Unit 3 topic 1

Question 1

Accounting Concepts and Principles

Answer 1

Concepts, rules or regulations that are established standards that form the basis for all decision-making.

Question 2

Accounting Controls

Answer 2

Methods and procedures designed to safeguard the assess of the business and to check the accuracy and reliability of the accounting data.

Question 3

Accumulated Depreciation Account and what statement does it go in?

Answer 3

A negative asset account that reflects the total amount of depreciation written off since the purchase of the asset. It represents the difference between the historical cost (valuation) of the non-current asset and its current valuation. This account is reported in the Statement of Financial Position.

Question 4

Administrative Controls

Answer 4

Methods and procedures designed to promote operational efficiency and to encourage adherence to managerial policies.

Question 5

Capital Expenditure

Answer 5

Costs associated with the acquisition and installation of a non-current asset whose life will extend beyond the financial period.

Question 6

Depreciation

Answer 6

The allocation of the cost of the asset to the accounting periods in which it is expected that the asset will contribute to the production of revenue.

Question 7

Depreciation Account

Answer 7

An expense account that reflects the amount of depreciation written off an asset during the current accounting period.

Question 8

Formula for Diminishing Balance Method of Depreciation

Answer 8

Depreciation per annum = (original cost of asset – accumulated depreciation) x depreciation rate

Question 9

Gain on sale of non-current asset

Answer 9

Funds generated when a non-current asset is sold for more than its current valuation.

Question 10

Historical Cost Principle

Answer 10

Items are recorded at their original purchase price.

Question 11

Internal controls

Answer 11

Internal methods and measures to ensure efficient management of the business and planned activities.

Question 12

Loss on sale of non-current asset

Answer 12

Loss incurred when a non-current asset is sold for less than its current valuation.

Question 13

Matching Principle

Answer 13

The revenue earned during the current accounting principle must be matched to the expenses incurred during the same accounting period to accurately calculate profit (loss).

Question 14

Non-current Assets

Answer 14

Economic resources that will not be used up or converted into cash within the normal yearly cycle of the business.

Question 15

Pro-rata

Answer 15

A portion of the accounting period / amount.

Question 16

Residual value

Answer 16

The expected value of a non-current asset at the end of its life.

Question 17

Statement of Financial Position

Answer 17

A financial report that shows the balances of all asset, liability and owner’s equity accounts at a particular point in time.

Question 18

Statement of Profit or Loss

Answer 18

A financial report that details all of the expenses and revenues of a business and calculates the profit (loss) for that period.

Question 19

Straight Line Method of Depreciation

Answer 19

Depreciation = (original cost of asset – residual value) /useful life of asset.