Statements

Question 1

what is the consistency concept

Answer 1

once an accounting method has been chosen, that method should be used unless there is a sound reason to do otherwise

Question 2

cost of sales equation

Answer 2

opening inventories + purchases (+manufacturing expenses) - closing inventories

Question 3

trade payables equation

Answer 3

opening payables + credit purchases - payments = closing payables

Question 4

does depreciation go through the income statement

Answer 4

yes, under expenses

Question 5

separate entity concept

Answer 5

we should always seperately record the transactions of a business and its owners (otherwise there is a risk that the transactions of the two will become intermingled)

Question 6

what goes in cash flows from investing in sofc

Answer 6

capital expenditure (net)
interest received
investments made (and sold)
net cash from capital

Question 7

where do liabilities go

Answer 7

SoFP

Question 8

expenses d

Answer 8

decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or increases of liabilities that result in decreases in equity

Question 9

what is the accruals concept

Answer 9

revenue and expenses are recorded when they occur and not when the cash is received or paid out

Question 10

prepayment d

Answer 10

amount prepaid at sofp date

Question 11

money measurement concept

Answer 11

the accounting process only records activities that can be expressed in monetary terms

Question 12

where do expenses go

Answer 12

IS/SoCI

Question 13

dual aspect concept

Answer 13

necessitates the recognition of all aspects of an accounting transaction

Question 14

do you take depreciation off the price of the item and put NBV in the sofp

Answer 14

yes subtract depreciation to get nbv

Question 15

in socf why would the difference in retained earnings not necessarily be the profit before tax

Answer 15

because retained earnings includes dividends that have been paid out (so would need to take off dividends to get profit)

Question 16

what do you always need to remember to include in these statements

Answer 16

missing figure

Question 17

where does income go

Answer 17

IS/SoCI

Question 18

if dividend approved in the year but not paid what do you do

Answer 18

taken off profit because accruals (in statement of changes in shareholder equity),
added to current liabilities as the amount is still owed

Question 19

what happens if the company issues debt worth £250,000

Answer 19

cash increases by £250,000,
long term liabilities increases by £250,000,
if paid in instalments part of it is short term liability and that part of it will be included in current liabilities while the balance will be in long term liabilities

Question 20

what is the owner’s equity

Answer 20

investment the owner has put in + any profits made to date - money the owner has drawn out

Question 21

materiatility concept

Answer 21

minor events may be ignored, but the major ones should be fully disclosed

Question 22

profit before tax equation

Answer 22

operating profit - interest payable + interest receivablw

Question 23

examples of things which are expenses

Answer 23

rents, wages, depreciation, director’s fees, audit fees, director’s fees, provisions, bad debt write off, profit/loss on disposal

Question 24

what is the profit (sofp)

Answer 24

retained earnings

Question 25

going concern concept

Answer 25

the business entity for which accounts are being prepared is in good condition and will continue to be in business in the foreseeable future

Question 26

what is the prudence concept

Answer 26

revenue and profits are only included in the balance sheet only when they are realised but liabilities are included when there is a reasonable possibility of incurring them

Question 27

asset d

Answer 27

resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow to the entity

Question 28

what are the four headings at the top of the statement of changes in shareholder equity

Answer 28

ord shares, share premium, retained earnings, total

Question 29

trade receivables equation

Answer 29

opening trade receivables + credit sales - amounts received - amounts written off = closing trade receivables

Question 30

what happens on the sofp when profit is made on the sale of some inventory

Answer 30

cash or bank balance up, | retained earnings up (by difference between nbv and what it was sold for)

Question 31

what is the investment (sofp)

Answer 31

share capital

Question 32

might need to use profit information to find total sales figure, subtract cash sales to find credit sales, use credit sales to find closing receivables for your sofp

Answer 32

remember that

Question 33

liability d

Answer 33

present obligation of the entity arising from past events, the settlement of which is expected to result in a future outflow from the entity

Question 34

operating profit equation

Answer 34

gross profit - operating expenses + other income

Question 35

equity d

Answer 35

residual interest in the assets of the entity after deducting all its liabilities

Question 36

where do assets go

Answer 36

SoFP

Question 37

income statements are produced on the ______ basis

Answer 37

accruals

Question 38

what are the different headings in the income statement

Answer 38

revenue, cost of sales, gross profit, depreciation, expenses, operating profit, income tax expense, profit for the period

Question 39

what happens if the company issues 100,000 £1 ordinary shares at £2.50

Answer 39

cash increases £250,000, issued share capital increases £100,000, balance is 'share premium account increases £150,000

Question 40

what are the five headings down the side of the statement of changes in shareholder equity

Answer 40

``` balance b/fwd (per opening sofp), profit/loss for the period (per IS/soci), dividends approved, shares issued, balance c/fwd (per closing sofp) ```

Question 41

gross profit equation

Answer 41

sales revenue - cost of sales

Question 42

accrual d

Answer 42

amount still owed at the sofp date

Question 43

what is revaluation reserve and where is it on the sofp

Answer 43

example (bought building for £1 mil now worth £2.5 mil), nca increase by 1.5, revaluation reserve in equity section increase by 1.5 mil (by entering the reserve on the statement of changes in shareholder equity)

Question 44

income d

Answer 44

increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity

Question 45

what are the main headings on the statement of cash flows

Answer 45

``` cash gen from operating activities, cash flows from investing activities, cash flows from financing activites, net cash inflow/outflow, opening net cash, closing net cash ```

Question 46

where are accruals and prepayments in the sofp

Answer 46

accruals - current liabilities, | prepayments - current assets

Question 47

what is the best way to do the cash flow statement

Answer 47

just look at two sofps and see the difference between values if there is a difference then there is a cash flow

Question 48

profit for the period equation

Answer 48

profit before tax - tax

Question 49

historical cost concept

Answer 49

measure of value used in which the price of an asset on the balance sheet is based on its original cost when acquired by the company

Question 50

what goes in cash flows from financing activities in sofc

Answer 50

``` interest paid dividends paid issue of shares repayment of debentures net cash from financing ```

Question 51

what are the headings in note 1 (cash generated from operations)

Answer 51

``` profit before tax, adjustments for: interest payable interest receivable depreciation loss on disposal increase in tr decrease in tp decrease in inv ```

Question 52

do you depreciate the asset in the year of purchase or sale

Answer 52

purchase

Question 53

where do you put bad debts in the sofp

Answer 53

trade receivables, | less: provision for doubtful debts

Question 54

what goes in cash generated from operating activities in socf

Answer 54

``` cash generated from operations, income tax paid dividends paid interest paid net cash from operating activities ```

Question 55

retained earnings is the _____ of all profits (less any losses) to date

Answer 55

sum