales
a
b
c
d
Debit Credit
a. Purchases Goldman Ltd
b. Goldman Ltd Purchases
c. Purchases Cash
d. Goldman Ltd Sales
Your Answer: b
Correct Answer: a
A supermarket buys a motor van on credit from Park Motors Ltd. The
entries in the supermarket's accounts should be: Debit Credit
a. Purchases Park Motors Ltd
b. Park Motors Ltd Motor van
c. Purchases Bank
d. Motor van Park Motor Ltd
a
b
c
d
A supermarket buys a motor van on credit from Park Motors Ltd. The entries in the supermarket's accounts should be:
Debit Credit
a. Purchases Park Motors Ltd
b. Park Motors Ltd Motor van
c. Purchases Bank
d. Motor van Park Motor Ltd
Your Answer:
b
Correct Answer:
d
Park Motors Ltd is supplying the motor wan on credit terms to the supermarket. Park Motors is, therefore, the giver and its account must be credited. The receiving account is motor van, as opposed to purchases, since the asset is not bought with the primary intention of selling it but rather using it in the business.
A supermarket pays a supplier, Goldman Ltd, the amounts owed in cash. The entries in the supermarket's accounts should be: Debit Credit
a. Goldman Ltd Cash
b. Cash Goldman Ltd
c. Purchases Cash
d. Cash Purchases
a
b
c
d
Your Answer:
b
Correct Answer:
a
The cash account is giving up an amount of cash in order to pay amounts owed to Goldman Ltd. The cash account is the giving account, and so it must be credited.
Another meaning for ‘capital expenditure’ is:
payment of interest on a loan.
the cost of a train fare to London.
purchase of fixed assets.
payment of expenses.
Your Answer:
purchase of fixed assets.
Which of the following is a current asset?
Wages.
Creditors.
Stock.
Machinery.
Your Answer:
Stock.
Which of the following is a fixed asset?
Bank balance.
Cash balance.
Debtors.
Computers.
Your Answer:
Computers.
Which of the following is a current liability?
Debtors.
Cash balance.
A loan repayable in 4 years’ time.
Creditors.
Correct Answer: Creditors.
Which of the following is not an acceptable version of the accounting equation?
Assets + Expenses = Liabilities - Capital + Income
Assets + Expenses = Liabilities + Capital + Income
Assets - Liabilities = Capital
Fixed Assets + (Current Assets - Current liabilities) = Capital
Correct Answer: Assets + Expenses = Liabilities - Capital + Income
2. Management is said to meet the internal accounting needs of an organisation.
Your Answer:
True
Note that financial accounting meets the external needs.
3. The accruals concept is also known as the matching concept.
Your Answer:
True
But check that you know what the concept means (see p.4 in the book).
4. You must be consistent in accounting, even if you are consistently wrong.
Correct Answer:
False
Who wants to be wrong all the time? See p.4.
5. Capital expenditure is another name for buying stock.
Your Answer:
False
It means buying fixed assets.
6. Capital is also called ‘ownership interest’.
Your Answer:
True
Yes – it’s the interest which the owner(s) have in their business.
7. Can you ever have negative capital?
Your Answer:
True
Yes – if your assets are less than your liabilities.
8. Revenue expenditure is expenditure on fixed assets
Your Answer:
False
It’s spent on goods for resale and overheads. Capital expenditure relates to fixed assets.
9. Income less Expenses is shown on the balance sheet.
Correct Answer:
False
No – assets, liabilities and capital are shown in the balance sheet. Income and expenditure is shown in the Profit and Loss Account.
10.
A way of remembering the full Accounting Equation is the mnemonic ‘All Elephants Like Choc Ices’.
Your Answer:
True
Yes – now do you know what the letters stand for? (See p.10).
If a business pays a cheque for stationery, the bookkeeping entries are:
Debit Purchases Credit Bank.
Debit Bank Credit Stationery.
Debit Stock Credit Bank.
Debit Stationery Credit Bank.
Your Answer:
Debit Stationery Credit Bank.
If a business buys goods for resale on credit terms from XYZ, the bookkeeping entries are:
Debit Purchases Credit XYZ’s account.
Debit Stock Credit XYZ’s account.
Debit XYZ’s account Credit Purchases.
Debit Bank Credit XYZ’s account.
Correct Answer: Debit Purchases Credit XYZ’s account.
Which one of the following is an impersonal ledger?
Sales ledger.
Purchases ledger.
Debtors ledger.
General ledger.
Correct Answer: General ledger.
Before inserting a closing balance, accounts representing assets or expenses are likely to have:
more debit entries than credit entries.
an equal amount of debit and credit entries.
more credit entries than debit entries.
only credit entries.
Correct Answer: more debit entries than credit entries.
A ‘T’ account is:
the ledger account found between the Sugar account and the Milk account.
an abbreviation for the telephone account.
an account for all customers whose names begin with the letter T.
a simple representation of a ledger account, forming the letter ‘T’.
Correct Answer: a simple representation of a ledger account, forming the letter ‘T’.
Which of the following will not increase an owner’s capital account?
Capital introduced.
Net Profit.
Owner’s Drawings.
A lottery win paid into the business by the owner.
Correct Answer:
Owner’s Drawings.
Every entry in a ledger should have:
description and amount.
amount.
date, description and amount.
date and description.
Your Answer:
date, description and amount.
If an account has debit entries totalling £600 and credit entries totalling £500, its closing balance is said to be:
a debit balance of £1,100.
a debit balance of £100.
a credit balance of £1,100.
a credit balance of £100.
Correct Answer:a debit balance of £100.
B/d and c/d stand for:
bank divided by debtors and creditors divided by debtors.
balance down and carried down.
brought down and carried down.
beginning date and closing date.
Correct Answer:
brought down and carried down.
An advantage of maintaining daybooks is:
fewer invoices need to be entered.
no entries need be made into the ledgers.
fewer entries are made into the general ledger.
fewer payments need to be made.
Correct Answer:
fewer entries are made into the general ledger.
Double-entry bookkeeping recognises that every transaction has a dual aspect.
True
False
Your Answer:
True
Correct – for example if you buy a sandwich you now have something to eat but you have had to pay for it!
If a business buys stationery with a cheque it will debit the stationery account and credit the bank account in its own books.
True
False
Your Answer: TrueYes – but do you understand why the bank account is credited? (See p.19).
The sales and purchase ledgers are impersonal ledgers.
True
False
Correct Answer:
False
No - each account in these ledgers has the name of a business or individual, so they are ‘personal’.
A ‘T account’ is the name given to an account which appears in the ledger between the letters S and U.
True
False
Correct Answer:
False
No – it’s a simple account layout consisting of one horizontal line joined by one vertical line, like the letter T.
The word Debit is often abbreviated to Dr.
True
False
Your Answer:
True
Yes – even though there’s no ‘r’ in ‘Debit’.
Money paid into the bank account appears on the credit side of the bank account in the business’s ledger.
True
False
Correct Answer: FalseYou haven’t learned the golden rule – see p.19.
When an owner takes out money or goods for his or her own use, it is called ‘drawings’.
True
False
.
Your Answer:
True
‘Purchases’ only refers to goods bought for resale, not to expenses.
True
False
Your Answer: TrueYes, it is never used to describe expenses, even if you are ‘purchasing’ stationery.
The cash book is simply the combination of the cash account and bank account in one book.
True
False
Your Answer: TrueYes – it saves space to combine them into one book.
The journal is the same as a ledger.
True
False
Your Answer: FalseIt just explains where entries are debited and credited, e.g. to correct mistakes.
10.
