UNIT 1: The fundamentals of accounting

Which transaction will increase both assets and capital by the same amount?

• A credit customer settled his account after deducting a cash discount.

• Goods were sold for cash at a price higher than their cost price.

• Rent received included an amount prepaid for the next accounting period

• The owner repaid a business loan from his personal bank account.

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

• comparison of financial statements between years

• preparation of financial statements

• provision of information for decision-making

• recording financial transactions

What is prepared by a book-keeper?

• appropriation account

• cash book

• income statement

• statement of financial position

Which item is an asset?

• an amount owing to credit suppliers

• interest accrued on bank loan

• rent received in advance from tenant

• an amount owing by credit customers

The value of assets in the form of cash or inventory withdrawn from a business by the owners for personal use.

(a)  

Which statement is correct?

• The accountant prepares the trial balance and the book-keeper prepares the financial statements.

• The accountant writes up the journals and the book-keeper writes up the ledger accounts

• The book-keeper writes up the journals and the accountant prepares the trial balance.

• The book-keeper writes up the ledger accounts and the accountant prepares the financial statements.

Which formulas may be used for the accounting equation?

1. assets = owner’s equity minus liabilities

2. liabilities = assets minus owner’s equity

3. owner’s equity = assets plus liabilities

4. owner’s equity plus liabilities = assets

• 1 and 2

• 1 and 3

• 2 and 4

• 3 and 4

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 includes the preparation of financial statements.

4 Book-keeping involves the recording of financial transactions.

• 1, 2 and 4

• 1 and 3

• 2, 3 and 4

• 2 and 4 only

What increases owner’s capital?

• bank loan extended from five to ten years

• purchase of inventory on credit

• purchase of machinery by cheque

• transfer of vehicle to business from private use

A business employs a book-keeper and an accountant.

Which task would the accountant perform?

• preparing a monthly report that analyses the profitability of the company

• extracting balances from the ledger accounts to produce a trial balance

• making entries in the general journal to adjust a provision for doubtful debts

• recording sales and purchase invoices in the books of prime entry