Chp 5: Trial Balance

Question 1

Explain the PURPOSE a trial balance .

Answer 1

To

-facilitate the preparation of the financial statements and

-ensure arithmetic accuracy in recording

Question 2

Explain the limitation of a trial balance

Answer 2

A balanced trial balance is not an absolute proof of accuracy of the accounts.

There may be errors not revealed by a trial balance, Eg a transaction has not been recorded.

Question 3

What is the purpose of the trading portion of a statement of financial performance.

(Hint: think of Sales Revenue less Sales returns etc)

Answer 3

To show Gross profit or Gross Loss from buying and selling goods.

Question 4

What is the purpose of the profit and loss portion of a statement of financial performance

Answer 4

To show overall profit earned from operating the business.

Question 5

What is the difference between current and non-current assets?

Answer 5

Non-current assets

• Benefits last beyond one financial year.
• Not easily converted to cash.

Current asset

• Benefits are used within financial year
• Are easily converted to cash

Question 6

Explain the difference between current and non-current liabilities

Answer 6

Non-current liabilities : Due to be paid beyond one financial year

Current liabilities: Due to be paid within one financial year

Question 7

Assets less liabilities, or equity, which is amount of claim by owner.

A - L = Equity

This is _____________Assets

Answer 7

NET ASSETS

Question 8

Define Accounting period theory

Answer 8

The life of a business is divided into regular time intervals

Question 9

What is Going concern theory?

Answer 9

A business is assumed to have an indefinite economic life unless

there is evidence that it may close down