ACCT1006 Test With Complete
Solution
What is the primary function of accounting? - Answer To provide useful financial
information for decision making
Identifying: consider transactions which affect the entity
Measuring: Quantify in monetary terms
recording: summarising transactions
communicating: preparing the accounting reports
The conceptual framework - Answer Describes the objective and purpose of general
financial reporting
Purpose is to:
- assist in developing standards
- assist in developing consistent accounting policies
Reporting entity - Answer An entity for which it is reasonable to expect the existence of
users who depend on general purpose financial reports to make decisions
1. They are not managed by owners
2. politically or economically important
3. sizeable
Assets - Answer are resources controlled by an entity as a result of past transaction and
has future economic benefit
Liabilities - Answer Future sacrifices of economic benefits that the entity is currently
obligated to make as a result of past events
Revenue - Answer Are sales and other increases in equity that arise from the ordinary
activities of an entity
Expenses - Answer the costs of assets consumed or services used in the process of
generating revenue
current assets - Answer cash, marketable securities, accounts receivable, inventory,
prepaid expenses
Non current liabilities - Answer Debentures payable, mortgage payable, unsecured
, notes and lease liabilities
Principles - Answer Monetary principle
Accounting peiod concept (life of a business can be split into artificial periods)
Going concern principle
cost principle
full disclosure principle
Fundamental qualitative characteristics - Answer Relevance, faithful representation
Enhancing qualitative characteristics - Answer Comparability, verifiability, timeliness,
and understandability
Purpose of ratio analysis - Answer Highlights relationships, insights into underlying
conditions (evaluations), other information (industry averages)
Profit margin - Answer Profit/ net sales= %
Liquidity - Answer current ratio= Current assets/ Current liabilties
Solvency - Answer Measures long term survival
debt to total assets ratio
= Total liabilities/ total assets
Cash based accounting - Answer Revenue is recognised when cash is received
Expenses are recognised when cash is paid
Accrual based accounting - Answer Record transactions and events in the periods in
which the event occurs
statement of profit and loss
statement of financial position
Better reflects the true position and performance of a business
Revenue recognised - Answer When an increase in assets and decrease in liabilities
becomes probable and can be measured reliably
(when goods are delivered and service provided)
Expenses recognised - Answer When a reduction in assets or increase in liabilities has
arisen and can be measured reliably
Income - Answer Is increases in economic benefits during the accounting period in the
Solution
What is the primary function of accounting? - Answer To provide useful financial
information for decision making
Identifying: consider transactions which affect the entity
Measuring: Quantify in monetary terms
recording: summarising transactions
communicating: preparing the accounting reports
The conceptual framework - Answer Describes the objective and purpose of general
financial reporting
Purpose is to:
- assist in developing standards
- assist in developing consistent accounting policies
Reporting entity - Answer An entity for which it is reasonable to expect the existence of
users who depend on general purpose financial reports to make decisions
1. They are not managed by owners
2. politically or economically important
3. sizeable
Assets - Answer are resources controlled by an entity as a result of past transaction and
has future economic benefit
Liabilities - Answer Future sacrifices of economic benefits that the entity is currently
obligated to make as a result of past events
Revenue - Answer Are sales and other increases in equity that arise from the ordinary
activities of an entity
Expenses - Answer the costs of assets consumed or services used in the process of
generating revenue
current assets - Answer cash, marketable securities, accounts receivable, inventory,
prepaid expenses
Non current liabilities - Answer Debentures payable, mortgage payable, unsecured
, notes and lease liabilities
Principles - Answer Monetary principle
Accounting peiod concept (life of a business can be split into artificial periods)
Going concern principle
cost principle
full disclosure principle
Fundamental qualitative characteristics - Answer Relevance, faithful representation
Enhancing qualitative characteristics - Answer Comparability, verifiability, timeliness,
and understandability
Purpose of ratio analysis - Answer Highlights relationships, insights into underlying
conditions (evaluations), other information (industry averages)
Profit margin - Answer Profit/ net sales= %
Liquidity - Answer current ratio= Current assets/ Current liabilties
Solvency - Answer Measures long term survival
debt to total assets ratio
= Total liabilities/ total assets
Cash based accounting - Answer Revenue is recognised when cash is received
Expenses are recognised when cash is paid
Accrual based accounting - Answer Record transactions and events in the periods in
which the event occurs
statement of profit and loss
statement of financial position
Better reflects the true position and performance of a business
Revenue recognised - Answer When an increase in assets and decrease in liabilities
becomes probable and can be measured reliably
(when goods are delivered and service provided)
Expenses recognised - Answer When a reduction in assets or increase in liabilities has
arisen and can be measured reliably
Income - Answer Is increases in economic benefits during the accounting period in the
