BUSINESS ACCOUNTS
PREPARATION
QUESTION 1
Income and Expenses are shown on the Profit and Loss. Assets and Liabilities are
shown on the Balance Sheet. It is important to be able to identify these items
correctly.
Match the items in the left-hand column to the correct heading in the right-hand
column.
Rent Paid – Expense (Profit and Loss Account)
Rent Received – Income (Profit and Loss Account)
Freehold premises – Asset (Balance sheet)
Bank Loan – Liability (Balance Sheet)
QUESTION 2
People sometimes have particular difficulty distinguishing assets and expenses.
Indicate which of the following are expenses (appearing on the Profit and Loss
Account) and which are assets (appearing on the Balance Sheet).
Rent Paid - Expense
Leasehold Premises - Asset
Stationery - Expense
Cars - Asset
Fuel - Expense
Car Maintenance - Expense
If the benefit of an item is likely to be exhausted within a short period, it is an
expense. If the benefit will continue beyond a single accounting period, it is an asset.
1
, BUSINESS ACCOUNTS
QUESTION 3
Overvaluing closing stock will improve the current year's profit but will have an
adverse effect on the following year's profit.
A. True
B. False
The value of closing stock will be deducted from the current year's Cost of Goods
Sold, making the profits look higher.
It will be carried forward the following year's accounts as opening stock.
Opening stock increases the Cost of Goods Sold for the following year and so will
reduce profit.
QUESTION 4
You set up your business with £50,000 cash. You pay rent of £2,000 cash, buy
goods to sell for £10,000 cash and sell them for £20,000 cash.
Which two of the following statements are correct?
A. The business will have £8,000 cash
B. The business will have £58,000 cash
C. The business will have £58,000 profit
D. The business will have £8,000 profit
Cash was £50,000. The business spends £10,000 on goods and £2,000 on rent. It
then receives £20,000 for goods sold.
Profit is sales (£20,000) less purchases of the goods (£10,000) and other expenses
(rent: £2,000).
2
PREPARATION
QUESTION 1
Income and Expenses are shown on the Profit and Loss. Assets and Liabilities are
shown on the Balance Sheet. It is important to be able to identify these items
correctly.
Match the items in the left-hand column to the correct heading in the right-hand
column.
Rent Paid – Expense (Profit and Loss Account)
Rent Received – Income (Profit and Loss Account)
Freehold premises – Asset (Balance sheet)
Bank Loan – Liability (Balance Sheet)
QUESTION 2
People sometimes have particular difficulty distinguishing assets and expenses.
Indicate which of the following are expenses (appearing on the Profit and Loss
Account) and which are assets (appearing on the Balance Sheet).
Rent Paid - Expense
Leasehold Premises - Asset
Stationery - Expense
Cars - Asset
Fuel - Expense
Car Maintenance - Expense
If the benefit of an item is likely to be exhausted within a short period, it is an
expense. If the benefit will continue beyond a single accounting period, it is an asset.
1
, BUSINESS ACCOUNTS
QUESTION 3
Overvaluing closing stock will improve the current year's profit but will have an
adverse effect on the following year's profit.
A. True
B. False
The value of closing stock will be deducted from the current year's Cost of Goods
Sold, making the profits look higher.
It will be carried forward the following year's accounts as opening stock.
Opening stock increases the Cost of Goods Sold for the following year and so will
reduce profit.
QUESTION 4
You set up your business with £50,000 cash. You pay rent of £2,000 cash, buy
goods to sell for £10,000 cash and sell them for £20,000 cash.
Which two of the following statements are correct?
A. The business will have £8,000 cash
B. The business will have £58,000 cash
C. The business will have £58,000 profit
D. The business will have £8,000 profit
Cash was £50,000. The business spends £10,000 on goods and £2,000 on rent. It
then receives £20,000 for goods sold.
Profit is sales (£20,000) less purchases of the goods (£10,000) and other expenses
(rent: £2,000).
2
