Accounting - Topic 1

CHAPTER 1.1 – THE PURPOSE OF ACCOUNTING

Compiled bySekolah Menengah Masin 2021

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1.Which of the following is not a likely business objective?

AProfit maximization

CSurvival

BGrowth

DIncome statement

2.A business sells 1100 units at $8 each. Total expenses are $5400. Calculate the profit for this

period.

A$8800

C$3400

B$5400

D$14200

3.Which of the following is not a reason for buying shares in a limited company?

ATo receive dividends

CTo obtain the business

BTo profit from rising share prices

DTo obtain credit

4.What is the purpose of book-keeping?

Ato interpret the double entry records

Bto prepare financial statements at regular intervals

Cto record all the financial transactions of the business

Dto summarise the financial position of the business

5.How should the owner of a business use his financial statements?

Ato calculate the cash drawings for the year

Bto determine the amount due to trade payables

Cto measure the change in the bank balance

Dto monitor the progress of the business

6.What does the owner of a business discover from the income statement?

Abank account balance

Bhow much has been spent on non-current assets

Chow much she withdrew from the business

Dwhether gross profit has exceeded expenses

7.Why does the owner of a business calculate profit?

Ato find out how much trade receivables owe him

Bto find out how much he owes to trade payables

Cto know how much money may be taken as drawings without reducing owner’s equity

Dto reconcile the cash book balance with the balance on the bank statement

CHAPTER 1.1 – THE PURPOSE OF ACCOUNTING

Compiled bySekolah Menengah Masin 2021

Page 2 of 4

8.Why does the owner of a business need to know how much profit he has made?

Ato calculate interest payable on a bank loan

Bto calculate cost of sales

Cto calculate the return on capital

Dto calculate total expenses

9.Which task is carried out by a book-keeper?

Aanalysing information

Bassessing information

Cinterpreting information

Drecording information

10.Which statements about book-keeping and accounting are correct?

1

Accounting is performed periodically rather than daily

2

Accounting relies on having accurate book-keeping records

3

Book-keeping involves the preparation of financial statements

4

Book-keeping is based on the double entry system of recording

A 1, 2 and 4

B 1 and 3 only

C 2, 3 and 4

D 2 and 4 only

11.A trader prepares financial statements each year. What do these assist the trader to do?

Acalculate the amount owing to trade payables

Bcalculate the cash drawings

Ccheck the bank statement balance

Dmake decisions about the future

12.Which are reasons for a trader measuring his profit or loss?

1

to calculate the expenses of running the business

2

to calculate the return on his investment

3

to decide whether to continue in business or close down

4

to see how much can be withdrawn without reducing owner’s equity

A 1, 2 and 3

B 1 and 2 only

C 2, 3 and 4

D 3 and 4 only

13.Which task would be carried out by a book-keeper?

Acomparison of financial statements of one year with another

Bpreparation of financial statement

Cprovision of information for decision-making

Drecording financial transactions

14.What would be the most useful way of monitoring the progress of a retail business?

CHAPTER 1.1 – THE PURPOSE OF ACCOUNTING

Compiled bySekolah Menengah Masin 2021

Page 3 of 4

Acomparing the financial statements of one year with those of previous years

Bcomparing the financial statements with those of a business in another country

Ccomparing the financial statements with those of a business of a different size

Dcomparing the financial statements with those of a manufacturing business

15.A trader must record all the financial information about her business if she wants to know the

amount of _________ .

Aher bank balance

Bher trade receivables

Cher drawings

Dher profit

16.The owners of a business require a statement of the financial position of their business.

Which accounting statement will provide the necessary information?

AStatement of Financial Position

BCapital Account

CCash Book

DIncome Statement

17.The owner of a business requires a statement to show the trading results for a financial year.

Which accounting statement is used?

AStatement of Financial Position

BCapital Account

CIncome Statement

DTrial Balance

18.Why should a sole trader record all the financial information about her business?

Abecause she is required to do so by law

Bbecause she needs to pay her trade payables on time

Cso that she can prepare financial statements

Dso that she knows how much her trade receivables owe her

19.For which purpose does a sole trader NOT use the information provided in his financial

statements?

Ato assist with decision-making

Bto compare performance with previous years

Cto determine the amount of his bank overdraft

Dto plan for the future

20.A company employs a book-keeper and an accountant.

CHAPTER 1.1 – THE PURPOSE OF ACCOUNTING

Compiled bySekolah Menengah Masin 2021

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Which task would the accountant perform?

Aextracting balances from the ledger accounts to produce a trial balance

Bmaking entries in the journal to adjust a provision for doubtful debts

Cpreparing a monthly report that analyses the profitability of the company

Drecording sales and purchase invoices in the books of prime (original) entry

21. Which are examples of book-keeping?

1 entering details of a cheque received from a customer in a cash book

2 entering details of goods purchased on credit in a purchases journal

3 producing an income statement to calculate the profit for the year

4 recording details of credit sales in the account of a credit customer

A 1, 2 and 3

B 1, 2 and 4

C 1 and 2 only

D 3 and 4

22. How does a trader use the information provided by financial statements?

A

to calculate the amount of cash drawings taken

B

to calculate the amount that is owed by trade receivables

C

to check the balance shown on a bank statement

D

to compare the business performance over a number of years

23. A trader prepares financial statements each year.

What do these assist the trader to do?

A

calculate the amount owing to credit suppliers

B

calculate the cash drawings

C

check the bank statement balance

D

make decisions about the future

24.What is not an example of a book-keeping entry?

A

an entry made in the bank column of the cash book for a cheque received

B

cost of goods purchased on credit entered in the supplier’s account

C

expenses paid during the year entered in the income statement

D

goods returned by a customer entered in the sales returns journal