Deck 1: The Statement of Financial Position Balance Sheetand What It Tells Us

Question 1

An example of a long-term liability is:

A) Current taxation payable
B) Mortgage
C) Proposed dividend
D) Accumulated depreciation

Answer 1

B

Question 2

An example of a current liability is:

A) Retained earnings
B) Accumulated depreciation
C) Owner's equity
D) Bank overdraft

Answer 2

D

Question 3

Revenue from sales decrease assets and decrease equity.

Answer 3

False

Question 4

Which of the following statements is correct?

A) Assets are future cash outflows
B) Liabilities are future cash inflows
C) Assets are the sum of liabilities and owner's equity
D) Assets are the difference between liabilities and owner's equity

Question 5

Which of the following statements is true?

A) The value of a company is likely to be very different from the total net value of the individual assets and liabilities reported on the statement of financial position
B) The value of a company is identical to the total net value of the individual assets and liabilities reported on the statement of financial position
C) The value of a company is identical to retained earnings, as reported on the statement of financial position
D) The value of a company is equal to current assets, less current liabilities

Question 6

If liabilities increase £3,000 during a given period and owner's equity decreases £1,000 during the same period,the assets must have:

A) Increased by £3,000
B) Increased by £2,000
C) Decreased by £3,000
D) Decreased by £2,000

Question 7

Which of the following statements is correct?

A) Some current assets, such as inventory, are not easily turned into cash
B) Some current assets, such as trade receivables, are not easily turned into cash
C) Some long-term assets, such as land and buildings, are easily turned into cash
D) Some long-term assets, such as fixtures and fittings, are easily turned into cash

Question 8

Management accounting is primarily concerned with producing financial statements for shareholders and creditors.

Question 9

Non-current liabilities include long-term borrowings such as mortgages.

Question 10

Inventory,trade receivables and cash are classified as:

A) Current liabilities
B) Long-term assets
C) Current assets
D) Long-term liabilities

Question 11

Corporation tax payable would be classified as:

A) Equity on statement of financial position
B) Liability on statement of financial position
C) Asset on statement of financial position
D) Expense on income statement

Question 12

An example of a long-term asset is:

A) Cash
B) Inventory
C) Fixtures and fittings
D) Prepayments

Question 13

Non-current assets include inventories and trade receivables.

Question 14

What a company owns is known as assets and what a company owes is known as expenses.

Question 15

An example of a current asset is:

A) Inventory
B) Equipment
C) Retained earnings
D) Owner's equity

Question 16

The accounting equation can be stated as:

A) Assets = Liabilities + Owner's Equity
B) Assets + Liabilities = Owner's Equity
C) Liabilities = Owner's Equity + Assets
D) Assets = Liabilities - Owner's Equity

Question 17

A company is said to be 'high geared' when:

A) It has a low amount of long-term debt
B) It has a high amount of long-term debt
C) It has a low amount of current assets
D) It has a high amount of owner's equity

Question 18

A company with a high current ratio is said to have:

A) Few liquid assets
B) High current liabilities and low current assets
C) High current assets and low current liabilities
D) High long-term borrowing

Question 19

The main purpose of financial accounting information is to:

A) Provide financial information for taxation purposes
B) Provide financial information to managers
C) Provide financial information for external users, such as shareholders and creditors
D) Provide financial information to customers

Question 20

If non-current assets are £250,000,current assets £70,000,long-term borrowing £50,000 and current liabilities £10,000 ,what is the value of owner's equity?

A) £240,000
B) £260,000
C) £120,000
D) £270,000

Question 21

Which of the following statements is correct?

A) Financial Accounting is a legal requirement. It is concerned with producing the accounts of an entity, and is produced for stakeholders. Management accounting is not a legal requirement, and is for use within the company.
B) Financial Accounting is a legal requirement. It is concerned with the financing of the entity. Management accounting is also a legal requirement, and together they are used to produce the accounts of the entity.
C) Financial Accounting is not a legal requirement. It is concerned with the cash flow of the entity. Management Accounting is a legal requirement, and this is used to produce the accounts of the entity.
D) Financial Accounting is not a legal requirement. It is concerned with the financing of the entity. Management accounting is also not legally required, and is for use within the company.

Question 22

Which of the following statements is correct?

A) The "net book value" or "Carrying amount" of a non-current asset reflects the market value of the asset.
B) The "net book value" or "Carrying amount" of a non-current asset is the cost of the asset, minus accumulated depreciation
C) The "net book value" or "Carrying amount" is the original cost of the asset
D) The "net book value" or "Carrying amount" cannot be calculated from a published Statement of Financial Position

Question 23

The statement of financial position of Rosie Ltd.includes the following entries: inventory £25,000,trade receivables £12,000,cash £11,000 and current liabilities £25,000 (made up of trade payables £16,000,short-term borrowing £800 and £8,200 current tax payable).Calculate the liquidity ratio.

A) 0.9: 1
B) 1:1
C) 0.4:1
D) 1.9:1

Question 24

Suppose a company purchases a van for £21,000 with the intention of using it for three years and selling it for £6,000 at the end of the three years.The company uses straight line depreciation.Which of the following statements is correct?

A) The annual depreciation charge is £7,000
B) The annual depreciation charge is £21,000
C) The annual depreciation charge is £5,000
D) The annual depreciation charge is £15,000

Question 25

The accounting equation can be stated as:

A) Owner's Equity = Assets - Liabilities
B) Assets + Liabilities = Owner's Equity
C) Liabilities = Owner's Equity + Assets
D) Assets = Liabilities - Owner's Equity

Question 26

Which of the following statements is false?

A) A successful business is usually worth the statement of financial position figure for its net assets
B) A statement of financial position shows you how a company has been financed
C) A balance can indicate whether a company has excessive liabilities
D) All of the above statements are false

Question 27

The statement of financial position of Rosie Ltd.includes the following entries: inventory £25,000,trade receivables £12,000,cash £11,000 and current liabilities £25,000 (made up of trade payables £16,000,short-term borrowing £800 and £8,200 current tax payable).Calculate the current ratio.

A) 0.9: 1
B) 1:1
C) 0.4:1
D) 1.9:1

Question 28

Which of the following statements is correct?

A) "Equity" is the original money invested in the business that belonged to the owners of the business.
B) "Equity" is money that the business has used to grow - for example the original investment from owners or money from the sale of shares, and any loans made to the business
C) "Equity" is the value of the business
D) "Equity" is made up of not only the original investment in the business, but also any profits that were retained over the years.

Question 29

Which of the following statements is correct?

A) The bank balance is always a current asset, whether it is "in credit" on the statement or "overdrawn"
B) If the bank account is "in credit" on the statement then it must be a current asset
C) If the bank account is "overdrawn" on the statement then it is a current asset
D) If the bank account is "in credit" on the statement then it is a liability

Question 30

If a company has long-term borrowings of £12,000 and equity of £138,000,what is its gearing ratio?

A) 8.7%
B) 11.5%
C) 8%
D) 9.5%