Question 1

The statement of changes in equity serves as a connecting link between which other financial statements?

Accepted Answer

A)  balance sheet and statement of cash flows. 
B)  income statement and expenses statement. 
C)  income statement and balance sheet. 
D)  statement of cash flows and income statement. 
A)  balance sheet and statement of cash flows. 
B)  income statement and expenses statement. 
C)  income statement and balance sheet. 
D)  statement of cash flows and income statement.

Question 2

The three main types of business entities are:

Accepted Answer

A)  Trust, sole proprietorship and not-for-profit. 
B)  Not-for-profit, partnership and company. 
C)  Sole proprietorship, company and trust. 
D)  Company, partnership and sole proprietorship. 
A)  Trust, sole proprietorship and not-for-profit. 
B)  Not-for-profit, partnership and company. 
C)  Sole proprietorship, company and trust. 
D)  Company, partnership and sole proprietorship.

Question 3

In order to avoid disputes it is preferable for partners to:

Accepted Answer

A)  confirm their agreement with a handshake. 
B)  share profits and losses equally. 
C)  have a written agreement. 
D)  work as 'silent' partners. 
A)  confirm their agreement with a handshake. 
B)  share profits and losses equally. 
C)  have a written agreement. 
D)  work as 'silent' partners.

Question 4

Helen decides to open her own ice-cream store and deposits $25 000 into her new business bank account on 1 October. The effect of this transaction on the accounting equation is:

Accepted Answer

A)  Assets increase by$25 000; Equity increases by $25 000. 
B)  Assets increase by $25 000; Equity decreases by $25 000. 
C)  Assets increase by $25 000; Liabilities increase by $25 000. 
D)  Assets decrease by $25 000; Equity decreases by $25 000. 
A)  Assets increase by$25 000; Equity increases by $25 000. 
B)  Assets increase by $25 000; Equity decreases by $25 000. 
C)  Assets increase by $25 000; Liabilities increase by $25 000. 
D)  Assets decrease by $25 000; Equity decreases by $25 000.

Question 5

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

Accepted Answer

A)  Goodwill 
B)  Employee skills and experience 
C)  Land 
D)  Accounts receivable 
A)  Goodwill 
B)  Employee skills and experience 
C)  Land 
D)  Accounts receivable

Question 6

Which qualitative characteristic improves the usefulness of financial reporting information by enabling the users to identify similarities in and differences between two sets of economic data?

Accepted Answer

A)  relevance. 
B)  timeliness. 
C)  economic substance. 
D)  comparability. 
A)  relevance. 
B)  timeliness. 
C)  economic substance. 
D)  comparability.

Question 7

When management plans the sale or liquidation of an entity, the going concern assumption is set aside and the financial statements are prepared on the:

Accepted Answer

A)  accrual basis 
B)  cash basis 
C)  basis of estimated sales or liquidation values 
D)  basis of estimated expenses 
A)  accrual basis 
B)  cash basis 
C)  basis of estimated sales or liquidation values 
D)  basis of estimated expenses

Question 8

The income statement reports the financial:

Accepted Answer

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. 
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.

Question 9

A business transaction creating an outflow of net assets resulting from the purchase of supplies is a(n):

Accepted Answer

A)  cash disbursement. 
B)  equity transaction. 
C)  expense transaction. 
D)  income transaction. 
A)  cash disbursement. 
B)  equity transaction. 
C)  expense transaction. 
D)  income transaction.

Question 10

Which of the following statements about the narrative form of a balance sheet is true?

Accepted Answer

A)  It resembles a T-shaped ledger account. 
B)  All elements of the balance sheet are listed in one column. 
C)  In Australia, the narrative form of balance sheet is less common than the account form. 
D)  It shows the accounting equation as Assets = Liabilities + Equity. 
A)  It resembles a T-shaped ledger account. 
B)  All elements of the balance sheet are listed in one column. 
C)  In Australia, the narrative form of balance sheet is less common than the account form. 
D)  It shows the accounting equation as Assets = Liabilities + Equity.

Question 11

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?

Accepted Answer

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. 
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.

Question 12

Which of the following is not a possible effect on the accounting equation from a single transaction of $1000?

Accepted Answer

A)  Assets increase by $1000; Equity increases by $1000. 
B)  Assets decrease by $1000; Liabilities decrease by $1000. 
C)  Liabilities increase by $1000; Liabilities decrease by $1000. 
D)  Liabilities decrease by $1000; Equity decreases by $1000. 
A)  Assets increase by $1000; Equity increases by $1000. 
B)  Assets decrease by $1000; Liabilities decrease by $1000. 
C)  Liabilities increase by $1000; Liabilities decrease by $1000. 
D)  Liabilities decrease by $1000; Equity decreases by $1000.

Question 13

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

Accepted Answer

A)  reliability. 
B)  going concern. 
C)  accounting entity. 
D)  accrual basis. 
A)  reliability. 
B)  going concern. 
C)  accounting entity. 
D)  accrual basis.

Question 14

If an entity has liabilities of $170 000 and equity of $300 000 its assets are:

Accepted Answer

A)  $370 000. 
B)  $230 000. 
C)  $130 000. 
D)  $470 000. 
A)  $370 000. 
B)  $230 000. 
C)  $130 000. 
D)  $470 000.

Question 15

If total sales is $90 000, office expenses is $30 000 and rent expense is $15 000, profit or loss is which of the following?

Accepted Answer

A)  $45 000 profit 
B)  $45 000 loss 
C)  $75 000 loss 
D)  $75 000 profit 
A)  $45 000 profit 
B)  $45 000 loss 
C)  $75 000 loss 
D)  $75 000 profit

Question 16

Which of the following statements is not correct?

Accepted Answer

A)  Income decreases equity. 
B)  Expenses represent decreases in economic benefits. 
C)  Equity represents the owners' claims on the assets after deducting all liabilities. 
D)  Assets are resources controlled by the entity. 
A)  Income decreases equity. 
B)  Expenses represent decreases in economic benefits. 
C)  Equity represents the owners' claims on the assets after deducting all liabilities. 
D)  Assets are resources controlled by the entity.

Question 17

Which of these is not a liability?

Accepted Answer

A)  Wages payable 
B)  Bank overdraft 
C)  Accounts payable 
D)  Rent paid 
A)  Wages payable 
B)  Bank overdraft 
C)  Accounts payable 
D)  Rent paid

Question 18

Which of the following statements concerning the statement of cash flows is not correct?

Accepted Answer

A)  It classifies cash flows into operating, investing and financing activities. 
B)  It reports on the entity's cash flow position at a specific point in time. 
C)  It reports on the entity's cash flow performance over a period of time. 
D)  When compared with the income statement, the statement of cash flows shows how well the entity's profits are represented by cash inflows from operating activities. 
A)  It classifies cash flows into operating, investing and financing activities. 
B)  It reports on the entity's cash flow position at a specific point in time. 
C)  It reports on the entity's cash flow performance over a period of time. 
D)  When compared with the income statement, the statement of cash flows shows how well the entity's profits are represented by cash inflows from operating activities.

Question 19

The two fundamental qualitative characteristics of accounting information are:

Accepted Answer

A)  relevance and reliability. 
B)  relevance and faithful representation. 
C)  reliability and consistency. 
D)  faithful representation and comparability. 
A)  relevance and reliability. 
B)  relevance and faithful representation. 
C)  reliability and consistency. 
D)  faithful representation and comparability.

Question 20

On 28 February Harold's Speedy Dry Cleaning received $100 for dry cleaning services provided on the same day. The effect on the accounting equation is:

Accepted Answer

A)  Assets increase by $100; Equity increases by $100. 
B)  Assets increase by $100; Assets decrease by $100. 
C)  Assets increase by $100; Liabilities decrease by $100. 
D)  Assets decrease by $100; Equity decreases by $100. 
A)  Assets increase by $100; Equity increases by $100. 
B)  Assets increase by $100; Assets decrease by $100. 
C)  Assets increase by $100; Liabilities decrease by $100. 
D)  Assets decrease by $100; Equity decreases by $100.

Exam 2: Financial Statements for Decision Making

The statement of changes in equity serves as a connecting link between which other financial statements?

The three main types of business entities are:

In order to avoid disputes it is preferable for partners to:

Helen decides to open her own ice-cream store and deposits $25 000 into her new business bank account on 1 October. The effect of this transaction on the accounting equation is:

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

Which qualitative characteristic improves the usefulness of financial reporting information by enabling the users to identify similarities in and differences between two sets of economic data?

When management plans the sale or liquidation of an entity, the going concern assumption is set aside and the financial statements are prepared on the:

The income statement reports the financial:

A business transaction creating an outflow of net assets resulting from the purchase of supplies is a(n):

Which of the following statements about the narrative form of a balance sheet is true?

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?

Which of the following is not a possible effect on the accounting equation from a single transaction of $1000?

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

If an entity has liabilities of $170 000 and equity of $300 000 its assets are:

If total sales is $90 000, office expenses is $30 000 and rent expense is $15 000, profit or loss is which of the following?

Which of the following statements is not correct?

Which of these is not a liability?

Which of the following statements concerning the statement of cash flows is not correct?

The two fundamental qualitative characteristics of accounting information are:

On 28 February Harold's Speedy Dry Cleaning received $100 for dry cleaning services provided on the same day. The effect on the accounting equation is:

Decision Making and the Role of Accounting

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Partnerships: Formation, Operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation, Disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

Accounting for Manufacturing

Cost Accounting Systems

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

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