Financial Statements

Which of the following is considered a running cost?

• Office rent

• Initial equipment purchase

• Business registration fee

• Market research

Answer explanation

Office rent is a recurring expense necessary for business operations, making it a running cost. In contrast, initial equipment purchase, business registration fee, and market research are not ongoing expenses.

Running costs are also known as: A) Fixed costs B) Variable costs C) Operating costs D) Capital costs.

• Fixed costs

• Variable costs

• Operating costs

• Capital costs

Answer explanation

Running costs refer to the expenses incurred during the normal operation of a business, which are best categorized as operating costs. Fixed costs remain constant regardless of output, while variable costs fluctuate with production levels.

How can a business reduce its running costs?

• By increasing start-up costs

• By negotiating better supplier deals

• By hiring more staff

• By expanding office space.

Answer explanation

A business can reduce running costs effectively by negotiating better supplier deals, which can lower expenses on materials and services. The other options would either increase costs or not contribute to cost reduction.

Which of the following is a main financial reporting document?

• Income statement

• Tax return

• Invoice

• Receipt

Answer explanation

The income statement is a main financial reporting document that summarizes revenues and expenses over a specific period, showing the company's profitability. In contrast, tax returns, invoices, and receipts serve different purposes.

Which document is used to show profit and loss?

• Balance sheet

• Cash flow statement

• Income statement

• Tax return

Answer explanation

The income statement, also known as the profit and loss statement, summarizes revenues and expenses to show the net profit or loss over a specific period, making it the correct document for this purpose.

The costs of a business are also known as: A) Income B) Expenditure C) Savings D) Revenue.

• Income

• Expenditure

• Savings

• Revenue

Answer explanation

The costs of a business refer to the money spent to operate, which is termed 'Expenditure'. Income and Revenue refer to money received, while Savings are the leftover funds after expenses.

Which financial document provides a snapshot of a company's assets and liabilities?

• Income statement

• Balance sheet

• Cash flow statement

• Budget report

Answer explanation

The balance sheet provides a snapshot of a company's financial position at a specific point in time, detailing its assets, liabilities, and equity. In contrast, the income statement and cash flow statement serve different purposes.

What is the primary purpose of a cash flow statement?

• To show a company's profitability

• To track the inflow and outflow of cash

• To list all assets and liabilities

• To outline future financial plans

Answer explanation

The primary purpose of a cash flow statement is to track the inflow and outflow of cash, providing insights into a company's liquidity and financial health, rather than focusing solely on profitability or assets.

What is the main purpose of a balance sheet?

• To show a company's profitability

• To provide a snapshot of financial position

• To track cash inflows and outflows

• To outline future financial plans

Answer explanation

The main purpose of a balance sheet is to provide a snapshot of a company's financial position at a specific point in time, detailing assets, liabilities, and equity, rather than focusing on profitability or cash flow.

What is the main purpose of an income statement?

• To show a company's cash flow

• To provide a snapshot of financial position

• To outline future financial plans

• To show a company's profitability

Answer explanation

The main purpose of an income statement is to show a company's profitability by detailing revenues and expenses over a specific period, allowing stakeholders to assess financial performance.