Financial Accounting - Quick Revision

Financial information is considered 'Relevant' if it is capable of...

• Being presented perfectly without error.

• Making a difference in the decisions made by users.

• Being presented identically to other companies in the industry.

• Only including events that occurred in the past.

The 'Going Concern' principle assumes that the entity...

• Will always generate profit in the future.

• Has neither the intention nor the need to liquidate or cease trading in the foreseeable future.

• Has enough cash to pay all its debts immediately.

• Will expand its business operations into new markets.

Recognising expenses when they are incurred (even if not yet paid) rather than when cash is paid is an application of which principle?

• Consistency

• Historical Cost

• Accrual Basis

• Materiality

Which characteristic ensures that accounting methods are applied consistently from one period to another, helping users compare results over time?

• Faithful Representation

• Timeliness

• Comparability (including Consistency)

• Verifiability

The owner withdraws £500 cash from the business for personal use. How does this transaction affect the accounting equation?

• Decrease Assets (Cash), Decrease Equity (Drawings)

• Decrease Assets (Cash), Increase Expenses (Personal Expense)

• Increase Assets (Receivable from owner), Decrease Equity

• Decrease Assets (Cash), Decrease Liabilities (Repayment to owner)

A company buys a computer costing £800, paying £300 cash upfront and the remainder on credit. The double entry includes:

• Dr Equipment 800 / Cr Cash 800

• Dr Equipment 800 / Cr Cash 300 / Cr Trade Payables 500

• Dr Equipment Expense 800 / Cr Cash 300 / Cr Trade Payables 500

• Dr Equipment 500, Dr Prepaid Expense 300 / Cr Cash 300 / Cr Trade Payables 500

A telephone bill for £150 is received for the current month but has not yet been paid. The journal entry is:

• Dr Telephone Expense 150 / Cr Cash 150

• Dr Trade Payables 150 / Cr Telephone Expense 150

• Dr Telephone Expense 150 / Cr Accrued Expenses 150

• No journal entry required until payment.

The cost of replacing an old truck engine with a new, more powerful, fuel-efficient one, significantly increasing the truck's performance and useful life, should be treated as:

• Revenue Expenditure (ordinary repair)

• Capital Expenditure

• Revenue Expenditure (routine maintenance)

• An abnormal loss

The cost of repainting the old shop logo with a new one (with no other changes) should be recorded as:

• Capitalised to the building's value.

• Advertising or repairs expense (Revenue Expenditure).

• Prepaid expense.

• An intangible asset.

On 1 October, a company received £6,000 cash for services to be provided evenly over the next 6 months. At 31 December, the required adjusting entry is:

• Dr Unearned Revenue 3,000 / Cr Service Revenue 3,000

• Dr Cash 6,000 / Cr Service Revenue 6,000

• Dr Service Revenue 3,000 / Cr Unearned Revenue 3,000

• Dr Unearned Revenue 6,000 / Cr Service Revenue 6,000