Midterm Test - Accounting - 2020

Which groups of people are most likely to be interested in the financial statements of a sole trader?

1 Shareholders of the company

2 The business’s bank manager

3 The tax authorities

4 Financial analysts

• 1 and 2 only

• 2 and 3 only

• 2, 3 and 4 only

• 1, 2 and 3 only

Which accounting concept should be considered if the owner of a business takes goods from inventory for his own personal use?

• The fair presentation concept

• The accruals concept

• The going concern concept

• The business entity concept

According to the IASB's Conceptual Framework for Financial Reporting, which TWO of the following are part of faithful representation?

1 It is neutral

2 It is relevant

3 It is presented fairly

4 It is free from material error

• 1 and 2

• 2 and 3

• 1 and 4

• 3 and 4

Which of the following accounting concepts means that similar items should receive a similar accounting

treatment?

• Going concern

• Accruals

• Matching

• Consistency

Listed below are some comments on accounting concepts.

1 Financial statements always treat the business as a separate entity.

2 Materiality means that only items having a physical existence may be recognised as assets.

3 Provisions are estimates and therefore can be altered to make the financial results of a business more attractive to investors.

Which, if any, of these comments is correct, according to the IASB's Conceptual Framework for

Financial Reporting?

• 1 only

• 2 only

• 3 only

• None of them

Which of the following statements about accounting concepts and the characteristics of financial information are correct?

1 The concept of accruals requires transactions to be reflected in the financial statements once the cash or its equivalent is received or paid.

2 Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

3 Based on faithful representation, it may sometimes be necessary to exclude material information from financial statements due to difficulties establishing an accurate figure.

• 1 only

• 1 and 2 only

• 2 and 3 only

• 2 only

The profit earned by a business in 20X7 was $72,500. The proprietor injected new capital of $8,000 during the year and withdrew goods for his private use which had cost $2,200.

If net assets at the beginning of 20X7 were $101,700, what were the closing net assets?

• $35,000

• $39,400

• $168,400

• $180,000

Jones Co has the following transactions:

1 Payment of $400 to J Bloggs for a cash purchase

2 Payment of $250 to J Doe in respect of an invoice for goods purchased last month

What are the correct ledger entries to record these transactions?

• Dr Cash $650/Cr Purchases $650

• Dr Purchases $650/Cr Cash $650

• Dr Purchases $400; Dr Trade Payables $250/Cr Cash $650

• Dr Cash $650/ Cr Trade Payables $250; Cr Purchases $400

Which of the following documents should accompany a return of goods to a supplier?

• Debit note

• Remittance advice

• Purchase invoice

• Credit note

Which of the following are books of prime entry?

1 Sales day book

2 Cash book

3 Journal

4 Purchase ledger

• 1 and 2 only

• 1, 2 and 3 only

• 1 only

• All of them