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Accounting for IGCSE & O level - Final Statements (Section 10)

1
What is the effect of writing off a bad debt?
Answer
A
C
2
Which of the following is the correct formula to find out the working capital?
Answer
(C)
Current Assets - Current Liabilities
3
What is the impact on the accounting equation of a company declaring and paying cash dividends?
Answer
(D)
Assets decrease, Equity decreases.
4
Which of the following is true regarding the valuation of inventory at the lower of cost or net realisable value (NRV)?
Answer
(C)
The value reported on the balance sheet is the lower of these two values.
5
Where is the final profit or loss for the year transferred to, in a simplified example?
Answer
(B)
The capital account.
6
Which of the following is an example of a current asset?
Answer
(C)
Cash
7
What is the primary purpose of recording opening inventory and closing inventory in the income statement?
Answer
(B)
To calculate gross profit.
8
Why would a business owner consider closing a poorly performing department?
Answer
A
B
C
9
What does the phrase 'profit for the year' measure?
Answer
(A)
Gross profit less expenses.
10
If beginning inventory is $5,000, purchases are $20,000 and closing inventory is $2,000. What is the cost of goods sold?
Answer
(A)
$23,000
11
Which of the following statements best describes the purpose of an income statement?
Answer
(C)
To summarize a company's revenues, expenses, and profitability over a period.
12
What is the most important factor in deciding if a business can quickly and easily pay its short-term debts?
Answer
(A)
Working capital.
13
What does the income statement show?
Answer
(B)
Revenues, expenses, and profit/loss.
14
What is the order of presentation on an income statement?
Answer
(C)
Revenue, cost of sales, gross profit, expenses, profit for the year
15
What are some advantages of using departmental accounts?
Answer
A
B
C
16
Which of the following is true about the allocation of shared expenses in departmental accounting?
Answer
B
C
17
What does the term 'capital employed' represent?
Answer
(C)
The total funds invested in a business
18
Which of the following would typically be included in the 'current assets' section of a statement of financial position?
Answer
(C)
Inventory
19
How are carriage inwards and carriage outwards handled in the income statement?
Answer
(B)
Carriage inwards is part of cost of goods sold, carriage outwards is an operating expense.
20
What is the primary reason to carry out valuation of inventory?
Answer
(D)
To determine the balance sheet and income statement figures
21
What does 'Net Assets' represent?
Answer
(C)
Assets minus liabilities.
22
What is the main difference between the two sections of an income statement?
Answer
(A)
One calculates gross profit and the other, the profit for the year.
23
How do you calculate the net purchases?
Answer
(B)
Purchases - Purchase Returns
24
In the calculation of gross profit, what is subtracted from sales?
Answer
(B)
Cost of Goods Sold
25
In a vertical statement of financial position, what is the purpose of Column 1?
Answer
(C)
To list the individual values of assets, liabilities, and capital.
26
If the closing inventory is understated, what is the effect on the gross profit?
Answer
(A)
Gross profit will be understated.
27
In what situations is the net realisable value of inventory likely to be less than cost?
Answer
A
C
D
28
Which method is suitable for small businesses with low inventory?
Answer
(B)
Physical count
29
Which of the following is an example of a business expense?
Answer
(C)
Salaries
30
Which of the following is typically NOT a non-current asset?
Answer
(D)
Cash
31
What is one of the potential outcomes when closing a poorly performing department?
Answer
(A)
Increased overall business profitability.
32
Which of the following elements is included in calculating 'profit for the year'?
Answer
B
C
33
What are considered 'sundry expenses'?
Answer
(B)
Expenses not recorded in the ledger
34
What is the effect of writing off a bad debt?
Answer
(B)
It decreases the value of trade receivables.
35
Which of the following is the best method to allocate shared expenses (such as rent) between departments in a fair and reasonable manner?
Answer
(C)
Allocate rent based on the proportion of floor space each department occupies.
36
What is a key use of departmental accounts?
Answer
(C)
To assess the performance of each department separately.
37
What is the primary function of depreciation?
Answer
(B)
To allocate the cost of an asset over its useful life.
38
What items must be considered when calculating profit for the year?
Answer
(C)
Expenses
39
What type of information might be revealed by running inventory records?
Answer
A
B
40
What is the formula for calculating gross profit?
Answer
(B)
Sales Revenue - Cost of Goods Sold
41
What is the role of the 'Cost of Sales' in calculating the gross profit?
Answer
(B)
It is subtracted from the revenue.
42
If a company has a net loss for the year, what is the effect on owner's equity?
Answer
(B)
Owner's equity decreases
43
What two pieces of information are needed to calculate the value of closing inventory?
Answer
A
C
44
Which of the following statements about the income statement is correct?
Answer
(B)
It summarizes the company's revenues and expenses over a period of time.
45
What is the impact of increasing the 'cost of goods sold' on the gross profit?
Answer
(B)
Decreases gross profit
46
What is the definition of opening equity?
Answer
(C)
Owner's equity at the start of the accounting year.
47
What is the key function of the statement of financial position?
Answer
(B)
To show the financial standing of a business at a specific point.
48
What is one of the main objectives of preparing separate departmental accounts?
Answer
(C)
To identify and investigate poor performance in a department.
49
What type of information is found in the 'Net Assets' portion of a Statement of Financial Position?
Answer
(C)
The owner's stake in the business, after liabilities
50
What is the main aim for business owner?
Answer
(C)
For profit and capital gains