Accounting Midterm

​_________ is enhanced by treating items that are basically the same in the same manner for accounting purposes.

comparability

According to Peter​ Drucker, an eminent management​ thinker, the purpose of a business is​ to:

create and keep a customer

Accounting exists primarily to help user​ __________.

decision-making

The two broad classes of accounting are management accounting and​ __________ accounting.

financial

The study of business investment and financing decisions is known​ as:

financial management

4 sequential stages of the accounting information system

first stage: info identification 2: info recording 3: info analysis 4: info reporting (1&2 concerned w/ preparation, last 2 concerned w/ info collected)

`Which of the following changes have occurred to management accounting as a result of changes in the competitive​ environment? ​(i) More​ outward-looking ​(ii) More concerned with finding new ways of managing costs ​(iii) More subject to external regulation

(i) and​ (ii)

Consider the following forms of​ business: 1. Sole proprietorship 2. Partnership 3. Limited company Which of the above businesses do not normally require formal procedures to set them​ up?

1 & 2

Salvatore decided to start a small business in order to help pay for a forthcoming holiday. As there was an imminent threat of a strike by power company​ workers, he decided to buy and sell oil lamps on his local high street. He began on 1 May by investing £150 cash of his own money to buy 30 lamps for £5 each. On the same​day, he was able to sell 24 lamps for £8 each. The closing balance of cash at the end of the​ day's trading on 1 May was _______ The profit​ (loss) generated by the business during 1 May is ______ The​ owner's equity in the business at the end of the​ day's trading on 1 May is _____

1. 192 2. profit (loss) = sales revenue (24 x 8) - cost of goods sold (24 x 5) = 72 3. owner's equity= cash (closing balance) 192 + inventories (6 x 5) = equity 222

Accounting is usually divided between the major strands of financial accounting and management accounting. Match the function shown in the left column to the corresponding strand of accounting shown in the​ drop-down list in the right column.

1. Complying with regulatory requirements = financial accounting 2. Forecasting future information = management accounting 3. Budgeting and business planning = management accounting 4. Reporting to lenders = financial accounting 5. Reporting to shareholders = financial accounting 6. Producing monthly reports for senior management = management accounting 7. Controlling costs = management accounting

Consider the following statements. 1. The role of the chair is to lead the management team. 2. The role of the chief executive is to lead the board of directors. Which of the above statements are correct​ (true/false)?

1. False 2. False

Consider the following​ statements: 1. Relevance cannot make accounting information useful. 2. Faithful representation cannot make accounting information useful. Are the above statements true or​ false?

1. False 2. False (fundamental to the usefulness of accounting info)

Consider the following statements. 1. Financial accounting information does not include expectations concerning the future. 2. Management accounting information is free from regulations from external sources. Which of the above statements are correct​ (true/false)?

1. False 2. True

Consider the following statements. 1. In the​ past, accounting systems were biased in favour of providing information to managers. 2. Managers have greater access to financial information than other users. Are the above statements true or​ false?

1. False 2. True

Consider the following statements. 1. The quality of understandability means that accounting information should be capable of being understood by those who have not studied accounting. 2. The quality of faithful representation means that accounting information should be free from bias. Are the above statements true or​ false?

1. False 2. True

Consider the following two statements concerning limited​ companies: 1. All limited companies must have their annual financial reports audited. 2. All limited companies must lodge a copy of their annual financial reports with the Registrar of Companies. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2. True

Consider the following two statements concerning management​ accounting: 1. Management accounting reports tend to have longer reporting intervals than financial accounting reports. 2. Management accounting reports tend to be more detailed than financial accounting reports. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2. True

Consider the following two statements concerning​ partnerships: 1. The partners of a business normally have limited liability. 2. Partnerships are not recognised as separate legal entities. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2. True

Consider the following​ statements: 1. The purpose of accounting is to prepare financial reports for users on a regular basis. 2. There is normally no close substitute for information contained in accounting reports. Which of the above statements are correct​ (true/false)?

1. False 2. True

Consider the following two statements concerning management​ accounting: 1. Management accounting tends to place more emphasis on providing​ objective, verifiable information than financial accounting. 2. Management accounting tends to place less emphasis on providing reports of a​ non-financial nature than financial accounting. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2.False

The various types of business units have a number of advantages and disadvantages. Match the advantage or disadvantage shown in the left column to the corresponding type of business unit shown in the​ drop-down list in the right column.

1. The most difficulty in fund raising: Sole proprietorship 2. Greater possibility of raising​ funds, but no limited liability: Partnership 3. Greater possibility of raising​ funds, but no limited liability: Limited Company 4. Absolute control rests with one​ individual, but no limited liability: Sole Proprietorship 5. Most protection for the owners of the business: Limited company 6. The most flexibility concerning how the business is run: Sole proprietorship 7. Annual financial reports are available for public inspection: Limited Company

1. Businesses tend to produce accounting information that exceeds the minimum requirements required by accounting regulations. 2. Accounting reports are usually designed to be understood by everyone.

1. True 2. False

Consider the following​ statements: 1. Normally, the benefits of accounting information are more difficult to assess than the costs. 2. Normally, the costs of producing accounting information are not difficult to assess. Are the above statements true or​ false?

1. True 2. False

Consider the following​ statements: 1. The threshold of materiality will vary from one business to the next. 2. Accounting information possessing only the quality of relevance will still be useful to users. Are the above statements true or​ false?

1. True 2. False (must have both)

Consider the following two statements concerning financial​ accounting: 1. Financial accounting reports are more general purpose in nature than management accounting reports. 2. Financial accounting reports tend to be more backward looking than management accounting reports. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. True 2. True

In Chapter​ 1, it has been stated that accounting can be seen​ as: 1. A form of​ service; 2. Part of a​ business's total information system. Are the above statements true or​ false?

1. True 2. True

Consider the following​ statements: 1. Timeliness cannot make accounting information useful. 2. Comparability cannot make accounting information useful. Are the above statements true or​ false?

1. True 2. True (only enhance it)

Consider the following​ statements: 1. Verifiability cannot make accounting information useful. 2. Understandability cannot make accounting information useful. Are the above statements true or​ false?

1. True 2. True (only enhance it)

Once assets are __1__ the frequency of __2__ then becomes an important issue as assets recorded at​ out-of-date values can mislead users. Using​ out-of-date revaluations on the statement of financial position is problematic. It lacks the objectivity and verifiability of __3__ ; it also lacks the realism of __4__. Revaluations should therefore be frequent enough to ensure that the net book​ value, or __5__ of the revalued asset does not differ materially from its __6__ at the statement of financial position date.

1. revalued 2. revaluation 3. historic cost 4. current values 5. carrying amount 6. fair value

Accounting information should possess ___ fundamental qualities if it is to be useful to users and there are ___ further​ qualities, which, if​ present, can enhance its usefulness.

2, 4

If the net assets of a business totalled £540,000 and its liabilities totalled £​316,800, its total assets would amount​ to:

540,000 + 316,800 = 856,800

Jayantha commenced business on 1 January 2018 with equity of £95,000. During the year ending on 31 December 2018 he paid​ £93,000 to purchase goods for sale​ (all of which were​ sold) and £32,450 for various expenses. He received £139,250 from the sale of goods. Jayantha has drawn £13,000 in cash and introduced a motor car valued at ​£11,000 to the business. What is​ Jayantha's equity at 31 December 2018​?

95000-93000-32450+139,250-13000+11000= 106,800 equity at end of year

During the most recent accounting​ period, a business sold inventories that it had originally purchased for pound£​1,000 for pound£​1,500 on credit. How would this transaction affect the statement of financial position of the​ business? A. Decrease inventories £​1,000, increase trade receivables £​1,500, increase equity £500 B. Decrease inventories £​1,500, increase trade receivables £​1,500 C. Decrease inventories £​1,500, increase trade receivables £​1,500, increase equity £500 D. Decrease inventories £​1,000, increase trade receivables £​1,500, decrease equity £500

A. Decrease inventories £​1,000, increase trade receivables £​1,500, increase equity £500

Bellino Co incurred significant expenditure relating to each of the items mentioned below. To comply with the accounting​ rules, which ONE of these items should not be shown as an asset in the statement of financial​ position? A. Internally generated goodwill B. License to broadcast radio programmes C. Patent held relating to a new device D. Copyright ownership relating to a new book

A. Internally generated goodwill

Which ONE of the following transactions made by a business will have an effect on the equity figure in the statement of financial​position? A. The sale of inventories at a loss B. The purchase of a motor car on credit C. The receipt of cash from trade receivables D. The repayment of a loan

A. The sale of inventories at a loss

The following information relates to JJ Manufacturers as at 31 August 20 2017: £ Plant and equipment ​25,600 Trade payables ​6,400 Cash ​1,200 Drawings for the period to 31 August 2017 ​7,600 Profit for the period to 31 August 2017 ​9,500 Inventories ​8,800 Trade receivables ​10,300 What was the​ owner's equity at the beginning of the financial year to 31 August 2017​?

Assets-Liabilities=Equity Non-current assets: 25,600 PLUS: current assets: Trade receivables 10,300 Inventories 8,800 Cash 1200 LESS: current liabilities Trade payables (6,400) Less: profit for the period (9500) PLUS: drawing for the period 7600 -------------------------------------- Equity at beginning of period = 37600

Which ONE of the following best describes a​ non-current asset? A. It has a physical substance B. It does not meet the definition of a current asset C. It is held for a fixed term D. It will be held for more than one year

B. It does not meet the definition of a current asset

Which of the following is equal to ownership interest if it is assumed that there are no​ non-current liabilities? A. Non-current assets​ + current assets B. Non-current assets​ + current assets−current liabilities C. Current assets​ + current liabilities D. Non-current assets​ + current liabilities

B. Non-current assets​ + current assets−current liabilities

Which ONE of the following transactions made by a business will have an effect on the equity figure in the statement of financial​position? A. The receipt of a loan to purchase equipment B. The payment of trade payables C. The introduction of the​ owner's motor car into the business D. The purchase of inventories on credit

C. The introduction of the​ owner's motor car into the business (also will increase assets)

Black​ Co, a​ manufacturer, has listed the following amounts in its statement of financial​ position: Cash £​10,000 Buildings £​75,000 Trade payables £​25,000 Loans payable within one year £​15,000 Trade receivables £​55,000 Plant and equipment £​30,000 Inventories £​60,000 What is the amount of total current​ assets?

Current assets: Cash (10,000) + Trade receivables (55,000) + Inventories (60,000) = 125,000

What do users care about?

Customers: Are there sufficient financial resources to complete an​ order? Competitors: How well is the opposition doing? Employees: Can the business continue to offer​ employment? Government: Is there tax due on business​ profits? Suppliers: Can the business pay for goods bought on​ credit? Lenders: Can the business repay loans and​ interest? Owners: Should more shares be​ bought, or should some be​ sold? Managers: How can the business become more financially​ efficient? Investment analysts: Should they advise clients to buy or sell​ shares? Community representatives: What impact does the business have on the​ environment?

Which ONE of the following cannot be a current​ liability? A. Trade payables B. A loan repayable in 6​ months' time C. Bank overdraft D. Trade receivables

D. Trade receivables

You own the business Green's Grocers​, for which you need a bank loan to purchase equipment. When evaluating your loan​ request, the banker asks about the assets and liabilities of your business. In​ particular, the banker wants to know the amount of your capital. Which definition below describes​ assets, liabilities and​ equity? Show the relationship between​ assets, liabilities and equity.

Equity is: the​ owner's claim to the assets of the business. Assets are: the economic resources of a business that are expected to benefit the business in the future. Liabilities are: amounts payable to outsiders.

At the year​ end, the total assets of a business were £​189,000 and total liabilities were £​126,000. During the​ year, the owner withdrew £10,000 and introduced a further £18,000 in equity. The business began the year with total assets of £​180,000 and total liabilities of £112,000. What is the profit​ (loss) for the​ year?

Equity=Assets-Liabilities Equity at start of the year: Assets 180,000 - Liabilities (112,000) = Equity 68,000 Adjustments: Drawings - (10,000) + New equity 18,000 = Adjusted equity for beginning of the year 76,000 Equity at end of year: Assets 189,000 - Liabilities (126,000) = Equity 63,000 63,000 - 76,000 = 13,000 Loss

With which ONE of the following qualities is the concept of freedom from error most closely​ associated?

Faithful representation

With which ONE of the following qualities is the concept of neutrality most closely​ associated?

Faithful representation

What are the TWO fundamental qualities of accounting​ information?

Faithful representation and relevance

It is normally very easy to assess the impact of accounting on​ decision-making. Is this statement true or​ false?

False

A statement of financial position covers a particular financial period − usually a year. True or False?

False (it's a snapshot in time)

Which area of study is most closely associated with acquiring and deploying the​ short-term and​ long-term finance required by a​ business?

Financial management

Only ONE of the following statements correctly describes the effect of a transaction on the financial statements. Which​ one? A. Goods purchased on credit £​2,000 will increase inventories by £​2,000 and increase trade payables by £​2,000 Your answer is correct. B. A debtor who pays an amount owed £​1,000 will result in an increase in sales by £​1,000 and an increase in cash by F3 this figure should be​ £2000 C. The payment of a trade payable by £​3,000 will decrease the claims​ (payables) by £​3,000 and decrease equity by £​3,000 D. The purchase of a motor van for £​10,000 cash will increase the assets​ (motor van) by £​10,000 and decrease equity by F2 this figure should be​ £3000

Goods purchased on credit £​2,000 will increase inventories by £​2,000 and increase trade payables by £​2,000

Which one of the following is not one of the four sequential stages of an accounting information​ system?

Information correcting

Which one of the following is the second stage of an accounting information​ system?

Information recording

Which ONE of the following indicates an outward focus of management​ accounting?

It directs attention to the strengths and weaknesses of competitors

Which one of the following is not a condition that should be applied to determine whether an asset is a current​ asset?

It is held principally for investment in the current period

Which one of the following is used as a criterion for deciding whether a resource should be regarded as an asset for accounting​ purposes?

It must arise from a past transaction or event

Which one of the following is an internal user of financial​ information? A. Management B. Tax authorities C. Suppliers D. Lenders

Management

Which user group usually has most control over the range and content of information it​ receives? A. Investment analysts B. Managers C. Lenders D. Suppliers

Managers

One purpose of accounting information is to help certain users assess how effectively the managers are running the business and to make judgements about likely levels of risk and return in the future. Which user group is most likely to use accounting information for this​ purpose?

Owners

A street vendor sells a magazine at the corner of a local high street £2 per copy that cost £1 per copy from the magazine publisher. The vendor began the day with 20 magazines in stock and £10 in cash. By the end of the​ day, he had sold 18 magazines and purchased for cash an additional 15 magazines for the following day. What is the difference​ (in £​s) between the profit for the day and the cash held at the end of the​ day?

Profit is the difference between what the magazines were sold for and what they cost​ (18 magazines sold at a profit of £1 each equals £18 total​ profit). The cash at the end of the day is what he started​ with, plus the cash from what he​ sold, less the cash he paid for​ tomorrow's magazines £10 +sales of £36 −purchases of £15 = £​31). The difference is therefore​ (cash £​31-profit £18 equals= £​13).

Which ONE of the following qualities is most concerned with influencing​ users' decisions concerning the prediction of future events and the confirmation of past​ events?

Relevance

With which ONE of the following qualities is the concept of materiality most closely​ associated?

Relevance

A statement of financial position aims to meet various user needs. Which ONE of the following user needs does it not aim to​ meet?

Revealing how profit for the period was generated

Magpie CoMagpie Co has the following assets and liabilities at the year​ end: £ 1. Trade payables 46,788 2. Cash at bank 45,344 3. Equipment 113,900 4. Longterm loan 87,040 5. Inventories 63,301 6. Bank overdraft 50,454 7. Property 131,927 8. Trade receivables 39,283 9. Fixtures and fittings 20,348 10. Goodwill 16,891 During the​ year, the business made a profit of ​£59,414. There were no injections or withdrawals of funds by the owner during the year. What was the​ owner's equity at the beginning of the​ year?

Total assets (cash, equipment, inventory, property, trade receivables, fix&fit, goodwill) − Total liabilities​ (trade payables, loan, overdraft) = Equity at year end ​£430,994 − £184,282 ​= ​£246,712 Equity at year end minus− profit for the year​ = Equity at beginning of year ​ £246,712−£59,414= ​£187,298

Ash Co has the following assets and liabilities at the year​ end: £ 1. Trade payables 16,000 2. Cash at bank 23,000 3. Equipment 63,000 4. Longterm loan 50,000 5. Inventories 40,000 6. Bank overdraft 15,000 7. Property 75,000 8. Trade receivables 21,000 9. Fixtures and fittings 13,000 10. Motor vans 18,000 During the​ year, the business made a profit of £​64,000 and the owner injected £​60,000 into the business. The​ owner's equity at the beginning of the year was £​120,000. How much did the owner withdraw during the​ year?

Total assets−Total liabilities​ = Equity at year end ​£253,000−​£81,000 ​= £172,000 Equity at beginning of the year​ + profit for the year​ + equity introduced−equity withdrawn​ = Equity at end of year ​ £120,000 +​ £64,000 + ​£60,000minus−X ​= £172,000 ​ £120,000 +​ £64,000 + ​£60,000minus−​£172,000 ​= X ​£72,000 = X

Businesses are free to choose their accounting year. True or false?

True

Generally​ speaking, the higher the level of​ risk, the higher the expected return from an investment.

True

A key difference between management accounting and financial accounting reports is that management accounting reports tend​ to:

be forward looking

Deciding whether to produce an item of accounting information is a question of balancing the​ __________ against the​ ______.

benefits, costs

Which branch of accounting is most concerned with the collection of detailed financial data for use in planning and controlling an​ entity?

management accounting

To be​ relevant, accounting information must cross a threshold of​ __________

materiality

In order for a piece of financial information to have the quality of faithful​ representation, it should possess various characteristics. Which of the following is ONE of these​characteristics?

neutrality (must have completeness, neutrality, and free from error)

Given​ non-current assets of £​40,000, current assets of £​12,000, current liabilities of £​5,000, and​ non-current liabilities of £​10,000, owner's equity will​ be:

non-current assets 40,000 + current assets 12,000 - current liabilities (5000) - non-current liabilities (10000) = equity 37,000

As a management accountant you would be primarily concerned​ with:

preparing plans and forecasts for the future activities of the business

To be (reliable, verifiable, relevant) accounting information should make a difference. It should be capable of influencing user (attitudes, needs, decisions). To do​ this, it must help to (predict future events, analyse financial information, provide accurate information), or help to (communicate financial, interpret financial, confirm) past events, or do both. To be (verifiable, reliable, relevant), accounting information must also cross a threshold of (comparability, materiality, understandability).

relevant, decisions predict future events, confirm past relevant, materiality

Not-for-profit organisations have​ ___________ user groups to​ private-sector businesses. These groups use accounting information for​ ___________ purposes.

similar, decision-making

The increasingly turbulent and competitive environment in which businesses operate has led to the introduction of​ _____________ management.

strategic

An asset that has physical substance is said to be a​ __________ one.

tangible

Which quality provides assurance to users that the accounting information supplied faithfully represents what it is supposed to​ represent?

verifiability

Which ONE of the following best describes what the statement of financial position​ reports?

The assets​ of, and the claims​ against, the business

Accounting information is​ ______when various, independent experts are able to reach a consensus that it provides a faithful portrayal.

Verifiable

The text states that accounting is concerned with collecting ​ __________ and ​ _________ financial information.

analyzing, communicating

How should managers deal with risk when setting​ objectives?

Balance it against likely returns

CHAP 2

CHAP 2

Consider the following two statements concerning business​ partnerships: 1. Documents of incorporation must be prepared in order to create a partnership. 2. Partnership annual financial reports must be audited. Which ONE of the following combinations concerning the above statements​ (true/false) is​ correct?

1. False 2.False

Which ONE of the following reflects the effect on the accounting equation of a purchase of an item of plant and equipment for​cash? A. Assets​ decrease: owner's equity increases B. Assets​ unchanged: owner's equity unchanged C. Assets​ increase: owner's equity decreases D. Assets​ decrease: owner's equity unchanged

B. Assets​ unchanged: owner's equity unchanged

Accounting can only be useful if it is capable of affecting​ people's ___________.

Behavior

A business buys £​1,000 of inventories on credit. What is the dual effect of this​ transaction? A. Decrease trade payables and increase inventories B. Increase trade receivables and increase inventories C. Increase trade payables and increase inventories D. Decrease cash and increase inventories

C. Increase trade payables and increase inventories

Which ONE of the following is not an​ asset? A. Motor vehicle B. Building C. Loan received to buy equipment D. Computer

C. Loan received to buy equipment

The generally accepted key financial objective of a business is assumed to be which one of the​ following?

Enhancing the wealth of the owners of the business

Which ONE of the following is the accounting​ equation?

Equity + Liabilities = Assets OR Assets - Liabilities = Equity

In recent​ decades, which one of the following has not resulted in the business environment becoming more turbulent and​ competitive?

Increasing regulation of domestic markets

What is the third stage of an accounting information​ system?

Information analysis

Which one of the following is not the task of the board of​ directors?

Managing the business on a day-to-day basis (CEO usu does)

Which ONE of the following is not an element of the quality of faithful​ representation? A. Freedom from error B. Completeness C. Neutrality D. Materiality

Materiality

Vierra decided to start a small business in order to help pay her living expenses while studying at university. As the weather forecast suggested that it would be a wet​ winter, she decided to buy and sell umbrellas on her local high street. She began on 1 November by investing​ £100 cash of her own money to buy 50 umbrellas for​ £2 each. On the same​ day, she was able to sell 30 umbrellas for​ £4 each. The closing balance of cash at the end of the​ day's trading on 1 November was _______ The profit​ (loss) generated by the business during 1 November is ______ The​ owner's equity in the business at the end of the​ day's trading on 1 November is _____

Opening balance (0) + Cash from sales (120) = Closing balance (120)? 2. profit (loss) = sales revenue (30 x 4) - cost of goods sold (30 x 2)= 60 3. owner's equity= cash (closing balance) 120 + inventories (20 x 2)= equity 160

In​ theory, accounting information should be produced until the point​ where:

The cost of providing it is no longer less than the benefits

Accounting can be seen as part of the total​ __________ system of the business.

information

random: Namek Co reported sales revenue for the current year of​ £450,000. Opening inventories were​ £90,000 and closing inventories were​ £130,000. The gross profit for the period was 40 per cent of sales revenue. What were the purchases during the current​ year?

£​90,000+P−£​130,000=£​270,000 P=£​310,000