5. Understand Learning Outcome 5 Understand the main accounting principles and practices – Chapter 6

Question 1

Financial statements are intended to show what view of the economic activities of an organisation?
A. Up to date and accurate
B. Accurate and fair
C True and fair
D Accurate and forward looking

Answer 1

C True and fair

Question 2

Which of an organisation’s stakeholders will review an insurance company’s financial information to gauge their strengths and weaknesses
A. Creditors and lenders
B. Brokers
C. Competitors
D. Customers

Answer 2

C. Competitors

Question 3

The accounting equation is:?
A. Assets plus liabilities equals equity
B. Assets plus equity equals liabilities
C. Assets less liabilities equals equity
D. Liabilities plus assets equals equity

Answer 3

C. Assets less liabilities equals equity

Question 4

Invoices are documents issued by organisations to:
A. Record payments already made to the organisation
B. Record amounts of expenditure made by the organisation
C. Record amounts owed to the organisation
D. Confirm the contract

Answer 4

C. Record amounts owed to the organisation

Question 5

Cash is a...?
A. Current liability
B. Non current liability
C. Current asset
D. Non current asset

Answer 5

C. Current asset

Question 6

Debtors are a...?
A. Current asset
B. Current liability
C. Non current liability
D. Non current asset

Answer 6

A. Current asset

Question 7

Revenue less cost of sales equals
A. Net Profit
B. Gross Profit
C. Shareholders' equity
D. Income

Answer 7

B. Gross Profit

Question 8

A company buys a new building with cash. Where does the cash outflow appear in the cash flow statement?
A. Cash flows from operating activities
B. Cash flows from investment activities
C. Cash flow from financing activities
D. Free cash flow

Answer 8

B. Cash flows from investment activities

Question 9

The management accounting technique used to ensure business managers take ownership of central service costs incurred on their department’s behalf is known as:

A. Zero based costing
B. Budgeting
C. Activity based costing
D. Zero based budgeting

Answer 9

B. Budgeting

Question 10

When deciding whether to stop using a machine, which of the following costs might be considered “sunk costs”?
A. Labour costs of operating machine and capital cost of the machine
B. Cost of electricity to operate machine and cost of the space occupied by the machine
C. Labour costs of operating machine and cost of electricity to operate machine
D. Capital cost of the machine and cost of the space occupied by the machine

Answer 10

D. Capital cost of the machine and cost of the space