Cambridge IGCSETM and O Level Accounting
Answers to Cambridge IGCSETM and O Level
Accounting Student’s Book
1 The purpose of accounting
Activity 1
1 The following are not financial data:
b, c, f, g
2
Classifying Interpreting Communicating financial
M
financial data financial data data
Deciding whether an �
item involved in a
ED
business transaction
is an asset or a
liability
Publishing the �
income statement on
the business website
ST
Measuring the �
profitability of a
business using ratios
Deciding whether an �
U
item involved in a
business transaction
is an income or an
expense
D
Measuring the �
liquidity of a
Y
business using ratios
Sending the financial �
statements of a
business to
shareholders by
email
Activity 2
1 Amrita should keep financial records of her transactions so that she can monitor the business’
performance and growth. On the basis of this information she can make important financial
decisions. Financial records ensure that business transactions do not get forgotten or lost.
, Answers to Student’s Book
2 A book-keeper does not have the skills that an accountant has. A book-keeper makes sure that
accurate records are kept. An accountant goes on to use those records to prepare financial
statements that interested parties analyse and interpret to make important financial decisions.
Therefore a book-keeper’s job is not as specialised as an accountant’s is and is not as well paid.
3 She should employ an accountant. As she does not have any accounting knowledge, the
accountant will ensure that all the business’ transactions are collected, recorded, summarised,
classified, analysed, interpreted and communicated to her. Based on this, Amrita will be able to
know how well her business is performing and growing.
Activity 3
1 These interested parties use the financial information conveyed to them in the following ways:
a The owner/s of the business: They would want to know how well their investment in the
M
business is doing. Is the business profitable enough to return a good profit year after year?
The owners would also want to know what the net worth of the business is.
b Prospective owners: They would like to know how well their investment will do in the
ED
future by studying present and past accounting records of the business they are intending to
invest in. Good profitability and increasing net worth are good signs that the business is on
a growth path and will therefore be a good investment.
c The bank manager: The bank manager will ask for and use past and present accounting
records of the business before granting a loan or any other service, such as an overdraft
facility, to the business. The business may not have enough money or cash flow to service
ST
a loan and this could be a reason for the bank not to grant a loan. Also, if the business has a
lot of existing long-term loans, the bank will not be very willing to lend them money.
d Business trade payables: A lot of transactions conducted in the business world are credit
transactions. This means that payments are made some time after the transaction has taken
U
place. As a result of such credit transactions, the business could have a number of people or
businesses that it owes money to. They are called trade payables (creditors). Suppliers and
other payables of the business would want to know whether they will be paid on time, if at
D
all. Accounting records will give them this information.
e The government: The government would like to know what profit the business has made,
to calculate the tax that has to be paid.
Y
2 Four interested parties are:
a suppliers
b the bank
c the government
d the customers.
Exam-style questions
1 B [1]
2 A [1]
3 A [1]
, Answers to Student’s Book
4 B [1]
5 B [1]
6 [6]
Features of the accounting records Interested parties
Whether the business can pay interest when due Loan creditor
Bank manager
The market value of the assets that the business Potential partner
owns
Andrew McDonald (owner)
Whether the business is profitable Potential partner
Andrew McDonald (owner)
Whether the business has enough liquidity Trade creditor
Loan creditor
M
Chapter review questions
ED
1 Accounting is a process of collecting, recording, classifying, summarising, analysing,
interpreting and communicating financial data to allow the users of accounting information to
make informed judgements and decisions.
2 Book-keeping is largely concerned with the development and maintenance of accounting
ST
records. It is often referred to as the ‘how’ of accounting. It has to do with procedure. It
involves the detailed recording of all the financial transactions that have taken place over a
period in a business. Book-keeping is a subset of accounting.
Accounting, on the other hand, is conceptual and concerned with the “why” of accounting. It
involves the collection, recording, classifying, summarising, analysing and interpreting of
U
financial data.
3 The purpose of accounting is:
To provide important financial information that helps interested parties monitor progress.
D
To help interested parties make good financial decisions.
4 Profits are compared from year to year and between businesses. If the profit has decreased, or is
less than that of a similar business, then owners and managers would want to take steps to
Y
remedy the situation by either decreasing expenses or increasing revenue.
If the business has been making a good profit, consistently, then managers may want to grow
the business by expanding its operations into other markets or increase product range.
5 Recording; book-keeping; financial; classifying; owners; interpreting; trade payables;
analysing; decision making; bankers; communicating):
a Book-keeping is concerned with the maintenance of accounting records.
b Recording, classifying, analysing, interpreting and communicating financial data make up
the process that is called accounting.
c Owners, trade payables and bankers are possible interested parties in a business.
d The purpose of accounting is to take financial data and convert it to a form that can be used
for good decision making.
, Answers to Student’s Book
6
a The owner/s of the business: The owners of the internet business have invested in it, so
they will need to know how well their investment is doing. They will be keen to know what
the net worth of the business is and whether the business will be profitable enough to return
a good profit each year.
b The bank manager: The bank will require access to the business’ accounting records in
order to offer further finance such as a loan or overdraft facility, if required. If the business
already has a number of long-term loans, the bank may be less willing to lend the business
further money.
d Employees: The employees will want to know that the business is continuing to make a
profit and is not making a loss, as financial problems with the business could affect their
job, making them at risk of redundancy. They will also be keen to know whether the
internet company is continuing to grow, as this could mean better promotion prospects and
an increase in wages/salaries for existing employees.
M
Other answers, with suitable detail, might include business trade payables, customers and
the government (to calculate tax to be paid).
7
ED
1. There is no difference between accounting and book-keeping. False
2. Accounting is only carried out at the end of a financial year. False
3. Managers can use financial data to define and analyse the opportunities True
and challenges that a business faces.
ST
4. The statement of financial position is used to calculate the profit of a False
business.
5. Business profit is often compared with a competitor’s profit. True
U
D
Y
Answers to Cambridge IGCSETM and O Level
Accounting Student’s Book
1 The purpose of accounting
Activity 1
1 The following are not financial data:
b, c, f, g
2
Classifying Interpreting Communicating financial
M
financial data financial data data
Deciding whether an �
item involved in a
ED
business transaction
is an asset or a
liability
Publishing the �
income statement on
the business website
ST
Measuring the �
profitability of a
business using ratios
Deciding whether an �
U
item involved in a
business transaction
is an income or an
expense
D
Measuring the �
liquidity of a
Y
business using ratios
Sending the financial �
statements of a
business to
shareholders by
Activity 2
1 Amrita should keep financial records of her transactions so that she can monitor the business’
performance and growth. On the basis of this information she can make important financial
decisions. Financial records ensure that business transactions do not get forgotten or lost.
, Answers to Student’s Book
2 A book-keeper does not have the skills that an accountant has. A book-keeper makes sure that
accurate records are kept. An accountant goes on to use those records to prepare financial
statements that interested parties analyse and interpret to make important financial decisions.
Therefore a book-keeper’s job is not as specialised as an accountant’s is and is not as well paid.
3 She should employ an accountant. As she does not have any accounting knowledge, the
accountant will ensure that all the business’ transactions are collected, recorded, summarised,
classified, analysed, interpreted and communicated to her. Based on this, Amrita will be able to
know how well her business is performing and growing.
Activity 3
1 These interested parties use the financial information conveyed to them in the following ways:
a The owner/s of the business: They would want to know how well their investment in the
M
business is doing. Is the business profitable enough to return a good profit year after year?
The owners would also want to know what the net worth of the business is.
b Prospective owners: They would like to know how well their investment will do in the
ED
future by studying present and past accounting records of the business they are intending to
invest in. Good profitability and increasing net worth are good signs that the business is on
a growth path and will therefore be a good investment.
c The bank manager: The bank manager will ask for and use past and present accounting
records of the business before granting a loan or any other service, such as an overdraft
facility, to the business. The business may not have enough money or cash flow to service
ST
a loan and this could be a reason for the bank not to grant a loan. Also, if the business has a
lot of existing long-term loans, the bank will not be very willing to lend them money.
d Business trade payables: A lot of transactions conducted in the business world are credit
transactions. This means that payments are made some time after the transaction has taken
U
place. As a result of such credit transactions, the business could have a number of people or
businesses that it owes money to. They are called trade payables (creditors). Suppliers and
other payables of the business would want to know whether they will be paid on time, if at
D
all. Accounting records will give them this information.
e The government: The government would like to know what profit the business has made,
to calculate the tax that has to be paid.
Y
2 Four interested parties are:
a suppliers
b the bank
c the government
d the customers.
Exam-style questions
1 B [1]
2 A [1]
3 A [1]
, Answers to Student’s Book
4 B [1]
5 B [1]
6 [6]
Features of the accounting records Interested parties
Whether the business can pay interest when due Loan creditor
Bank manager
The market value of the assets that the business Potential partner
owns
Andrew McDonald (owner)
Whether the business is profitable Potential partner
Andrew McDonald (owner)
Whether the business has enough liquidity Trade creditor
Loan creditor
M
Chapter review questions
ED
1 Accounting is a process of collecting, recording, classifying, summarising, analysing,
interpreting and communicating financial data to allow the users of accounting information to
make informed judgements and decisions.
2 Book-keeping is largely concerned with the development and maintenance of accounting
ST
records. It is often referred to as the ‘how’ of accounting. It has to do with procedure. It
involves the detailed recording of all the financial transactions that have taken place over a
period in a business. Book-keeping is a subset of accounting.
Accounting, on the other hand, is conceptual and concerned with the “why” of accounting. It
involves the collection, recording, classifying, summarising, analysing and interpreting of
U
financial data.
3 The purpose of accounting is:
To provide important financial information that helps interested parties monitor progress.
D
To help interested parties make good financial decisions.
4 Profits are compared from year to year and between businesses. If the profit has decreased, or is
less than that of a similar business, then owners and managers would want to take steps to
Y
remedy the situation by either decreasing expenses or increasing revenue.
If the business has been making a good profit, consistently, then managers may want to grow
the business by expanding its operations into other markets or increase product range.
5 Recording; book-keeping; financial; classifying; owners; interpreting; trade payables;
analysing; decision making; bankers; communicating):
a Book-keeping is concerned with the maintenance of accounting records.
b Recording, classifying, analysing, interpreting and communicating financial data make up
the process that is called accounting.
c Owners, trade payables and bankers are possible interested parties in a business.
d The purpose of accounting is to take financial data and convert it to a form that can be used
for good decision making.
, Answers to Student’s Book
6
a The owner/s of the business: The owners of the internet business have invested in it, so
they will need to know how well their investment is doing. They will be keen to know what
the net worth of the business is and whether the business will be profitable enough to return
a good profit each year.
b The bank manager: The bank will require access to the business’ accounting records in
order to offer further finance such as a loan or overdraft facility, if required. If the business
already has a number of long-term loans, the bank may be less willing to lend the business
further money.
d Employees: The employees will want to know that the business is continuing to make a
profit and is not making a loss, as financial problems with the business could affect their
job, making them at risk of redundancy. They will also be keen to know whether the
internet company is continuing to grow, as this could mean better promotion prospects and
an increase in wages/salaries for existing employees.
M
Other answers, with suitable detail, might include business trade payables, customers and
the government (to calculate tax to be paid).
7
ED
1. There is no difference between accounting and book-keeping. False
2. Accounting is only carried out at the end of a financial year. False
3. Managers can use financial data to define and analyse the opportunities True
and challenges that a business faces.
ST
4. The statement of financial position is used to calculate the profit of a False
business.
5. Business profit is often compared with a competitor’s profit. True
U
D
Y
