AFM 101 Exam 2023 with complete solutions

What is the normal form of the accounting equation? Assets = Liabilities + Owners Equity Define 'Asset' Anything the company owns and is not mortgaged/ loaned What is an example of an asset? Paid for stock Define 'liability' Anything that is owed to other people/ businesses What is an example of a liability? Bank loan/ mortgage What is another way to write the accounting equation? Owner's Equity = Assets - Liabilities Define equity What is left over after your assets have 'paid off' your liabilities What do financial statements consist of? A balance sheet, an income statement statement of changes in equity, and a statement of cash flows What three main elements does a balance sheet consist of? Assets, liabilities and owners equity What does an income statement consist of? Revenue - (minus) expenses = net profit What are the two other names that are used for an 'income statement'? Profit and loss statement and statement of financial performance What does a statement of changes in equity represent? It represents the owner's interest in the business. What three aspects are included in a statement of changes in equity statement? Personal funds invested, profits retained in the business and withdrawal of assets the owner may have made What is the format used for a 'statement of changes in equity'? Owner's capital = opening balance + profit + capital introduced - less drawings = owner's capital - closing balance What does CAMP PEG stand for? Cost, Accounting period, Matching, Profit recognition, Prudence principle, Entity concept, Going concern Define 'cost' items recorded at their historical cost Define 'accounting period' accounting recorded for a specific time (e.g. 1 year) Define 'matching' the recording of expenses (inputs) to the same period as the revenues (outputs) so they match Define 'profit recognition' revenue must be recognised in the period in which it was earned What is another term used for 'profit recognition'? revenue recognition Define 'prudence principle' the recording of revenue only when it is certain and the recording of expenses only when they are probable Define 'entity concept' reports used for a specific entity Define 'going concern' accounts produced on the basis that the entity will continue in the future Which three principles from CAMP PEG work closely together, and why? Accounting period, Profit recognition and Matching. This is because we 'measure our income' (profit recognition), and our expenses (matching) for a particular year (accounting period)