Week 4

Question 1

What is another name for the Statement of Financial Position

Answer 1

Balance Sheet

Question 2

What are the 6 Main uses of the Balance Sheet

Answer 2

Provides Information on;

• The Business’s Financial Position and how the funds are deployed
• The Assets, Liabilities and Equity position of the business
• The Liquidity of the Business
• What Assets a Business holds
• Performance based on Investments
• Provides a basis for Assessing the Value of a Business

All at a Particular Point in Time

Question 3

4 Traits of an Asset

Answer 3

• Probable Future Economic Benefit
• Business has EXLCUSIVE right to control the Benefits
• Previous Payment or Event must cause Benefit
• Must be capable of Reliable Monetary Measurement

Question 4

2 Traits of a Liability

Answer 4

• Probable Outflow will occur
• Must be capable of Reliable Monetary Measurement

Question 5

What is a Contingent Liability

Answer 5

Potential Liability that might arise if a particular event occurs e.g. Pending Lawsuit

Question 6

Is a Contingent Liability Recognised in Financial Position

Answer 6

Not until Event Occurs

Question 7

Is Cash in the Bank a Current or Non-Current Asset

Answer 7

Current

Question 8

Is Accounts Receivable a Current or Non-Current Asset

Answer 8

Current

Question 9

Is Inventory a Current or Non-Current Asset

Answer 9

Current

Question 10

Are Fixture and Fittings a Current or Non-Current Asset

Answer 10

Non-Current

Question 11

Is Land or Property a Current or Non-Current Asset

Answer 11

Non-Current

Question 12

Are Motor Vehicles a Current or Non-Current Asset

Answer 12

Non-Current

Question 13

What are Fixtures and Fittings

Answer 13

Both Assets

Fixtures are permanently attached to property (Plumbing, Cabinetry)
Fittings can be removed (Curtains)

Question 14

What is Plant and Machinery

Answer 14

Both Assets used to carry out an operation (Cranes, Scaffolding)

Question 15

Is Accounts Payable a Current or Non-Current Liability

Answer 15

Current

Question 16

Is a Short Term Loan a Current or Non-Current Liability

Answer 16

Current

Question 16

Is a Bank Overdraft a Current or Non-Current Liability

Answer 16

Current

Question 17

Is Mortgage Loan a Current or Non-Current Liability

Answer 17

Non-Current

Question 17

Is a Long Term Loan a Current or Non-Current Liability

Answer 17

Non-Current

Question 18

What is a Bank Overdraft

Answer 18

Pre-Agreed Credit given from a Bank

Question 19

What are the 3 Categories of Owner’s Equity

Answer 19

Owner’s Equity Contributed, Retained Earnings (RE), and Other Reserves (e.g. Sale of Land)

Question 20

What is the equation for Retained Earnings

Answer 20

Profit - Dividends

Question 21

What is the Equation for the Entity Approach for a Vertical Balance Sheet

Answer 21

Current Assets + Non-Current Assets

Name of Company | Date of Statement Period

Current Liabilities + Non-Current Liabilities
+
Owners’ Equity

Question 22

What is the Equation for the Proprietary Approach for a Vertical Balance Sheet

Answer 22

Name of Company | Date of Statement Period

Current Liabilities
-
Non-Current Liabilities
=
Owners’ Equity

Question 23

What two totals will the be equal in the Entity Approach

Answer 23

Total Assets = Total Liabilities and Owners' Equity

Question 24

What two totals will the be equal in the Proprietary Approach

Answer 24

Net Assets = Total Equity

Question 25

What is the most common date a Business will do their Balance Sheet in Australia

Answer 25

30th June (EOFY)

Question 26

What are the 2 significant influences towards the Form and Content of a Balance Sheet

Answer 26

Traditional Accounting Conventions and Doctrines and Continued Development of Professional and Statutory Accounting Standards

Question 27

What is the Business Entity Convention

Answer 27

The Business and the Owners' are treated as separate

Question 28

What is the Historic Cost Convention

Answer 28

Assets should be recorded at their Acquisition Cost

Question 29

What is the Prudence Convention

Answer 29

Caution should be exercised when making Accounting judgments Usually means anticipating losses but only recognising realised profits

Question 30

What is the Going Concern (continuity) Convention

Answer 30

Assumption that the business will continue for the foreseeable future

Question 31

What is the Dual Aspect Convention

Answer 31

Each Transaction has TWO Aspects and each aspect must be recorded in the financial statements e.g. Salaries Paid = LOSS in Cash and GAIN in Expenses

Question 32

What is the Money Measurement Convention

Answer 32

Only items capable of being expressed in monetary terms can be delt with in accounting

Question 33

What is the Stable Monetary Unit Convention

Answer 33

Money as a unit will not change in value over time

Question 34

What are the 2 Life Lengths of a Non-Current Asset

Answer 34

Finite or Indefinite

Question 35

In accounting, how are Finite Non-Current Assets accounted for

Answer 35

Due to being used up over time, they are recognised as an expense in each period as Depreciation or Amortization

Question 36

In accounting, how are Indefinite Non-Current Assets accounted for

Answer 36

They are not recognised as an expense due to a lack of routine Depreciation

Question 37

What is Fair Value

Answer 37

An Alternative Measurement based on the Current Market Value for a non-current Asset, however only if it can be reliably estimated

Question 38

What is an 'Impairment of Assets'

Answer 38

Where an Asset suffers a fall in value

Question 39

When there is an Impairment of Assets it is written off as a loss which is accounted for as?

Answer 39

Expenses

Question 40

What does Liquidity Mean

Answer 40

How quickly a Company can turn it's Assets into Cash to cover its Immediate Liabilities