Introduction to Final Accounts

     Which of the following is an example of a current asset?

• Land

• Equipment

• Accounts Receivables

• Building

Answer explanation

Accounts Receivables is a current asset because it represents money owed to a company that is expected to be received within a year. In contrast, land, equipment, and buildings are long-term assets.

The double-entry accounting system is based on which principle?

• Materiality

• Consistency

• Entity

• Dual Aspect

Answer explanation

The double-entry accounting system is based on the Dual Aspect principle, which states that every transaction affects at least two accounts, ensuring that the accounting equation remains balanced.

Outstanding expenses are adjusted in final accounts based on which concept:

• Accrual concept

• Business entity concept

• Going concern concept

• None of these

Answer explanation

Outstanding expenses are recognized when incurred, regardless of payment, aligning with the accrual concept. This ensures that financial statements reflect all expenses related to the period, making the accrual concept the correct choice.

An increase in accounts payable would result in:

• Decrease in liabilities

• Increase in assets

• Increase in liabilities

• Decrease in owner's equity

Answer explanation

An increase in accounts payable means the company owes more to suppliers, which raises its liabilities. Therefore, the correct answer is 'Increase in liabilities'.

Which financial statement reports the financial position of a company at a specific point in time?

• Income Statement

• Cash Flow Statement

• Statement of Changes in Equity

• Balance Sheet

Answer explanation

The Balance Sheet reports a company's financial position at a specific point in time, detailing assets, liabilities, and equity. In contrast, the Income Statement and Cash Flow Statement cover different time periods.

   Depreciation is the process of allocating the cost of:

• Intangible assets

• Current assets

• Fixed assets

• Investments

Answer explanation

Depreciation is specifically related to fixed assets, which are long-term tangible assets like machinery and buildings. It allocates the cost of these assets over their useful life, reflecting their usage and wear over time.

A trading account is prepared to record

• Net profit or loss

• Gross profit or loss

• Both a and b

• Financial position

Answer explanation

A Trading account is specifically designed to calculate the Gross profit or loss from trading activities, which is the difference between sales and the cost of goods sold. Therefore, the correct answer is Gross profit or loss.

What is the purpose of the Trial Balance?

• To ensure the mathematical accuracy of business transactions recorded in the ledger.

• To identify errors in accounting records.

• To calculate net income.

• To record closing entries.

Answer explanation

The purpose of a Trial Balance is to ensure the mathematical accuracy of business transactions recorded in the ledger. It helps verify that total debits equal total credits, indicating that the accounts are balanced.

The debit side of a trading account records

• Direct expenses

• Indirect expenses

• Both direct and indirect expenses

• None of these

Answer explanation

The debit side of a trading account records direct expenses, which are costs directly associated with the production of goods sold, such as raw materials and labor. Indirect expenses are recorded elsewhere.

Expenditure incurred on advertising a new product is:

• Capital expenditure

• Deferred Revenue expenditure

• Revenue expenditure

• Current expenditure

Answer explanation

Expenditure on advertising a new product is classified as Deferred Revenue expenditure because it provides future benefits by promoting the product, thus it is not a current expense but an investment in future revenue.