Financial statements, working capital, inventory valuation

What are assets?

• items that are bought for long-term use by a business

• items that are expected to be turned into cash in the near future

• items that are owned by or owed by a business

• items that are owned by or owed to a business

What is the purpose of an income statement?

• calculate the bank balance

• calculate working capital

• calculate sales

• calculate profit for the year

Why should accrued expenses be shown in the financial statements of a business?

• so that the correct total of current assets is shown in the statement of financial position

• so that the total income of a period is matched against the total costs of that period

• to show how much customers owe the business

• to show the amount owed to credit suppliers

Which statement is correct?

• cost of goods sold – gross profit – sales returns = revenue

• cost of goods sold – gross profit + sales returns = revenue

• cost of goods sold + gross profit – sales returns = revenue

• cost of goods sold + gross profit + sales returns = revenue

AB Stores had the following transactions.

1 The owner invested a further $20 000 capital.

2 $2000 was paid to trade payables.

3 A long-term loan of $5000 was repaid.

By how much would the working capital increase after these transactions?

• $13 000

• $15 000

• $20 000

• $27 000

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

• to calculate the amount of cash drawings taken

• to calculate the amount that is owed by trade receivables

• to check the balance shown on a bank statement

• to compare the business performance over a number of years

Vinita’s credit customer paid the amount owing in cash, after deducting 2% discount for prompt payment.

How did this affect Vinita’s financial statements?

• A

• B

• C

• D

Which will increase a trader’s working capital?

• delaying payment to credit suppliers

• obtaining a short-term bank loan

• selling inventory at cost price

• selling non-current assets

Narinder made a short-term loan to Seema.

Narinder’s draft statement of financial position showed this loan as a current liability.

What was the effect of this error?

• current assets understated

• current liabilities understated

• non-current liabilities overstated

• owner’s capital overstated

An item cost $128. It is slightly damaged and can only be sold for $120. The salesman’s commission is 15%.

At which value is the item included in inventory in the financial statements?

• $102

• $110

• $120

• $128