Deck 1: Introduction to Financial Accounting

Question 1

Which type of information would be of most interest to trade creditors?

A) dividends declared
B) ability to pay debts
C) pollution of waterways adjacent to the firm's factory
D) continuity of orders for the firm's products.

Answer 1

B

Question 2

Which of the following statements about financial accounting is NOT true?

A) A marketing manager does not need to be concerned with financial accounting.
B) The financial accountant faces a challenge in figuring out which numbers to use.
C) Adding and subtracting is often the easy part of financial accounting.
D) Significant judgement is required in accounting.

Answer 2

A

Question 3

Financial statements provide useful information for shareholders to:

A) understand day-to-day activities
B) decide whether to buy,sell or hold shares of companies
C) decide whether to lend money to the business entity
D) create business planning strategies.

Answer 3

B

Question 4

The holders of bonds maturing in 15 years' time would be most interested in which type of information?

A) proposed expansion of the business
B) long-term financial stability
C) liquidity
D) profitability.

Question 5

Which of the following statements about auditing is NOT true?

A) Auditing arose because users demanded some assurance that managers' reports on their performance were reliable.
B) Auditors verify that the accounts have been prepared accurately.
C) The auditing function is usually restricted to members of recognised professional accounting bodies.
D) When professional accountants prepare financial statements,they are acting as auditors.

Question 6

Which of the following organisations may not find the financial statements useful?

A) Australian Taxation Office
B) a church congregation
C) a university
D) all of the above.

Question 7

Use the information given below to answer the following questions:
$$\begin{array} { l r } &\$\\\text { Cash sales } & 20000 \\\text { Credit sales } & 60000 \\\text { Cash received from accounts receivable } & 42000 \\\text { Wages paid } & 10000 \\\text { Wages owing at year-end } & 8000\end{array}$$

-What is the net profit for 2012?

A) $70 000
B) $62 000
C) $104 000
D) $112 000.

Question 8

A user's main demand is for credible periodic reporting of an enterprise's financial position and performance.Credible means:

A) 100% accurate
B) easily understandable by users of financial statements
C) sufficiently trustworthy and competently prepared for it to be used to make decisions
D) relevant to the needs of decision-makers.

Question 9

What would the profit be if cash accounting rather than accrual accounting were used?

A) $130 000
B) $110 000
C) $380 000
D) $730 000.

Question 10

Use the information given below to answer the following questions:
$$\begin{array} { l r } &\$\\\text { Cash sales } & 20000 \\\text { Credit sales } & 60000 \\\text { Cash received from accounts receivable } & 42000 \\\text { Wages paid } & 10000 \\\text { Wages owing at year-end } & 8000\end{array}$$

-What is the cash flow from operations for 2012?

A) $52 000
B) $62 000
C) $70 000
D) $104 000.

Question 11

Which of the following statements about financial accounting is NOT true?

A) Financial accounting helps banks decide whether or not to lend.
B) Financial accounting helps stock market investors decide whether to buy company shares.
C) Financial accounting reports on the performance of managers as decision-makers.
D) Employees assess whether the company can repay long-term debt.

Question 12

Profit according to accrual accounting is:

A) $130 000
B) $380 000
C) $360 000
D) $710 000.

Question 13

Does measuring economic performance involve: (i)estimates; (ii)adjustments; and/or (iii)judgements?

A) (i)and (ii)only
B) (i)and (iii)only
C) (ii)and (iii)only
D) (i),(ii)and (iii).

Question 14

Which of the following statements about accrual accounting is NOT true?

A) The impact of transactions on the financial statements is recognised when the cash is received or paid.
B) The financial statements include estimates.
C) Judgements made by accountants affect profit.
D) Transactions are recognised at the time when revenue and expenses occur.

Question 15

Which type of information would be of least interest to employees?

A) proposed expansion of the business
B) long-term financial stability
C) dividends declared
D) profitability.

Question 16

Which type of information would be of most interest to shareholders?

A) profitability
B) long-term financial stability
C) pollution of waterways adjacent to the firm's factory
D) continuity of orders for the firm's products.

Question 17

Financial performance means:

A) providing information about the cash position of an entity
B) setting out the enterprise's set of financial resources and obligations at a point in time
C) identifying,measuring and communicating economic information to allow informed decisions
D) generating new resources for day-to-day operations over a period of time.

Question 18

A financial statement:

A) summarises the measurements of financial performance and financial position
B) summarises the cash position of a business entity
C) analyses the financial performance of a business entity
D) analyses the business's ability to meet its financial obligations.

Question 19

Which of the following statements about external company auditors is NOT true?

A) External company auditors provide assurance that the financial statements audited by them contain no mistakes.
B) External company auditors cannot credibly audit statements they have prepared.
C) External company auditors must be independent.
D) All of the above statements are true.

Question 20

Which of the following statements is NOT true?

A) Judgements need to be made in determining profit.
B) Attempts are made to measure incomplete transactions.
C) The impact of transactions is recognised when cash is received or paid.
D) Estimates are made of certain balance sheet items.

Question 21

Which of the following is NOT shown in the heading of the balance sheet?

A) the name of the enterprise
B) the title of the report
C) the period covered by the report
D) all of the above are shown in the heading.

Question 22

The owner withdraws inventory for his own use from the business.To which financial statement assumption does this relate?

A) materiality
B) monetary
C) accounting period
D) accounting entity.

Question 23

Which financial statement assumption relates to the procedure where a $200 paper shredder with a 5-year useful life is treated as an expense?

A) monetary
B) accounting period
C) materiality
D) historical cost.

Question 24

Assets are initially recorded at cost.What assumption/concept underlies this procedure?

A) accounting entity
B) monetary
C) historical cost
D) going concern.

Question 25

Use the information given below to answer the following questions:
LPR is a company that commenced business on 1 January 2012. Below are the balances in the 30 June 2012 financial statements.
$$\begin{array} { l r } &\$\\\text { Cash } & 2000 \\\text { Share capital } & 12000 \\\text { Accounts receivable } & 6000 \\\text { Accounts payable } & 4000 \\\text { Loan payable } & 14000 \\\text { Land } & 20000 \\\text { Inventory } & 4000 \\\text { Cost of goods sold } & 3000 \\\text { Wages expense } & 5000 \\\text { Sales } & 10000\end{array}$$


-What is the net profit for the period ending 30 June 2012?

A) $7000
B) $2000
C) $4000
D) $2000.

Question 26

Which of the following may be an asset of a business enterprise?

A) retained profits
B) inventory
C) provision for warranty repairs
D) shareholders' equity.

Question 27

Which statement about the financial statement assumptions is NOT true?

A) Assets are originally recorded at cost.
B) Revenue is recorded when received and expenses are recorded when they are incurred.
C) Going concern means that financial statements are prepared on the basis that the business entity will continue operation in the foreseeable future.
D) The life of a business is divided into equal periods.

Question 28

Financial statements are prepared on the premise that the organisation will continue operations in the foreseeable future.To which financial statement assumption does this relate?

A) accounting entity
B) monetary
C) historical cost
D) going concern.

Question 29

The life of a business is divided into equal periods to determine profit or loss for that period.What assumption/concept underlies this procedure?

A) materiality
B) monetary
C) accounting period
D) accounting entity.

Question 30

Using the Australian dollar to measure accounting transactions allows comparisons across periods.To which financial statement assumption does this relate?

A) accounting entity
B) monetary
C) historical cost
D) going concern.

Question 31

Which of the following may be a liability of a business enterprise?

A) share capital
B) wages payable
C) retained profits
D) marketable security.

Question 32

A stapling machine,costing $25 with a useful life of 5 years,is treated as a stationery expense rather than as an asset.To what financial statement assumption does this relate?

A) materiality
B) monetary
C) accounting period
D) accounting entity.

Question 33

Use the information given below to answer the following questions:
LPR is a company that commenced business on 1 January 2012. Below are the balances in the 30 June 2012 financial statements.
$$\begin{array} { l r } &\$\\\text { Cash } & 2000 \\\text { Share capital } & 12000 \\\text { Accounts receivable } & 6000 \\\text { Accounts payable } & 4000 \\\text { Loan payable } & 14000 \\\text { Land } & 20000 \\\text { Inventory } & 4000 \\\text { Cost of goods sold } & 3000 \\\text { Wages expense } & 5000 \\\text { Sales } & 10000\end{array}$$


-What is the balance of liabilities?

A) $18 000
B) $30 000
C) $20 000
D) $21 000.

Question 34

Which of the following is NOT a main element in the balance sheet?

A) assets
B) profit
C) shareholders' equity
D) liabilities.

Question 35

Which of the following statements about an income statement is true?

A) An income statement provides information on an organisation's profitability at a certain point in time.
B) An income statement matches revenues earned during a period,against expenses incurred in earning the revenues.
C) The expenses may include depreciation.
D) For revenue to be included,it is not necessary for cash to have been received.

Question 36

The owner of a corner store keeps separate private and business transactions.To which financial statement assumption does this relate?

A) materiality
B) accounting entity
C) accounting period
D) going concern.

Question 37

A company's assets are differentiated from the senior manager's.What assumption/concept underlies this procedure?

A) accounting entity
B) monetary
C) historical cost
D) going concern.

Question 38

Which of the following statements about shareholders' equity is NOT true?

A) Shareholders' equity is the excess of assets over liabilities.
B) Shareholders' equity consists of two main elements: share capital and retained profits.
C) Shareholders' equity is a residual claim of the shareholders on the assets of the organisation.
D) Shareholders' equity is the amount shareholders will receive in dividends in the future.

Question 39

Which of the following is NOT an asset?

A) marketable securities
B) accounts receivable
C) provisions for employee entitlements
D) inventory.

Question 40

Which of the following is NOT an example of a liability?

A) provisions for long service leave
B) share capital
C) accounts payable
D) loan payable.