Accounting is BEST Described As
Content
Accounting is BEST described as:
The collection and use of financial and non-financial data The use of financial data The collection and use of financial data only The collection of financial data
1
Accounting is BEST described as: Your Answer: The collection and use of financial and non-financial data
Which of the following statements BEST describes a limited liability company?
It is normally owned by just one person It is normally owned and managed by the same persons It is normally a non-profit making organization In law it is regarded as having a separate existence from its owners
Which of the following statements BEST describes a limited liability company? Your Answer: In law it is regarded as having a separate existence from its owners
Which of the following statements is TRUE?
External auditors are appointed by an entity's management External auditors are responsible for preparing accounts An external audit is required for all types of entity External auditors are responsible for checking accounts
Which of the following statements is TRUE? Your Answer: External auditors are responsible for checking accounts
The restrictions relating to the formation and running of companies are:
Found in the Companies Act of 1965 Not to be found in law Found in the Companies Act 1985 (as amended by the Companies Act 1989) Found in accounting standards issued by the Accounting Standards Board
The restrictions relating to the formation and running of companies are: Your Answer: Found in the Companies Act 1985 (as amended by the Companies Act 1989)
Which branch of accounting is MOST concerned with the collection of detailed financial data for use in planning and controlling an entity?
Auditing Taxation Management accounting Financial accounting
Which branch of accounting is MOST concerned with the collection of detailed financial data for use in planning and controlling an entity? Your Answer: Management accounting
Which branch of accounting is MOST closely associated with acquiring and deploying the short term and long term finance required by an entity?
Financial accounting Management accounting Auditing Financial management
Correct Answer: Financial management Financial accounting is concerned with presenting information for the benefit of the owners of the business. Auditing relates to the checking of the financial accounts and reporting on them. Management accounting deals with the collection of detailed financial data for internal management purposes. Financial management is a relatively new branch of accounting. Financial managers are more heavily involved in the management of the entity than financial or management accountants.
Which of the following is NOT one of the major professional accountancy bodies in the UK?
Institute of Chartered Accountants in Scotland Chartered Association of Certified Accountants Institute of Chartered Accountants in England and Wales Institute of Company Accountants
Which of the following is NOT one of the major professional accountancy bodies in the UK? Your Answer: Institute of Company Accountants
Which of the following activities is NOT an accounting function?
Taxation Management consultancy Costing Auditing
Which of the following activities is NOT an accounting function? Your Answer: Management consultancy
Which economic sector in the UK has appeared to be in decline over the past few decades?
Health Services Manufacturing Education
Which economic sector in the UK has appeared to be in decline over the past few decades? Your Answer: Manufacturing
In preparing accounting statements accountants adopt a number of basic rules. These rules can be classified into three categories: boundary, measurement and ethical. Which one of the following is not a measurement rule?
Historic cost Dual aspect Matching Comparability
Correct Answer: Comparability The comparability rule requires financial statements in such a way that users can 'discern and evaluate similarities in, and differences between, the nature and effects of transactions and other events over time and across different reporting entities' (ASB, Statement Of Principles For Financial Reporting, 1999, p.8). It can, therefore, be classified as one of the ethical rules as it requires financial statements in such a way that meaningful comparisons can be made different sets of accounts. Matching, historic cost and dual aspect are clearly all measurement rules.
Which accounting rule requires that if there is some doubt over the treatment of a particular transaction, income should be underestimated and expenditure over-estimated?
Reliability Going concern Consistency Matching
Your Answer: Reliability
The realisation concept states that revenue should only be recognised when it has been realised. A manufacturing business which sells goods on credit would normally recognise revenue when:
The goods are produced An order is received from a customer The goods are delivered to the customer The cash is received from the customer
Correct Answer: The goods are delivered to the customer Revenue is normally recognised in the accounts when the legal title to the goods (or services) is transferred to the customer (normally when they take possession) and they become obliged to pay for them. The date of cash settlement does not determine when the revenue is realised. The manufacturer will, therefore, record sales in his books of account when the goods are delivered to customers. An invoice will be issued to them summarising the credit terms (e.g. 'pay within 30 day of the invoice date'). The manufacturer will record the amount owed from the customer as a trade debtor in his accounts, and when the cash is received the amount that was owed will be removed from the books of accoun
Which of the following is the correct terminology for the right hand side of a hand-written ledger account?
Negative Credit Debit Positive
Your Answer: Credit
Where will a decrease in an asset be recorded in a hand-written account?
Nowhere in the ledger accounts On the credit side of the ledger account for the asset On both sides of the ledger account for the asset On the debit side of the ledger account for the asset
Your Answer: On the credit side of the ledger account for the asset
A trial balance is a list of:
All the firm's debtors and creditors All the debit and credit balances in the accounts All the transactions in a ledger All the firm's assets and liabilities
A trial balance is a list of: Correct Answer: All the debit and credit balances in the accounts The accuracy of the book-keeping is tested by preparing a trial balance. The trial balance is simply a list of all the debit and credit balances (rather than all the individual transactions) in the ledger system.
A supermarket purchases food items for resale on credit from a supplier, Goldman Ltd. The entries in the supermarket's accounts should be: Debit a. c. Purchases Purchases
a b c d
Credit Goldman Ltd Purchases Cash Sales
b. Goldman Ltd d. Goldman Ltd
Debit a. Purchases
Credit Goldman Ltd
b. Goldman Ltd c. Purchases
Your Answer: b Correct Answer: a
Purchases Cash Sales
d. Goldman Ltd
A supermarket buys a motor van on credit from Park Motors Ltd. The entries in the supermarket's accounts should be: Debit a. c. Purchases Purchases
a b c d
Credit Park Motors Ltd Motor van Bank Park Motor Ltd
b. Park Motors Ltd d. Motor van
A supermarket buys a motor van on credit from Park Motors Ltd. The entries in the supermarket's accounts should be:
Debit a. c. Purchases Purchases b. Park Motors Ltd d. Motor van
Credit Park Motors Ltd Motor van Bank Park Motor Ltd
Your Answer: b Correct Answer: d Park Motors Ltd is supplying the motor wan on credit terms to the supermarket. Park Motors is, therefore, the giver and its account must be credited. The receiving account is motor van, as opposed to purchases, since the asset is not bought with the primary intention of selling it but
rather using it in the business.
A supermarket pays a supplier, Goldman Ltd, the amounts owed in cash. The entries in the supermarket's accounts should be: Debit a. c. Goldman Ltd Purchases
a b c d
Credit Cash Goldman Ltd Cash Purchases
b. Cash d. Cash
Your Answer: b Correct Answer: a The cash account is giving up an amount of cash in order to pay amounts owed to Goldman Ltd. The cash account is the giving account, and so it must be credited.
Another meaning for ‘capital expenditure’ is:
payment of interest on a loan. the cost of a train fare to London. purchase of fixed assets. payment of expenses.
Your Answer: purchase of fixed assets.
Which of the following is a current asset?
Wages. Creditors. Stock. Machinery.
Your Answer: Stock.
Which of the following is a fixed asset?
Bank balance. Cash balance. Debtors. Computers.
Your Answer: Computers.
Which of the following is a current liability?
Debtors. Cash balance. A loan repayable in 4 years’ time.
Creditors.
Correct Answer: Creditors.
Which of the following is not an acceptable version of the accounting equation?
Assets + Expenses = Liabilities - Capital + Income Assets + Expenses = Liabilities + Capital + Income Assets - Liabilities = Capital Fixed Assets + (Current Assets - Current liabilities) = Capital
Correct Answer: Assets + Expenses = Liabilities - Capital + Income
2.
Management is said to meet the internal accounting needs of an organisation. Your Answer: True Note that financial accounting meets the external needs.
3.
The accruals concept is also known as the matching concept. Your Answer: True But check that you know what the concept means (see p.4 in the book).
4.
You must be consistent in accounting, even if you are consistently
wrong. Correct Answer: False Who wants to be wrong all the time? See p.4.
5.
Capital expenditure is another name for buying stock. Your Answer: False It means buying fixed assets.
6.
Capital is also called ‘ownership interest’. Your Answer: True Yes – it’s the interest which the owner(s) have in their business.
7.
Can you ever have negative capital? Your Answer: True Yes – if your assets are less than your liabilities.
8.
Revenue expenditure is expenditure on fixed assets Your Answer: False It’s spent on goods for resale and overheads. Capital expenditure relates to fixed assets.
9.
Income less Expenses is shown on the balance sheet. Correct Answer: False
No – assets, liabilities and capital are shown in the balance sheet. Income and expenditure is shown in the Profit and Loss Account.
10.
A way of remembering the full Accounting Equation is the mnemonic ‘All Elephants Like Choc Ices’. Your Answer: True Yes – now do you know what the letters stand for? (See p.10).
If a business pays a cheque for stationery, the bookkeeping entries are:
Debit Purchases Credit Bank. Debit Bank Credit Stationery. Debit Stock Credit Bank. Debit Stationery Credit Bank.
Your Answer: Debit Stationery Credit Bank.
If a business buys goods for resale on credit terms from XYZ, the bookkeeping entries are:
Debit Purchases Credit XYZ’s account. Debit Stock Credit XYZ’s account. Debit XYZ’s account Credit Purchases. Debit Bank Credit XYZ’s account.
Correct Answer: Debit Purchases Credit XYZ’s account.
Which one of the following is an impersonal ledger?
Sales ledger. Purchases ledger. Debtors ledger. General ledger.
Correct Answer: General ledger.
Before inserting a closing balance, accounts representing assets or expenses are likely to have:
more debit entries than credit entries. an equal amount of debit and credit entries. more credit entries than debit entries. only credit entries.
Correct Answer: more debit entries than credit entries.
A ‘T’ account is:
the ledger account found between the Sugar account and the Milk account. an abbreviation for the telephone account.
an account for all customers whose names begin with the letter T.
a simple representation of a ledger account, forming the letter ‘T’.
Correct Answer: a simple representation of a ledger account, forming the letter ‘T’.
Which of the following will not increase an owner’s capital account?
Capital introduced. Net Profit. Owner’s Drawings. A lottery win paid into the business by the owner.
Correct Answer: Owner’s Drawings.
Every entry in a ledger should have:
description and amount. amount. date, description and amount. date and description.
Your Answer: date, description and amount.
If an account has debit entries totalling £600 and credit entries totalling £500, its closing balance is said to be:
a debit balance of £1,100. a debit balance of £100. a credit balance of £1,100. a credit balance of £100.
Correct Answer: a debit balance of £100.
B/d and c/d stand for:
bank divided by debtors and creditors divided by debtors. balance down and carried down. brought down and carried down. beginning date and closing date.
Correct Answer: brought down and carried down.
An advantage of maintaining daybooks is:
fewer invoices need to be entered. no entries need be made into the ledgers. fewer entries are made into the general ledger. fewer payments need to be made.
Correct Answer: fewer entries are made into the general ledger.
Double-entry bookkeeping recognises that every transaction has a dual aspect.
True False
Your Answer: True Correct – for example if you buy a sandwich you now have something to eat but you have had to pay for it!
If a business buys stationery with a cheque it will debit the stationery account and credit the bank account in its own books.
True False Your Answer: True Yes – but do you understand why the bank account is credited? (See p.19).
The sales and purchase ledgers are impersonal ledgers.
True False
Correct Answer: False No - each account in these ledgers has the name of a business or individual, so they are ‘personal’.
A ‘T account’ is the name given to an account which appears in the ledger between the letters S and U.
True False
Correct Answer: False No – it’s a simple account layout consisting of one horizontal line joined by one vertical line, like the letter T.
The word Debit is often abbreviated to Dr.
True False
Your Answer: True Yes – even though there’s no ‘r’ in ‘Debit’.
Money paid into the bank account appears on the credit side of the bank account in the business’s ledger.
True False Correct Answer: False You haven’t learned the golden rule – see p.19.
When an owner takes out money or goods for his or her own use, it is called ‘drawings’.
True False
. Your Answer: True
‘Purchases’ only refers to goods bought for resale, not to expenses.
True False Your Answer: True Yes, it is never used to describe expenses, even if you are ‘purchasing’ stationery.
The cash book is simply the combination of the cash account and bank account in one book.
True False Your Answer: True Yes – it saves space to combine them into one book.
The journal is the same as a ledger.
True
False
Your Answer: False It just explains where entries are debited and credited, e.g. to correct mistakes.
10.
The collection and use of financial and non-financial data The use of financial data The collection and use of financial data only The collection of financial data
1
Accounting is BEST described as: Your Answer: The collection and use of financial and non-financial data
Which of the following statements BEST describes a limited liability company?
It is normally owned by just one person It is normally owned and managed by the same persons It is normally a non-profit making organization In law it is regarded as having a separate existence from its owners
Which of the following statements BEST describes a limited liability company? Your Answer: In law it is regarded as having a separate existence from its owners
Which of the following statements is TRUE?
External auditors are appointed by an entity's management External auditors are responsible for preparing accounts An external audit is required for all types of entity External auditors are responsible for checking accounts
Which of the following statements is TRUE? Your Answer: External auditors are responsible for checking accounts
The restrictions relating to the formation and running of companies are:
Found in the Companies Act of 1965 Not to be found in law Found in the Companies Act 1985 (as amended by the Companies Act 1989) Found in accounting standards issued by the Accounting Standards Board
The restrictions relating to the formation and running of companies are: Your Answer: Found in the Companies Act 1985 (as amended by the Companies Act 1989)
Which branch of accounting is MOST concerned with the collection of detailed financial data for use in planning and controlling an entity?
Auditing Taxation Management accounting Financial accounting
Which branch of accounting is MOST concerned with the collection of detailed financial data for use in planning and controlling an entity? Your Answer: Management accounting
Which branch of accounting is MOST closely associated with acquiring and deploying the short term and long term finance required by an entity?
Financial accounting Management accounting Auditing Financial management
Correct Answer: Financial management Financial accounting is concerned with presenting information for the benefit of the owners of the business. Auditing relates to the checking of the financial accounts and reporting on them. Management accounting deals with the collection of detailed financial data for internal management purposes. Financial management is a relatively new branch of accounting. Financial managers are more heavily involved in the management of the entity than financial or management accountants.
Which of the following is NOT one of the major professional accountancy bodies in the UK?
Institute of Chartered Accountants in Scotland Chartered Association of Certified Accountants Institute of Chartered Accountants in England and Wales Institute of Company Accountants
Which of the following is NOT one of the major professional accountancy bodies in the UK? Your Answer: Institute of Company Accountants
Which of the following activities is NOT an accounting function?
Taxation Management consultancy Costing Auditing
Which of the following activities is NOT an accounting function? Your Answer: Management consultancy
Which economic sector in the UK has appeared to be in decline over the past few decades?
Health Services Manufacturing Education
Which economic sector in the UK has appeared to be in decline over the past few decades? Your Answer: Manufacturing
In preparing accounting statements accountants adopt a number of basic rules. These rules can be classified into three categories: boundary, measurement and ethical. Which one of the following is not a measurement rule?
Historic cost Dual aspect Matching Comparability
Correct Answer: Comparability The comparability rule requires financial statements in such a way that users can 'discern and evaluate similarities in, and differences between, the nature and effects of transactions and other events over time and across different reporting entities' (ASB, Statement Of Principles For Financial Reporting, 1999, p.8). It can, therefore, be classified as one of the ethical rules as it requires financial statements in such a way that meaningful comparisons can be made different sets of accounts. Matching, historic cost and dual aspect are clearly all measurement rules.
Which accounting rule requires that if there is some doubt over the treatment of a particular transaction, income should be underestimated and expenditure over-estimated?
Reliability Going concern Consistency Matching
Your Answer: Reliability
The realisation concept states that revenue should only be recognised when it has been realised. A manufacturing business which sells goods on credit would normally recognise revenue when:
The goods are produced An order is received from a customer The goods are delivered to the customer The cash is received from the customer
Correct Answer: The goods are delivered to the customer Revenue is normally recognised in the accounts when the legal title to the goods (or services) is transferred to the customer (normally when they take possession) and they become obliged to pay for them. The date of cash settlement does not determine when the revenue is realised. The manufacturer will, therefore, record sales in his books of account when the goods are delivered to customers. An invoice will be issued to them summarising the credit terms (e.g. 'pay within 30 day of the invoice date'). The manufacturer will record the amount owed from the customer as a trade debtor in his accounts, and when the cash is received the amount that was owed will be removed from the books of accoun
Which of the following is the correct terminology for the right hand side of a hand-written ledger account?
Negative Credit Debit Positive
Your Answer: Credit
Where will a decrease in an asset be recorded in a hand-written account?
Nowhere in the ledger accounts On the credit side of the ledger account for the asset On both sides of the ledger account for the asset On the debit side of the ledger account for the asset
Your Answer: On the credit side of the ledger account for the asset
A trial balance is a list of:
All the firm's debtors and creditors All the debit and credit balances in the accounts All the transactions in a ledger All the firm's assets and liabilities
A trial balance is a list of: Correct Answer: All the debit and credit balances in the accounts The accuracy of the book-keeping is tested by preparing a trial balance. The trial balance is simply a list of all the debit and credit balances (rather than all the individual transactions) in the ledger system.
A supermarket purchases food items for resale on credit from a supplier, Goldman Ltd. The entries in the supermarket's accounts should be: Debit a. c. Purchases Purchases
a b c d
Credit Goldman Ltd Purchases Cash Sales
b. Goldman Ltd d. Goldman Ltd
Debit a. Purchases
Credit Goldman Ltd
b. Goldman Ltd c. Purchases
Your Answer: b Correct Answer: a
Purchases Cash Sales
d. Goldman Ltd
A supermarket buys a motor van on credit from Park Motors Ltd. The entries in the supermarket's accounts should be: Debit a. c. Purchases Purchases
a b c d
Credit Park Motors Ltd Motor van Bank Park Motor Ltd
b. Park Motors Ltd d. Motor van
A supermarket buys a motor van on credit from Park Motors Ltd. The entries in the supermarket's accounts should be:
Debit a. c. Purchases Purchases b. Park Motors Ltd d. Motor van
Credit Park Motors Ltd Motor van Bank Park Motor Ltd
Your Answer: b Correct Answer: d Park Motors Ltd is supplying the motor wan on credit terms to the supermarket. Park Motors is, therefore, the giver and its account must be credited. The receiving account is motor van, as opposed to purchases, since the asset is not bought with the primary intention of selling it but
rather using it in the business.
A supermarket pays a supplier, Goldman Ltd, the amounts owed in cash. The entries in the supermarket's accounts should be: Debit a. c. Goldman Ltd Purchases
a b c d
Credit Cash Goldman Ltd Cash Purchases
b. Cash d. Cash
Your Answer: b Correct Answer: a The cash account is giving up an amount of cash in order to pay amounts owed to Goldman Ltd. The cash account is the giving account, and so it must be credited.
Another meaning for ‘capital expenditure’ is:
payment of interest on a loan. the cost of a train fare to London. purchase of fixed assets. payment of expenses.
Your Answer: purchase of fixed assets.
Which of the following is a current asset?
Wages. Creditors. Stock. Machinery.
Your Answer: Stock.
Which of the following is a fixed asset?
Bank balance. Cash balance. Debtors. Computers.
Your Answer: Computers.
Which of the following is a current liability?
Debtors. Cash balance. A loan repayable in 4 years’ time.
Creditors.
Correct Answer: Creditors.
Which of the following is not an acceptable version of the accounting equation?
Assets + Expenses = Liabilities - Capital + Income Assets + Expenses = Liabilities + Capital + Income Assets - Liabilities = Capital Fixed Assets + (Current Assets - Current liabilities) = Capital
Correct Answer: Assets + Expenses = Liabilities - Capital + Income
2.
Management is said to meet the internal accounting needs of an organisation. Your Answer: True Note that financial accounting meets the external needs.
3.
The accruals concept is also known as the matching concept. Your Answer: True But check that you know what the concept means (see p.4 in the book).
4.
You must be consistent in accounting, even if you are consistently
wrong. Correct Answer: False Who wants to be wrong all the time? See p.4.
5.
Capital expenditure is another name for buying stock. Your Answer: False It means buying fixed assets.
6.
Capital is also called ‘ownership interest’. Your Answer: True Yes – it’s the interest which the owner(s) have in their business.
7.
Can you ever have negative capital? Your Answer: True Yes – if your assets are less than your liabilities.
8.
Revenue expenditure is expenditure on fixed assets Your Answer: False It’s spent on goods for resale and overheads. Capital expenditure relates to fixed assets.
9.
Income less Expenses is shown on the balance sheet. Correct Answer: False
No – assets, liabilities and capital are shown in the balance sheet. Income and expenditure is shown in the Profit and Loss Account.
10.
A way of remembering the full Accounting Equation is the mnemonic ‘All Elephants Like Choc Ices’. Your Answer: True Yes – now do you know what the letters stand for? (See p.10).
If a business pays a cheque for stationery, the bookkeeping entries are:
Debit Purchases Credit Bank. Debit Bank Credit Stationery. Debit Stock Credit Bank. Debit Stationery Credit Bank.
Your Answer: Debit Stationery Credit Bank.
If a business buys goods for resale on credit terms from XYZ, the bookkeeping entries are:
Debit Purchases Credit XYZ’s account. Debit Stock Credit XYZ’s account. Debit XYZ’s account Credit Purchases. Debit Bank Credit XYZ’s account.
Correct Answer: Debit Purchases Credit XYZ’s account.
Which one of the following is an impersonal ledger?
Sales ledger. Purchases ledger. Debtors ledger. General ledger.
Correct Answer: General ledger.
Before inserting a closing balance, accounts representing assets or expenses are likely to have:
more debit entries than credit entries. an equal amount of debit and credit entries. more credit entries than debit entries. only credit entries.
Correct Answer: more debit entries than credit entries.
A ‘T’ account is:
the ledger account found between the Sugar account and the Milk account. an abbreviation for the telephone account.
an account for all customers whose names begin with the letter T.
a simple representation of a ledger account, forming the letter ‘T’.
Correct Answer: a simple representation of a ledger account, forming the letter ‘T’.
Which of the following will not increase an owner’s capital account?
Capital introduced. Net Profit. Owner’s Drawings. A lottery win paid into the business by the owner.
Correct Answer: Owner’s Drawings.
Every entry in a ledger should have:
description and amount. amount. date, description and amount. date and description.
Your Answer: date, description and amount.
If an account has debit entries totalling £600 and credit entries totalling £500, its closing balance is said to be:
a debit balance of £1,100. a debit balance of £100. a credit balance of £1,100. a credit balance of £100.
Correct Answer: a debit balance of £100.
B/d and c/d stand for:
bank divided by debtors and creditors divided by debtors. balance down and carried down. brought down and carried down. beginning date and closing date.
Correct Answer: brought down and carried down.
An advantage of maintaining daybooks is:
fewer invoices need to be entered. no entries need be made into the ledgers. fewer entries are made into the general ledger. fewer payments need to be made.
Correct Answer: fewer entries are made into the general ledger.
Double-entry bookkeeping recognises that every transaction has a dual aspect.
True False
Your Answer: True Correct – for example if you buy a sandwich you now have something to eat but you have had to pay for it!
If a business buys stationery with a cheque it will debit the stationery account and credit the bank account in its own books.
True False Your Answer: True Yes – but do you understand why the bank account is credited? (See p.19).
The sales and purchase ledgers are impersonal ledgers.
True False
Correct Answer: False No - each account in these ledgers has the name of a business or individual, so they are ‘personal’.
A ‘T account’ is the name given to an account which appears in the ledger between the letters S and U.
True False
Correct Answer: False No – it’s a simple account layout consisting of one horizontal line joined by one vertical line, like the letter T.
The word Debit is often abbreviated to Dr.
True False
Your Answer: True Yes – even though there’s no ‘r’ in ‘Debit’.
Money paid into the bank account appears on the credit side of the bank account in the business’s ledger.
True False Correct Answer: False You haven’t learned the golden rule – see p.19.
When an owner takes out money or goods for his or her own use, it is called ‘drawings’.
True False
. Your Answer: True
‘Purchases’ only refers to goods bought for resale, not to expenses.
True False Your Answer: True Yes, it is never used to describe expenses, even if you are ‘purchasing’ stationery.
The cash book is simply the combination of the cash account and bank account in one book.
True False Your Answer: True Yes – it saves space to combine them into one book.
The journal is the same as a ledger.
True
False
Your Answer: False It just explains where entries are debited and credited, e.g. to correct mistakes.
10.
