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Accounting for IGCSE & O level - Final Statements (Section 8)

1
How is equity impacted by the earnings of a business?
Answer
(A)
Increases by the amount of earnings
2
What is the primary function of the trading account?
Answer
(C)
To calculate gross profit
3
What kind of accounting principle is used to relate costs with the revenue they generate?
Answer
(B)
Matching principle
4
What is the reason for preparing an income statement?
Answer
(C)
To calculate the profit or loss for the business during a specific period
5
What will be included in 'sundry expenses'?
Answer
A
B
C
6
The amount of equity is also known as:
Answer
(C)
Net Assets.
7
Which of the following is included in the calculation of net current assets?
Answer
(A)
Trade receivables
8
Which of the following is an example of a current liability?
Answer
(B)
Bank overdraft
9
What is the effect of purchase returns on purchases for the year?
Answer
(B)
Decreases purchases.
10
What is the difference between current and non-current assets?
Answer
(B)
Current assets are expected to be converted to cash within one year, non-current assets are not.
11
The amount of capital employed in a business can be increased by:
Answer
A
B
C
12
What is a 'liability' in the context of a statement of financial position?
Answer
(B)
Something a company owes to others.
13
What happens to purchases returns?
Answer
(B)
They reduce the cost of sales.
14
What is the primary purpose of the statement of financial position?
Answer
(B)
To show the financial position of a business at a specific point in time.
15
What is the role of the Income Statement?
Answer
B
D
16
If a company has a large inventory, how is that reflected on the balance sheet?
Answer
(C)
It is reported as an asset.
17
Which of the following accounts affect the calculation of COGS?
Answer
A
B
D
18
What does the term 'carriage inwards' refer to?
Answer
(B)
Costs incurred to transport goods purchased by the company.
19
Which of the following is the correct formula for 'net purchases'?
Answer
(A)
Purchases - Purchase Returns
20
Which account is debited when a bad debt is written off?
Answer
(C)
Allowance for Doubtful Accounts
21
What is a primary objective of preparing departmental accounts?
Answer
(B)
To assess the profitability of each department.
22
In times of rising prices, what impact does LIFO typically have on profits?
Answer
(B)
Lower profits
23
What does the term 'historic cost' mean when valuing assets?
Answer
(B)
The original purchase price of an asset.
24
If a company sells goods on credit and the customer later defaults, which account is affected?
Answer
(C)
Accounts Receivable
25
When is an asset considered impaired, and how is it handled in the financial statements?
Answer
(B)
When the asset's book value exceeds its recoverable amount; it is written down.
26
Which financial statement provides the value of the business' assets, liabilities and capital?
Answer
(B)
Balance Sheet
27
Which items impact the income statement?
Answer
A
B
D
28
What is the effect of increasing the opening inventory on the cost of goods sold?
Answer
(A)
Increases the cost of goods sold.
29
In the context of valuing assets, what is the significance of 'historic cost' less accumulated depreciation?
Answer
(B)
It's the net book value of the asset.
30
Which of the following accounts is a liability?
Answer
(C)
Accounts Payable
31
What is the purpose of an expense account in the income statement?
Answer
(C)
To calculate profit for the year.
32
Which of the following would decrease gross profit?
Answer
B
C
33
Which of the following is the accounting equation?
Answer
(B)
Assets = Liabilities + Equity
34
What is the best way to allocate rent expense to different departments?
Answer
(C)
Allocate in proportion to the space occupied by each department.
35
How can the analysis of departmental accounts benefit a business?
Answer
A
C
36
What is the role of the Trading account in an income statement?
Answer
(B)
Calculating gross profit
37
What effect do sales returns have on a company's gross profit?
Answer
(B)
They decrease gross profit.
38
What is the effect of increasing net purchases on the cost of goods sold (COGS)?
Answer
(A)
Increase COGS
39
Which items are typically found in a company's assets?
Answer
A
C
D
40
What would increase working capital?
Answer
B
D
41
What is the impact of increasing the closing inventory on the cost of goods sold (COGS)?
Answer
(B)
Decreases COGS.
42
What information is required to prepare a departmental trading account?
Answer
A
B
C
43
In a statement of financial position, what does 'owner's equity' represent?
Answer
(C)
The owner's stake or investment in the business.
44
What are the components needed to calculate 'Cost of Goods Sold'?
Answer
B
C
D
45
What does a debit balance in the bank account represent?
Answer
(B)
The company has money in the bank
46
What is the effect on the financial statements when using the lower of cost or net realisable value (NRV) rule for inventory valuation?
Answer
(B)
It can lead to a lower profit in the period.
47
What are examples of an income item?
Answer
A
D
48
What is the purpose of the Statement of Financial Position (Balance Sheet)?
Answer
(B)
To show the company's financial status at a specific time.
49
What is the meaning of 'net assets'?
Answer
(B)
The difference between assets and liabilities.
50
Which of the following methods could be used to improve the performance of a department?
Answer
A
B
C