Master Acct1a Quiz 1 IMPORTANT

Master acct quiz 1 file
 Question 1
1 out of 1 points
Given the following information, calculate gross profit:
Answer
Selected Answer:
$60,000
Correct Answer:
$60,000
Response In accounting, Gross Profit is the difference between revenue and the cost of
Feedback: making a product or providing a service, before deducting operating expenses.
Gross Profit = Revenue – Cost of sales
= 100,000 – 40,0000 = 60,000
 Question 2
0 out of 1 points
Which of the following is an accounting transaction?
Answer
Selected Answer:
Establishing a bank overdraft
Correct Answer:
None of the above
Response In order to qualify as a financial accounting transaction, an event must normally
Feedback: have all five of the following characteristics:
Three Primary Characteristics:
A - Exchange: The event must involve an exchange of goods, money, cheques, legal
promises or other items of economic value;
B - Past: The exchange must have happened, even if just seconds good (remember—
financial accounting is essentially an historical information system);
C - External: The exchange must have been between the entity being accounted for
and someone else.
Two Supplementary Characteristics:
D - Evidence: There must be some documentation of what has happened (recorded
on paper or electronically)
E - Dollars: The event must be measurable in dollars (monetary concept) or the
currency unit relevant in the country where the transaction happens.
Answer Options:
A - Making a purchase order lacks exchange. Event A is recorded by the accounting
system only when the item ordered is delivered;
B - Establishing a bank overdraft is a precursor to an exchange; it’s not until the
entity begins drawing down its bank overdraft that a transaction occurs.
C - Hiring a new staff member is an internal transaction, lacking in substantive
exchange, besides a legal promise to perform contracted work on the part of the new
staff member and a promise to remunerate the staff member on the part of the entity.
Also, the event is not measurable in dollars, failing the monetary assumption that
underpins the preparation and presentation of financial statements.
Therefore, D is the correct answer because the transactions above fail to meet the
criteria that would be necessary for them to be recorded by a financial accounting
system.
 Question 3
1 out of 1 points
What does transaction (2) represent?
Greening Ltd is a newly established business selling computer hardware. Shown below are ledger
accounts in T-account form, with entries made for the first month of operations.
Use the information given above to answer the following question.

Answer
Selected Answer:
Purchase of inventory for cash
Correct Answer:
Response Under double-entry accounting, an entry affects at least two accounts. Transaction
Feedback: (2) debits Greening’s Inventory account and credits Greening’s bank account.
Inventory is an asset, so a debit entry would increase inventory. Cash at bank is also
an asset, so a credit entry would decrease cash. Thus, the logical explanation for this
transaction is that inventory was bought with cash, resulting in an increase in
inventory and a decrease in Cash at bank.
 Question 4
0 out of 1 points
At year-end Shifty Ltd had a balance of Accounts Receivable of $90 000 and an Allowance for
Doubtful Debts of $4000. It was decided to write off the debt of Wriggler totalling $2500 as
irrecoverable. It was further decided that the Allowance for Doubtful Debts should stand at
5% of Accounts Receivable.
What was the journal entry needed to write off the debt of Wriggler as irrecoverable?
Answer
Selected
Answer: Dr Bad Debts Expense..........$2500 Cr Allowance for Doubtful
Debts..........$2500
Correct Answer:
Dr Allowance for Doubtful Debts..........$2500 Cr Accounts
Receivable..........$2500
Response Under the indirect method, once an amount is deemed uncollectible we simply
Feedback: reduce accounts receivable and allowance for bad debts by equal amounts, a debit to
allowance for doubtful debts, the contra-asset account, and a credit to accounts
receivable account. To reduce an asset account we credit it, and to reduce a contra-
asset account (like allowance for doubtful debt) we debit it. Thus, the answer is C.
 Question 5
1 out of 1 points
In preparing a bank reconciliation statement for a business with a substantial bank balance,
the appropriate treatment for a deposit for $2300 not appearing on the bank statement is to:
Answer
Selected Answer:
add it to the balance as per bank statement
Correct Answer:
Response Deposits in transit: Companies may frequently make cash deposits. Therefore, the
Feedback: company’s records may show one or more deposits, usually made on the last day,
that do not appear on the bank statement. These deposits are called deposits in transit
and cause the bank statement balance to understate the company’s actual cash
balance. Since these deposits have already been recorded in the company’s books as
cash receipts, they must be added to the bank statement balance.
Thus, the answer is A.
 Question 6
1 out of 1 points
Given the information below:
What is the cash profit of the business for 2011?

Answer
Selected Answer:
$24 000
Correct Answer:
$24 000
Response Accrual accounting captures the financial aspects of each economic event in the
Feedback: accounting period in which it occurs, regardless of when cash changes hands. In
other words, revenues are recorded when they occur—when they’re earned, and
expenses are recorded when they’re incurred. Under cash accounting, revenues are
recognised only when the company receives cash or its equivalent, and expenses are
recognised only when the company pays with cash or its equivalent. For example,
say we have a ticketing business that sells multiple tickets to a customer with the
promise to deliver the tickets in 7 days. Any money received by the business up front
is treated as a liability under the accrual basis, specifically ‘Unearned revenue.’ This
is because, while the business has received money, it hasn’t discharged its
obligations to the customer, i.e., it hasn’t delivered the tickets. Therefore, the
business has a present obligation to deliver the tickets. Once the tickets have been
delivered, the business is said to have earned its revenue. On the other hand, under
cash accounting, once the business receives cash, revenue is recorded, irrespective of
when it performs its substantive obligations to its customer. Cash is king, in other
words.
The question asks us to determine the cash profit for 2011; therefore, we must
concentrate on cash receipts and cash payments, and disregard accrual based entries
and accounts.
A - Cash Sales: Part of cash basis accounting
B - Credit Sales: We would include credit sales in accrual calculations, but not in
cash accounting—not until the cash owed to us is received. A credit sale is a sale to a
customer where money is not paid on delivery or completion of service, but at a later
date, expressly stated in the payment terms, which generally appear on the sale
invoice. Thus, we would not include this figure.
C - Cash received from accounts receivables: Part of cash basis accounting. Cash is
being received.
D - Wages Paid: Part of cash basis accounting. An expense—wages expense—is
paid.
E - Wages owing at the end of the year: A business may have wages owing at the
end of the year, and will be expected to pay it sometime in the future, but until that
date—a cash accounting system remains unaffected. Once the wages that are owed
are paid, they’ll be processed by the cash accounting system.
Thus, 10,000 + 22,000 – 8,000 = 24,000
 Question 7
1 out of 1 points
T Ltd paid $240 000 in wages during the year. The opening balance of Accrued Wages was
$8000 and the closing balance was $10 000. What was the wages expense for the year?
Answer
Selected Answer:
$242 000
Correct Answer:
$242 000
Response This question can be set up and answered through the use of t-accounts.
Feedback: Accrued Wages or
Wages Payable
240,000 o/b 8,000
(Wages
Paid)
c/b 10,000 X
(Wages
Expense)
250,000 250,000
o/b 10,000
Accrued Expenses/Liabilities Basics:

An adjusting entry to accrue expenses is necessary when there are unrecorded
expenses and liabilities that apply to a given accounting period. These expenses may
include, like in this question, wages. T Ltd accrues wages when they’ve been
incurred but not paid. In answering the question through the use of t-accounts, you
need to first consider what the account is telling you.
The right-hand side of the account, the credit side, records accrued wages—wages
that have been incurred but not yet paid, e.g.
Dr Wages Expense x
Cr Accrued Wages or Wages Payable x
The left-hand side records the actual payment of wages owed, e.g.
Dr Accrued Wages or Wages Payable x

Cr Cash x
Using the t-account above, we can set up an algebraic identity to answer the
question:
Closing Balance = Opening Balance of Accrued Wages + Wages Expense (X) –
Wages Paid During the year.
10,000 = 8,000 + X – 240,000
X = $242,000
Quick Solution: Since both sides add up to 250,000. 250,000 – 8,000 = $242,000
 Question 8
1 out of 1 points
the appropriate treatment for $650 that a customer paid directly into the company’s bank
account is to:
Answer
Selected Answer:
add it to the balance per company records
Correct Answer:
Response Companies may authorise a bank to automatically transfer funds in or out of their
Feedback: account. Automatic deposits occur when, for example, the company’s bank account
receives automatic fund transfers from customers. A bank uses a credit
memorandum to notify companies about automatic deposits. The name applied to
this memorandum may sound confusing at first glance because we usually interpret a
credit to mean a reduction in cash. However, from the bank’s point of view, an
increase in cash is a credit because it is an increase in the amount that the bank will
have to give to the customer if the customer withdraws all its cash. Accordingly, a
company’s deposits with a bank are an asset from the company’s point of view, and i
a liability from the bank’s point of view. Automatic deposits are often brought to a
company’s attention for the first time when the bank statement is received. Thus,
when performing bank reconciliation, the company must add unrecorded automatic
deposits, deposits that appear on the bank statement but that have not been included
in the company’s records during the period.
Thus, the answer is C.
 Question 9
1 out of 1 points
A chart of accounts is:
Answer
Selected
Answer: a list of the titles of all accounts in the ledger, together with an appropriate
numbering system for the accounts
Correct
 Question 10
1 out of 1 points
The following accounts were taken from the trial balance:
Net profit for the period is:
Answer
Selected Answer:
$11 000
Correct Answer:
$11 000
Response Feedback: Net Profit = Revenue – Cost of Goods Sold – Operating Expenses
Net Profit = 15,000 – 1,500 – 1,000 – 1,500 = 11,000 – d.
 Question 11
1 out of 1 points
What is the correct adjusting entry at June 30, the end of the financial year, based on a
Supplies account balance, before adjustment, of $5200, and after adjustment, on June 30, of
$1200?
Answer
Selected Answer:
Dr Supplies Expense $4000 Cr Supplies $4000
Correct Answer:
Response Before financial statements are prepared, additional journal entries, called adjusting
Feedback: entries, are made to ensure that the company's financial records adhere to the
revenue recognition and matching principles. For example, suppose in similar
fashion to the question above, a company has a $5,200 debit balance in its supplies
account at June 30, but a count of supplies on hand at June 30 finds only $1,200 of
them remaining. Since supplies of $4,000 have been used up, the supplies account
requires a $4,000 adjustment so assets are not overstated, and the supplies expense
account requires a $4,000 adjustment so expenses are not understated.
Thus, the following adjusting entry must be made:
Dr Supplies Expense 4,000

Cr Supplies 4,000
Answer c.
 Question 12
1 out of 1 points
Which of the following statements is true?
Answer
Selected
Answer: if the assets owned by a business total $90 000 and liabilities total $50 000, then
shareholders’ equity totals $40 000
Correct
Response The accounting identity states Assets = Shareholders’ Equity + Liabilities
Feedback: A business’ resources are financed by two key sources: either shareholder
investment or liabilities (various debts and borrowings).
C is the only answer where the accounting identity holds true, i.e., 90,000 = 50,000
+ 40,000.
A&B are possible answers but are not the best answers because they each fail to
consider the right hand-side of the equation in its totality. There are two possible
sources of finance.
 Question 13
1 out of 1 points
Choo Ltd invested $200 000 with a bank for one year at 12% on 1 September 2010 (interest
payable at end of loan). What is the adjusting journal entry at balance date, 30 June 2011?
Answer
Selected Answer:
Dr Accrued Interest $20 000 Cr Interest Revenue $20 000
Correct Answer:
Response An adjusting entry to accrue revenues is necessary when revenues have been earned
Feedback: but not yet received. An example of an accrued revenue would be interest revenue.
At the end of each accounting period, the company recognises the interest revenue
that has accrued.
10 months have passed between September 1, 2010 and June 30, 2011. Therefore,
Choo needs to accrue and record 10 months worth of interest revenue.
Interest revenue per annum = 200,000 * 12% = 24,000, but since only 10 months
have passed, Choo must adjust accordingly:
10/12 x 24,000 = 20,000
And we then record the following entry:
Dr Accrued Interest or Interest receivable 20,000
Cr Interest Revenue 20,000
Answer b.
 Question 14
0 out of 1 points
Red Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ. XYZ has accounts
receivable of $12 million and an allowance for doubtful debts of $500 000. XYZ does not adjust
the accounts for the $10 000 that will not be paid by Red Shoes Ltd. Which of the following
statements is true about the balance sheet of XYZ?
Answer
Selected Answer:
total assets are overstated
Correct Answer:
net accounts receivable is correctly stated
Response In the above question, XYZ has already made concessions for the possibility that
Feedback $500,000 might not be collectible. Included in this estimate is the $10,000, which has
: been deemed irrecoverable. Under the indirect method, a subsequent write-off does not
change the net realisable value of accounts receivable. It simply reduces accounts
receivable and allowance for bad debt by equal amounts.
 Question 15
1 out of 1 points
The balance in the Allowance for Doubtful Debts account represents:
Answer
Selected
Answer: an amount that is deducted from the Accounts Receivable account to reduce it to
the estimated realisable value
Correct
Answer: an amount that is deducted from the Accounts Receivable account to reduce it to
the estimated realisable value
Response See textbook for definition, but the Answer is C. Under the indirect method, an
Feedback: adjustment is made at the end of each accounting period to estimate bad debts based
on business activity from the accounting period. Thus, A is not the answer as
allowance for doubtful debt estimates likely bad debts (but we have not yet written
off the accounts yet). Neither is it B, which is off-topic, nor D, because at the point
of using the indirect method, a business is merely making concessions for
uncollectible amount but has yet deemed them to be uncollectible.
 Question 16
1 out of 1 points
Using the Australian dollar to measure accounting transactions allows comparisons across
periods. What assumption/concept underlies this procedure?
Answer
Selected Answer:
monetary concept
Correct Answer:
monetary concept
Response There are some basic assumptions that underlie current accounting practice and the
Feedback: preparation of financial statements, some of which are mentioned below.
A - Accounting Entity. The accounting entity is separate and distinguishable from its
owners. What this means is that business records must not include the personal
assets or liabilities of the owners. For example, a company is a separate entity from
its shareholders (owners); similarly, the accounting entity of a sole trader is separate
from the affairs of the owner.
B - Monetary Concept: Not only must an accounting entity’s accounting records
include only quantifiable transactions, but these same transactions must also be
measured and recorded in stable currency, such as the Australian dollar. This allows
comparisons across periods and across different companies.
C - Historical Cost: According to the historical cost principle, assets are initially
recorded at cost, which equals the value exchanged at the time of their acquisition
D - Going Concern: Unless otherwise noted, financial statements are prepared under
the assumption that the company will remain in business indefinitely.
By knowing these assumptions, you would eliminate all options except B.
 Question 17
1 out of 1 points
The life of a business is divided into equal periods to determine profit or loss for that period.
What assumption/concept underlies this procedure?
Answer
Selected Answer:
accounting period
Correct Answer:
accounting period
Feedback: preparation of financial statements, some of which are mentioned above.
A - Materiality: This principle states that the requirements of any accounting
principle may be ignored when there is no effect on the users of financial
information. Professional judgement is needed to decide whether an amount is
insignificant or immaterial.
C - Accounting Period: The life of a business needs to be divided into discrete

periods to evaluate performance for that period. Dividing the life of an organisation
into equal periods to determine profit or loss for that period is known as the
accounting period assumption.
D - Accounting Entity. The accounting entity is separate and distinguishable from its
owners. What this means is that business records must not include the personal
assets or liabilities of the owners. For example, a company is a separate entity from
its shareholders (owners); similarly, the accounting entity of a sole trader is separate
By knowing the assumptions well, you would eliminate all options except C.
 Question 18
1 out of 1 points
Which of the following is an expense?
Answer
Selected Answer:
none of the above
Correct Answer:
none of the above
Response Prepaid insurance: Prepayments are assets that become expenses as they expire or
Feedback: get used up. Through passage of time we recognise the portion of prepaid insurance
that has become an actual expense. The portion that is used up through use or
passage of time is recorded as an expense.
Dividends are not expenses, they’re distributions of profits. Just like a sole trader is
entitled to the profits of his/her business, a shareholder is entitled to profits from
his/her investment. Further, a company isn’t obligated to pay out dividends, and may
reinvest the profits back into the company (retained earnings). There are no legal
ramifications to not paying dividends; It is the company’s choice.
Purchase of inventory. Inventory purchased is an asset, in accordance with the
definition of an asset contained in the accounting standards, which states that assets
are resources controlled by an entity as a result of past events (transactions) and from
which future economic benefits can be expected to flow to the entity.
Thus, the answer is D—none of the above are expenses.
 Question 19
0 out of 1 points
Retained profits of Livermore Pty Ltd at 1 July 2010 were $5500. The accounting records for
year ended 30 June 2011 showed the following information:
What were Livermore’s retained profits at 30 June 2011?

Answer
Selected Answer:
none of the above
Correct Answer:
$7250
Response Retained Earnings = Opening Retaining Earnings + Net Profit or Net Loss for the
Feedback: period – Dividends
Livermore’s Retained Earnings = 5,500 + (35,500 – 32,250) – 1,500 = $7,250.
When you collect cash from customers, you’re collecting money owed to you from
past transactions, from historical sales. Thus, you do not include these in the
calculation of net profit because there’s no new sale. Similarly, adding expenses paid
in cash to expenses incurred would also be erroneous because you would be double
counting the expenses for the period. An expense can either be paid when it’s
incurred or accrued and paid later (recognise an expense and a liability
simultaneously), but the common denominator in both situations is that an expense is
recorded regardless of whether an expense is paid now or later.
 Question 20
1 out of 1 points
At 1 July 2010, Epsilon Pty Ltd had 100 items of inventory which had cost $50 each. During
the year ended 30 June 2011, it purchased 1500 items at a cost of $50 each. Of these, 200 were
returned to the supplier as they were damaged. During the year, 1200 items were sold for $80
each, but 50 were returned by customers. Overhead expenses during the year amounted to $15
000.
What were Epsilon Pty Ltd’s net sales for the year?
Answer
Selected Answer:
$92 000
Correct Answer:
$92 000
Response Net Sales = Sales – Sales Returns and Allowances
Feedback: Gross Sales = 1,200 x 80 = $96,000
Sales Returns and Allowances. 50 items earning Epsilon a gross sales of 4,000 (50
x 80) have been returned and, therefore, need to be deducted from gross sales
 Question 21
1 out of 1 points
Which of the following is revenue of a business?
Answer
Selected Answer:
All of the above are revenues of a business
Correct Answer:
Response Revenues are increases in a business’ wealth arising from the provision of services
Feedback: or sales of goods to customers. The sale of goods is considered revenue, regardless
of whether it is a sale of goods for cash or credit, so long as the goods are delivered.
A dividend received on shares is also a type of revenue known as dividend revenue.
There are many different types of revenue. Thus, the answer is D, all of the above.
 Question 22
1 out of 1 points
The purpose of dividing assets and liabilities into current and non-current classes is to help the
reader of the balance sheet to determine:
Answer
Selected Answer:
both A and B
Correct Answer:
both A and B
Response The terms current and short-term are used interchangeably in accounting, and so are
Feedback: non-current and long-term. The difference between current and non-current classes is
really a question of liquidity. In arranging asset and liability items in a balance sheet,
we create two classes: current and non-current. This arrangement facilitates review
of the balance sheet information by interested parties and reflects a difference of
liquidity, with current classes of assets and liabilities determinative of short-term
financial position, and non-current classes of assets and liabilities determinative of
long-term financial position. Thus, the answer is D.
C is incorrect because focusing solely on the division between current and non-
current classes is an insufficient indicator of future financial performance; moreover,
the information presented in financial statements is historical, and past performance
is not always an accurate indicator of future performance.
 Question 23
1 out of 1 points
The statement that compares the balance as shown in the bank’s records with the balance in
the Cash at Bank account at a particular date is known as the:
Answer
Selected Answer:
bank reconciliation statement
Correct Answer:
Response A bank reconciliation statement aids a business in indentifying the differences
Feedback: between the company’s records and the bank’s records. B is the answer.
 Question 24
1 out of 1 points
Which of the following accounts is not closed off at year end?
Answer
Selected Answer:
Accounts Receivable
Correct Answer:
Accounts Receivable
Response Only temporary accounts, income and expense accounts (income statement
Feedback: accounts) are closed off at the end of year. The reason behind this is twofold: (1) to
reset income and expense accounts for next year to avoid double counting, and (2) to
transfer net profit or loss for the period to retained earnings in the balance sheet.
Permanent accounts, balance sheet accounts—assets, liabilities, and shareholders’
equity, continue on year-to-year and are not closed off, for it would not make sense
to close off a balance sheet account: businesses don’t start re-accumulating assets
they already have in the New Year. For example, if you ended with $500 worth of
inventory in 2011, then you open with $500 worth of inventory in 2012. Your
inventory account would not start off with a zero balance in the New Year.
A-C are income statement accounts and would all be closed off at the end of the
year. The only item that wouldn’t be closed off is D, because it’s a permanent
account and appears on the balance sheet.
 Question 25
0 out of 1 points
The trial balance of Anderson Ltd included the following balances:
Debit Credit
Accounts Receivable $35 000
Allowance for Doubtful Debts $4000
On 1 October 2009, an account for $1600 was determined to be uncollectable. The journal
entry to be made on that date would include a debit to:
Answer
Selected Answer:
Bad Debts Expense
Correct Answer:
Allowance for Doubtful Debts
Feedback: reduce accounts receivable and allowance for bad debts by equal amounts. To
reduce an asset account we credit it, and to reduce a contra-asset account (like
allowance for doubtful debt) we debit it. Thus, the answer is C.
 Question 26
1 out of 1 points
A company declares and pays an interim dividend. This transaction will:
Answer
Selected Answer:
decrease total assets and total shareholders’ equity but have no effect on profit
Correct Answer:
Response Dividends are a distribution of a corporation’s profits to its shareholders. Dividends
Feedback: are not an expense of a corporation and, therefore, dividends do not reduce taxable
income or net profit. Dividends on ordinary shares are not legally required;
therefore, unlike other expenses and liabilities, if a corporation does not declare a
dividend there are no adverse legal ramifications for omitted dividends.
A company would make the following entry when declaring and paying a dividend:
Dr Retained Earnings xx
Cr Cash xx
Remember, Retained Earnings = Opening Retained Earnings + Net Profit/Loss for
the period – Dividends. Thus, when dividends are declared, retained earnings is
debited (decreased), regardless of whether the dividend is or is not paid immediately.
The answer is A because Assets decrease (cash decreases) and shareholders’ Equity
decreases (Retained earnings decreases).
 Question 27
1 out of 1 points
To which balance sheet grouping does the item ‘Bank Overdraft’ belong?
Answer
Selected Answer:
current liability
Correct Answer:
current liability
Response A bank overdraft is a facility you negotiate with your bank which allows you to
Feedback: overdraw your account (bank balance goes below zero) to a predetermined overdraft
limit set by the bank. The negative balance is generally settled within the year.
 Question 28
1 out of 1 points
Assume no dividends were declared during the year.

What is the balance of total assets at 30 June 2011?
Answer
Selected Answer:
$210 000
Correct Answer:
$210 000
Response Assets = Shareholders’ Equity + Liabilities
Feedback: In this particular question we add up the accounts that make up shareholders’
equity and liabilities to determine total assets.
Share Capital (SE) + Retained Profits (SE) + Accounts Payable (L) = Total
Assets
100,000 + 80,000 + 30,000 = 210,000.
 Question 29
1 out of 1 points
Consider the following information.
A - Paid $20 000 of accounts payable
B - Received $100 000 from accounts receivable
C - Purchased inventory of $200 000 on credit
D - Credit sales of $700 000 (cost of goods sold was $450 000)
E - $10 000 of prepayments expired during the month
What is the profit for the period?
Answer
Selected Answer:
$240 000
Correct Answer:
$240 000
Response Profit for the Period = 700,000 (Sales Revenue) – 450,000 (COGS) – 10,000
Feedback: (expense) = 240,000 – b.
Option A is not an expense but a payment of money owed to one’s supplier.
Accounts payable is a liability, and settling this liability reduces both your cash and
your accounts payable accounts. Option B is not a new sale but the receipt of money
owed to you from a previous sale; thus, no new revenue: Cash increases (asset) and
accounts receivables decreases (asset). Option C is not an expense but the purchase
of an asset – Inventory. One asset (cash) is being swapped for another asset
(inventory).
 Question 30
1 out of 1 points
Which of the following may be a liability of a business enterprise?
Answer
Selected Answer:
wages payable
Correct Answer:
wages payable
Response Share Capital is part of Shareholders’ equity; Wages Payable are wages owed to
Feedback: employees for work that has been performed; retained profits can be defined as a
running account of a business’ year-to-year performance, including deduction for
dividends.
Only possible answer is B.
 Question 1
1 out of 1 points

Answer
Selected Answer:
$11 000
Correct Answer:
$11 000
Net Profit = 15,000 – 1,500 – 1,000 – 1,500 = 11,000 – d.
 Question 2
1 out of 1 points
Answer
Selected Answer:
wages payable
Correct Answer:
wages payable
Response Share Capital is part of Shareholders’ equity; Wages Payable are wages owed to employees for work that has been
Feedback: performed; retained profits can be defined as a running account of a business’ year-to-year performance, including
deduction for dividends.
 Question 3
1 out of 1 points
Answer
Selected Answer:
Accounts Receivable
Correct Answer:
Accounts Receivable
Response Only temporary accounts, income and expense accounts (income statement accounts) are closed off at the end of
Feedback: year. The reason behind this is twofold: (1) to reset income and expense accounts for next year to avoid double
counting, and (2) to transfer net profit or loss for the period to retained earnings in the balance sheet. Permanent
accounts, balance sheet accounts—assets, liabilities, and shareholders’ equity, continue on year-to-year and are not
closed off, for it would not make sense to close off a balance sheet account: businesses don’t start re-accumulating
assets they already have in the New Year. For example, if you ended with $500 worth of inventory in 2011, then you
open with $500 worth of inventory in 2012. Your inventory account would not start off with a zero balance in the
New Year.
A-C are income statement accounts and would all be closed off at the end of the year. The only item that wouldn’t be
closed off is D, because it’s a permanent account and appears on the balance sheet.
 Question 4
1 out of 1 points
Accompanying the bank statement was a debit memorandum for an NSF (not sufficient funds) cheque received from a
customer. What entry is required in the company’s accounts?
Answer
Selected Answer:
Dr Accounts Receivable Cr Cash
Correct Answer:
Response Companies may authorise a bank to automatically transfer funds into or out of their account. Banks use debit
Feedback: memoranda to notify companies about automatic withdrawals. A customer who owes you money may write you a
cheque and when you deposit it, you would record in your books:
DR Cash
CR Accounts Receivable
However, when a cheque is recorded by the bank as NSF, the customer has insufficient funds in their account to back
up the payment they made by cheque. Accordingly, you have not received the cash that you have recorded in your
journals and you will need to reverse the recording of the cash and reduction in Accounts Receivable as the debtor
still owes you money, hence:
DR Accounts Receivable
CR Cash
 Question 5
1 out of 1 points
Debit Credit
On 1 October 2009, an account for $1600 was determined to be uncollectable. The journal entry to be made on that date would
include a debit to:
Answer
Selected Answer:
Correct Answer:
Response Under the indirect method, once an amount is deemed uncollectible we simply reduce accounts receivable and
Feedback: allowance for bad debts by equal amounts. To reduce an asset account we credit it, and to reduce a contra-asset
account (like allowance for doubtful debt) we debit it. Thus, the answer is C.
 Question 6
1 out of 1 points
Answer
Selected Answer:
$210 000
Correct Answer:
$210 000
Feedback: In this particular question we add up the accounts that make up shareholders’ equity and liabilities to determine
total assets.
Share Capital (SE) + Retained Profits (SE) + Accounts Payable (L) = Total Assets
100,000 + 80,000 + 30,000 = 210,000.
 Question 7
1 out of 1 points
Which of the following is NOT a way that management can establish proper control over the enterprise’s affairs?
Answer
Selected Answer:
combining record-keeping with handling of assets
Correct Answer:
Response A sound system of internal control demands segregation of duties. The employee who records transactions should be
Feedback: different from the employee who handles the assets. Having different employees perform these tasks helps minimise
potential for theft and misuse of assets. For example, if the asset was cash – it would not make sense to have the same
employee handle the cash and record how much of it there is. A misappropriation could occur without anyone even
realising! Thus, the answer is B.
 Question 8
1 out of 1 points
A stapling machine costing $25 with a useful life of 5 years, is treated as a stationery expense rather than as an asset. What
assumption/concept underlies this procedure?
Answer
Selected Answer:
materiality
Correct Answer:
materiality
Response There are some basic assumptions that underlie current accounting practice and the preparation of financial
Feedback: statements, some of which are mentioned above.
A - Materiality: This principle states that the requirements of any accounting principle may be ignored when there is
no effect on the users of financial information. Professional judgement is needed to decide whether an amount is
B - Monetary Concept: Not only must an accounting entity’s accounting records include only quantifiable
transactions, but these same transactions must also be measured and recorded in stable currency, such as the
Australian dollar. This allows comparisons across periods and across different companies.
C - Accounting Period: The life of a business needs to be divided into discrete periods to evaluate performance for
that period. Dividing the life of an organisation into equal periods to determine profit or loss for that period is known
as the accounting period assumption.
D - Accounting Entity. The accounting entity is separate and distinguishable from its owners. What this means is that
business records must not include the personal assets or liabilities of the owners. For example, a company is a
separate entity from its shareholders (owners); similarly, the accounting entity of a sole trader is separate from the
affairs of the owner.
The economic benefit(s) received from using a stapling machine is as trivial as the transaction which led to its
purchase. Thus, sound accounting judgement would suggest that it’s more appropriate to treat the transaction as an
expense rather than an asset, and this thinking is in line with the materiality assumption.
By knowing the assumptions well, you would eliminate all options except A.
 Question 9
1 out of 1 points
In profit measurement, private transactions of owners are not taken into account. What assumption/concept underlies this
procedure?
Answer
Selected Answer:
accounting entity
Correct Answer:
accounting entity
Feedback: statements, some of which are mentioned in the answers.
A - Materiality: This principle states that the requirements of any accounting principle may be ignored when there is
no effect on the users of financial information. Professional judgement is needed to decide whether an amount is
that period. Dividing the life of an organisation into equal periods to determine profit or loss for that period is known
as the accounting period assumption.
D - Accounting Entity. The accounting entity is separate and distinguishable from its owners. What this means is that
By knowing the assumptions well, you would eliminate all options except D.
 Question 10
1 out of 1 points
Answer
Selected Answer:
current liability
Correct Answer:
current liability
Response A bank overdraft is a facility you negotiate with your bank which allows you to overdraw your account (bank
Feedback: balance goes below zero) to a predetermined overdraft limit set by the bank. The negative balance is generally
settled within the year.
 Question 11
1 out of 1 points
Which of the following relates to both the balance sheet and the income statement?
Answer
Selected Answer:
net profit
Correct Answer:
net profit
Response Net profit for the year appears in the income statement, and this amount increases retained profits, which appears in
Feedback: the balance sheet under shareholders’ equity. By closing off temporary accounts (income statement accounts) at the
end of the period, we transfer net profit or loss for the period to retained earnings.
Retained Earnings = Opening Retained Earnings + Net Profit or Loss for the period – Dividends
The answer is a choice between B and D, but D is the stronger answer because it is the profit or loss at the end of the
period that connects the two statements together. Although opening retained profits is the sum of all the net profits a
company has ever made up to the start of a given accounting period, these net profits sit in the retained earnings
account, which is a balance sheet account.
 Question 12
1 out of 1 points
Shareholders invest $100 000 in a business. $80 000 worth of inventory was bought on credit, and of that, $10 000 worth of
damaged inventory was returned. Equipment costing $200 000 was purchased, which was financed by a loan from the seller,
repayable in 5 years. The business paid $40 000 to accounts payable. Total assets increased by:
Answer
Selected Answer:
$330 000
Correct Answer:
$330 000
Response Feedback: Assets = Shareholders’ Equity + Liabilities
100,000 (investment) = 100,000 + 0
80,000 (inventory) = 100,000 + 80,000
-10,000 (defective, unsalable inventory)
200,000 (Equipment) = + 200,000
– 40,000 = - 40,000
Change in Assets= 100,000 + 80,000 – 10,000 + 200,000 – 40,000 = 330,000
 Question 13
0 out of 1 points
Answer
Selected Answer:
$250 000
Correct Answer:
$240 000
Response Profit for the Period = 700,000 (Sales Revenue) – 450,000 (COGS) – 10,000 (expense) = 240,000 – b.
Feedback: Option A is not an expense but a payment of money owed to one’s supplier. Accounts payable is a liability, and
settling this liability reduces both your cash and your accounts payable accounts. Option B is not a new sale but the
receipt of money owed to you from a previous sale; thus, no new revenue: Cash increases (asset) and accounts
receivables decreases (asset). Option C is not an expense but the purchase of an asset – Inventory. One asset (cash) is
being swapped for another asset (inventory).
 Question 14
1 out of 1 points
The allowance for doubtful debts account would appear in the balance sheet under:
Answer
Selected Answer:
current assets
Correct Answer:
current assets
Response Allowance for doubtful debt is a contra-asset account and appears in the balance sheet under current assets,
Feedback: specifically accounts receivable. Net realisable value of accounts receivable = Accounts Receivable – Allowance
for Doubtful Debt.
 Question 15
1 out of 1 points
The holders of bonds (Interest bearing loan) maturing in 15 years’ time would be most interested in which type of
information?
Answer
Selected Answer:
long-term financial stability
Correct Answer:
Response A bond is a type of debt instrument whereby the issuer of a bond, the corporation in this case, borrows money from
Feedback: an investor(s) by issuing a bond for a defined period of time (e.g. 15 years) at a fixed interest rate. The bond states the
interest rate that will be paid and when the loaned funds (bond principal) are to be returned (maturity date).
Given the duration of the bond (15 years), its holders would be most interested in information concerning long-term
financial stability. Bondholders want to receive interest payments for the duration of the bond (15 years) and to have
their principal amount returned to them on the day the bond matures (sometime in the 15 th year). Thus, information
concerning long-term financial stability would take precedence.
 Question 16
1 out of 1 points
What is the correct adjusting entry at June 30, the end of the financial year, based on a Supplies account balance, before
adjustment, of $5200, and after adjustment, on June 30, of $1200?
Answer
Selected Answer:
Correct Answer:
Response Before financial statements are prepared, additional journal entries, called adjusting entries, are made to ensure that
Feedback: the company's financial records adhere to the revenue recognition and matching principles. For example, suppose in
similar fashion to the question above, a company has a $5,200 debit balance in its supplies account at June 30, but a
count of supplies on hand at June 30 finds only $1,200 of them remaining. Since supplies of $4,000 have been used
up, the supplies account requires a $4,000 adjustment so assets are not overstated, and the supplies expense account
requires a $4,000 adjustment so expenses are not understated.

Cr Supplies 4,000
Answer c.
 Question 17
0 out of 1 points
In preparing a bank reconciliation statement for a business with a substantial bank balance, the appropriate treatment for a
cheque outstanding at end of month, $450, is to:
Answer
Selected Answer:
Correct Answer:
deduct it from the balance as per bank statement
Response Outstanding cheques. A cheque that a company mails to a creditor may take several days to pass through the mail,
Feedback: be processed and deposited by the creditor, and then clear the banking system. Therefore, company records may
include a number of cheques that do not appear on the bank statement. These are called outstanding cheques and
cause the bank statement balance to overstate the company’s actual cash balance (as per bank records). Since
outstanding cheques have already been recorded in the company’s books as cash payments, they must be subtracted
from the bank statement balance.
Therefore, the answer is B.
 Question 18
1 out of 1 points
Using the Australian dollar to measure accounting transactions allows comparisons across periods. What assumption/concept
underlies this procedure?
Answer
Selected Answer:
monetary concept
Correct Answer:
monetary concept
Feedback: statements, some of which are mentioned below.
A - Accounting Entity. The accounting entity is separate and distinguishable from its owners. What this means is that
C - Historical Cost: According to the historical cost principle, assets are initially recorded at cost, which equals the
value exchanged at the time of their acquisition
D - Going Concern: Unless otherwise noted, financial statements are prepared under the assumption that the
company will remain in business indefinitely.
 Question 19
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response Revenues are increases in a business’ wealth arising from the provision of services or sales of goods to customers.
Feedback: The sale of goods is considered revenue, regardless of whether it is a sale of goods for cash or credit, so long as the
goods are delivered. A dividend received on shares is also a type of revenue known as dividend revenue. There are
many different types of revenue. Thus, the answer is D, all of the above.
 Question 20
1 out of 1 points
Answer
Selected
Answer: if the assets owned by a business total $90 000 and liabilities total $50 000, then shareholders’ equity totals $40
000
Correct Answer:
if the assets owned by a business total $90 000 and liabilities total $50 000, then shareholders’ equity totals $40
000
Feedback: A business’ resources are financed by two key sources: either shareholder investment or liabilities (various debts
and borrowings).
C is the only answer where the accounting identity holds true, i.e., 90,000 = 50,000 + 40,000.
A&B are possible answers but are not the best answers because they each fail to consider the right hand-side of
the equation in its totality. There are two possible sources of finance.
 Question 21
1 out of 1 points
Which of the following statements about a liability is true?
Answer
Selected Answer:
It must result from a past transaction or event.
Correct Answer:
Response A liability is a present obligation that arises from a past transaction or event, the settlement of which will result in
Feedback: a sacrifice of economic benefits. Only B meets the stated definition.
 Question 22
0 out of 1 points
T Ltd paid $240 000 in wages during the year. The opening balance of Accrued Wages was $8000 and the closing balance was
$10 000. What was the wages expense for the year?
Answer
Selected Answer:
$238 000
Correct Answer:
$242 000
Feedback:
Accrued Wages or Wages
Payable
240,000 o/b 8,000
(Wages Paid)
c/b 10,000 X
(Wages
Expense)
250,000 250,000
o/b 10,000
An adjusting entry to accrue expenses is necessary when there are unrecorded expenses and liabilities that apply to a
given accounting period. These expenses may include, like in this question, wages. T Ltd accrues wages when they’ve
been incurred but not paid. In answering the question through the use of t-accounts, you need to first consider what
the account is telling you.
The right-hand side of the account, the credit side, records accrued wages—wages that have been incurred but not yet
paid, e.g.
Dr Wages Expense x

Cr Cash x
Using the t-account above, we can set up an algebraic identity to answer the question:
Closing Balance = Opening Balance of Accrued Wages + Wages Expense (X) – Wages Paid During the year.
10,000 = 8,000 + X – 240,000
X = $242,000
 Question 23
1 out of 1 points
Answer
Selected Answer:
none of the above
Correct Answer:
none of the above
Response Prepaid insurance: Prepayments are assets that become expenses as they expire or get used up. Through passage of
Feedback: time we recognise the portion of prepaid insurance that has become an actual expense. The portion that is used up
through use or passage of time is recorded as an expense.
Dividends are not expenses, they’re distributions of profits. Just like a sole trader is entitled to the profits of his/her
business, a shareholder is entitled to profits from his/her investment. Further, a company isn’t obligated to pay out
dividends, and may reinvest the profits back into the company (retained earnings). There are no legal ramifications to
not paying dividends; It is the company’s choice.
Purchase of inventory. Inventory purchased is an asset, in accordance with the definition of an asset contained in the
accounting standards, which states that assets are resources controlled by an entity as a result of past events
(transactions) and from which future economic benefits can be expected to flow to the entity.
 Question 24
0 out of 1 points
At year-end Shifty Ltd had a balance of Accounts Receivable of $90 000 and an Allowance for Doubtful Debts of $4000. It was
decided to write off the debt of Wriggler totalling $2500 as irrecoverable. It was further decided that the Allowance for
Doubtful Debts should stand at 5% of Accounts Receivable.
What was the journal entry needed to bring the Allowance for Doubtful Debts to the required level after writing off the debt of
Wriggler?
Answer
Selected Answer:
Dr Bad Debts Expense..........$3000 Cr Allowance for Doubtful Debts..........$3000
Correct Answer:
Dr Bad Debts Expense ..........$2875 Cr Allowance for Doubtful Debts..........$2875
Response One way companies derive an estimate for the value of bad debts under the indirect method is to calculate bad debts
Feedback: as a percentage of the accounts receivable balance. Our first step in answering this question is to determine at what
level the allowance for doubtful debts should stand at. But before we do so, we must first factor in Wriggler’s
irrecoverable amount. We know that under the indirect method once an amount is deemed uncollectible we simply
reduce accounts receivable and allowance for bad debt by equal amounts; a debit to allowance for doubtful debts, the
contra-asset account, and a credit to accounts receivable account. Currently, Allowance for Doubtful Debt has a
balance of $4,000. Thus, when we factor in wriggler’s $2,500 irrecoverable amount, the new balance is $1,500, and
net accounts receivable is $87,500.
Now we’re ready to determine what level the Allowance for doubtful debt should stand at. 5% of $87,500 is equal to
$4,375. Thus, in order for the Allowance for Doubtful Debt account to stand at, or equal, $4,375, we need to increase
the Allowance for Doubtful debt account by a $2,875 ($4,375-$1,500) bad debt expense.
Given the reasoning above, the answer is D—Dr bad debt expense 2875, and Cr allowance for doubtful debt 2,875,
which increases the allowance to the required percentage level (5% of $87,500, or $4,375).
 Question 25
1 out of 1 points
Which of the following are debits?
Answer
Selected Answer:
decreases in owners’ equity
Correct Answer:
Response A, B, and C are all increases in sources of finance, the right-hand side of the accounting equation.
Feedback: Assets = Shareholders’ Equity/Owners’ Equity + Liabilities.
Accounts that fall under the right-hand side of the accounting equation have as their normal balance an entry on the
right-hand side (credit balance) and are increased by credit entries and decreased by debit entries.
Owners’ Equity has a credit balance; therefore, to decrease an account with a credit balance you must debit it –d.
 Question 26
1 out of 1 points
Answer
Selected Answer:
a list of the titles of all accounts in the ledger, together with an appropriate numbering system for the accounts
Correct Answer:
a list of the titles of all accounts in the ledger, together with an appropriate numbering system for the accounts
 Question 27
0 out of 1 points
A customer provides a deposit of $500 000 near year-end. The product will not be delivered until next year. This transaction
will:
Answer
Selected Answer:
increase net profit, total assets and cash
Correct Answer:
increase total assets and cash but not net profit
Response Generally, a company records its revenue only when delivery of the product occurs. It is at the point of delivery that
Feedback: the company would discharge its obligations to a customer by delivering the product it had promised to deliver in
exchange for monies or monies worth.
Thus, what we have here is an unearned revenue:
Dr Cash 500,000 – record the deposit
Cr Unearned Revenue 500,000 – the product hasn’t been delivered yet; therefore, the revenue has not be earned.
Unearned revenue is a liability account because it reflects the fact that the company still has a present obligation to
deliver the product it promised to deliver to the customer.
Thus, total assets increase because cash increases but net profit remains unchanged – c.
 Question 28
1 out of 1 points
Choo Ltd invested $200 000 with a bank for one year at 12% on 1 September 2010 (interest payable at end of loan). What is
the adjusting journal entry at balance date, 30 June 2011?
Answer
Selected Answer:
Correct Answer:
Response An adjusting entry to accrue revenues is necessary when revenues have been earned but not yet received. An
Feedback: example of an accrued revenue would be interest revenue. At the end of each accounting period, the company
recognises the interest revenue that has accrued.
10 months have passed between September 1, 2010 and June 30, 2011. Therefore, Choo needs to accrue and record
10 months worth of interest revenue.
Interest revenue per annum = 200,000 * 12% = 24,000, but since only 10 months have passed, Choo must adjust
accordingly:
10/12 x 24,000 = 20,000
Answer b.
 Question 29
1 out of 1 points

Answer
Selected Answer:
$24 000
Correct Answer:
$24 000
Response Accrual accounting captures the financial aspects of each economic event in the accounting period in which it occurs,
Feedback: regardless of when cash changes hands. In other words, revenues are recorded when they occur—when they’re
earned, and expenses are recorded when they’re incurred. Under cash accounting, revenues are recognised only when
the company receives cash or its equivalent, and expenses are recognised only when the company pays with cash or
its equivalent. For example, say we have a ticketing business that sells multiple tickets to a customer with the promise
to deliver the tickets in 7 days. Any money received by the business up front is treated as a liability under the accrual
basis, specifically ‘Unearned revenue.’ This is because, while the business has received money, it hasn’t discharged
its obligations to the customer, i.e., it hasn’t delivered the tickets. Therefore, the business has a present obligation to
deliver the tickets. Once the tickets have been delivered, the business is said to have earned its revenue. On the other
hand, under cash accounting, once the business receives cash, revenue is recorded, irrespective of when it performs
its substantive obligations to its customer. Cash is king,in other words.
The question asks us to determine the cash profit for 2011; therefore, we must concentrate on cash receipts and cash
payments, and disregard accrual based entries and accounts.
B - Credit Sales: We would include credit sales in accrual calculations, but not in cash accounting—not until the cash
owed to us is received. A credit sale is a sale to a customer where money is not paid on delivery or completion of
service, but at a later date, expressly stated in the payment terms, which generally appear on the sale invoice. Thus,
we would not include this figure.
C - Cash received from accounts receivables: Part of cash basis accounting. Cash is being received.
D - Wages Paid: Part of cash basis accounting. An expense—wages expense—is paid.
E - Wages owing at the end of the year: A business may have wages owing at the end of the year, and will be
expected to pay it sometime in the future, but until that date—a cash accounting system remains unaffected. Once the
wages that are owed are paid, they’ll be processed by the cash accounting system.
Thus, 10,000 + 22,000 – 8,000 = 24,000
 Question 30
1 out of 1 points
Answer
Selected Answer:
$60,000
Correct Answer:
$60,000
Response In accounting, Gross Profit is the difference between revenue and the cost of making a product or providing a
Feedback: service, before deducting operating expenses.
= 100,000 – 40,0000 = 60,000
 Question 1
1 out of 1 points
Working capital is calculated as current assets less current liabilities. Consider the following summarised balance sheet of
Apcor Ltd at 30 June 2011:
What was Apcor Ltd’s working capital at 30 June 2011?

Answer
Selected Answer:
$200 000
Correct Answer:
$200 000
Response Feedback: Working capital is equal to Current Assets – Current Liabilities =
500,000 – 300,000 = $200,000
 Question 2
1 out of 1 points
Which of the following items is normally classified as a current liability?
Answer
Selected Answer:
accounts payable
Correct Answer:
accounts payable
Response Account classification takes time and comes with practice and interaction with accounting material, whether online,
Feedback: in our textbook, or in daily life. Without even studying accounting, we can intuitively classify items as assets or
liabilities, a knowledge we gain by simply interacting with the world around us; but there are specific accounting
definitions to many of the items we intuit.
In accounting, the current or non-current distinction simply refers to the liquidity of a given item, the time it takes for
it to be converted into cash, in the case of an asset, or for an obligation to be met, in the case of a liability. A current
liability is an obligation that will be met within one financial year. Thus, by a process of elimination, the answer is B.
Not only is B the only liability, but it is also generally considered to be a current liability, because it is customary for
suppliers to be repaid within one financial year.
 Question 3
0 out of 1 points
Answer
Selected Answer:
the opening balance of retained profits
Correct Answer:
net profit
Response Net profit for the year appears in the income statement, and this amount increases retained profits, which appears in
Feedback: the balance sheet under shareholders’ equity. By closing off temporary accounts (income statement accounts) at the
end of the period, we transfer net profit or loss for the period to retained earnings.
The answer is a choice between B and D, but D is the stronger answer because it is the profit or loss at the end of the
period that connects the two statements together. Although opening retained profits is the sum of all the net profits a
company has ever made up to the start of a given accounting period, these net profits sit in the retained earnings
account, which is a balance sheet account.
 Question 4
1 out of 1 points
Patrick is a part-time accounting student who does tennis coaching during the day. He receives revenue of $30 000 from clients
for coaching and ball sales during the year. At year-end, Patrick coaches one client who owes him $200 for the lesson. He paid
out $10 000 for court hire and purchase of tennis balls for resale. He owes $1000 to the court owner at year-end. Depreciation
on his equipment amounts to $400. Accrual profit is:
Answer
Selected Answer:
$18 800
Correct Answer:
$18 800
Response Accrual accounting captures the financial aspects of each economic event in the accounting period in which the event
Feedback: occurs, regardless of when cash changes hands. In other words, revenues are recorded when they occur (when they’re
earned), and expenses are recorded when they’re incurred. Under cash accounting, revenues are recognised only
when the company receives cash or its equivalent, and expenses are recognised only when the company pays with
cash or its equivalent. For example, say we have a ticketing business that sells multiple tickets to a customer with the
promise to deliver the tickets in 7 days. Any money received by the ticketing business up front, before the tickets
have been delivered, is treated as a liability under the accrual basis, specifically ‘Unearned revenue.’ This is because,
while the business has received money, it hasn’t discharged its obligations to the customer—it hasn’t delivered the
tickets. Therefore, the business has a present obligation to deliver tickets. Once the tickets have been delivered, the
business is said to have earned its revenue. On the other hand, under cash accounting, once the business receives
cash, revenue is recorded, irrespective of when it performs its substantive obligations for its customer. Cash
is king, in other words.
The question asks us to determine Patrick’s accrual profit, so we must include accrual accounts and entries.
Accrual Profit = 30,000 (revenue) + 200 (credit sale) – 10,000 (court hire + tennis balls sold) – 1,000 (rent expense) –
400 (depreciation expense) = $18,800.
 Question 5
0 out of 1 points
Able Ltd operates on a five-day working week. Employees are paid on Thursday for work completed to Wednesday. The
weekly wages bill is $40 000. If 30 June 2011 fell on a Tuesday, what was the accrued wages payable on 30 June 2011?
Answer
Selected Answer:
$8000
Correct Answer:
$32 000
Response An adjusting entry to accrue expenses is necessary when there are unrecorded expenses and liabilities that apply to a
Feedback: given accounting period. These expenses may include, like in this question, wages for work performed in the current
accounting period (2011 Financial year) but not paid until the following accounting period (2012 Financial Year)
Able operates on a five-day working week, from Thursday to Wednesday, with payment on the Thursday for work
completed to Wednesday. If 30 June 2011 fell on a Tuesday, adjusting entries must be entered to accrue wages for
the four days the employees have worked, from Thursday 25 June 2011 to Tuesday 30 th June 2011. Thus, four days
wages must be accrued.
4/5 x 40,000 = $32,000 – c.
 Question 6
0 out of 1 points
Which of the following entries correctly records the receipt of an electricity bill from the power company?
Answer
Selected Answer:
Dr Accounts Payable Cr Utilities Payable
Correct Answer:
Dr Electricity Expense Cr Electricity Payable
Response From the consumer’s point of view, electricity has been consumed during the period but not paid for. Thus, the
Feedback: consumer must recognise the electricity expense and the associated liability because he/she has used up electricity
and has a present obligation to pay the power company in the future. Hence the answer is A.
 Question 7
1 out of 1 points
Additional credit sales of $2 million (cost price $1.5 million) are made on credit. This transaction will:
Answer
Selected Answer:
increase net profit, increase total assets but not affect cash
Correct Answer:
Response When inventory is sold we record two sets of entries:
Feedback: A - Sale of Inventory
B - Cost of Sale
A - Sale of Inventory:
Dr Accounts Receivable 2,000,000

Cr Sales Revenue 2,000,000
B - Cost of Sale:
Dr Cost of Goods Sold 1,500,000

Cr Inventory 1,500,000
The net effect of both sets of entries is that net profit increases (2 m Sale v 1.5 m cost), total assets increase as
accounts receivable increases, and there is no cash affect (credit sale) – b.
 Question 8
1 out of 1 points
Retained profits of Livermore Pty Ltd at 1 July 2010 were $5500. The accounting records for year ended 30 June 2011 showed
the following information:
Answer
Selected Answer:
$7250
Correct Answer:
$7250
Response Retained Earnings = Opening Retaining Earnings + Net Profit or Net Loss for the period – Dividends
Feedback: Livermore’s Retained Earnings = 5,500 + (35,500 – 32,250) – 1,500 = $7,250.
When you collect cash from customers, you’re collecting money owed to you from past transactions, from historical
sales. Thus, you do not include these in the calculation of net profit because there’s no new sale. Similarly, adding
expenses paid in cash to expenses incurred would also be erroneous because you would be double counting the
expenses for the period. An expense can either be paid when it’s incurred or accrued and paid later (recognise an
expense and a liability simultaneously), but the common denominator in both situations is that an expense is recorded
regardless of whether an expense is paid now or later.
 Question 9
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
DR Cash
However, when a cheque is recorded by the bank as NSF, the customer has insufficient funds in their account to back
up the payment they made by cheque. Accordingly, you have not received the cash that you have recorded in your
journals and you will need to reverse the recording of the cash and reduction in Accounts Receivable as the debtor
still owes you money, hence:
CR Cash
 Question 10
1 out of 1 points

Answer
Selected Answer:
$11 000
Correct Answer:
$11 000
Net Profit = 15,000 – 1,500 – 1,000 – 1,500 = 11,000 – d.
 Question 11
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response Revenues are increases in a business’ wealth arising from the provision of services or sales of goods to customers.
Feedback: The sale of goods is considered revenue, regardless of whether it is a sale of goods for cash or credit, so long as the
goods are delivered. A dividend received on shares is also a type of revenue known as dividend revenue. There are
many different types of revenue. Thus, the answer is D, all of the above.
 Question 12
0 out of 1 points
The trial balance of Allen Ltd at balance date showed a credit balance of $5000 in the Allowance for Doubtful Debts account.
Although the account of a customer outstanding at $1400 had been determined to be uncollectable, this had not been written
off. What was the effect of this neglect on the year-end balance sheet?
Answer
Selected Answer:
there was an overstatement of total assets and shareholders’ equity
Correct Answer:
there was no effect on total liabilities, assets or shareholders’ equity
Response Accounts receivable are amounts that customers owe a business for credit purchases. Businesses know that not all
Feedback: customers who purchase goods or services on credit will pay them back. These uncollectible accounts are known as bad
debts. Companies use two methods to account for bad debts: the direct write-off method and the indirect (allowance)
method. Under the direct write-off method, bad debts are recognised only after the company is certain a debt will not be
repaid.
Recognising the bad debt expense using the direct write-off method requires a debit to bad debt expense—to record the
expense—and a credit to accounts receivable—to decrease accounts receivable by the amount that will no longer be
collected.
Under the indirect method, an adjustment is made at the end of each accounting period to estimate the bad debts based
on credit sales of the current accounting period. To record this estimate:
DR Bad Debts Expense
CR Allowance for doubtful debts
We debit bad debts expense to recognise a cost to the firm of selling on credit. Notice that we recognise this expense in
the same period that we recognise the revenue from the credit sales to which these bad debts relate (staying true to our
matching principle).
We also record this adjustment to allowance for doubtful debts (a contra asset). As it is a balance sheet account, it
records all the bad debts expenses of prior periods that have yet to be written off against accounts receivable.
Notice that the above entry does not reduce accounts receivable directly. It does so indirectly because allowance for
doubtful debts is a contra asset that sits against accounts receivable. Accordingly, an increase in allowance for doubtful
debts will not reduce accounts receivable but will reduce the net realisable value of accounts receivable.
In the above question, Allen Ltd has already made concessions for the possibility that $5,000 might not be collectible.
Included in this estimate, is $1,400, which has been deemed uncollectible. Under the indirect method, a subsequent
write-off does not change the net realisable value of accounts receivable. It simply reduces accounts receivable and
allowance for bad debt by equal amounts. To demonstrate, let’s say accounts receivable before any write off is equal to
10,000.
 Question 13
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response Before financial statements are prepared, additional journal entries, called adjusting entries, are made to ensure that
Feedback: the company's financial records adhere to the revenue recognition and matching principles. For example, suppose in
similar fashion to the question above, a company has a $5,200 debit balance in its supplies account at June 30, but a
count of supplies on hand at June 30 finds only $1,200 of them remaining. Since supplies of $4,000 have been used
up, the supplies account requires a $4,000 adjustment so assets are not overstated, and the supplies expense account
requires a $4,000 adjustment so expenses are not understated.

Cr Supplies 4,000
Answer c.
 Question 14
1 out of 1 points
Answer
Selected Answer:
$330 000
Correct Answer:
$330 000
100,000 (investment) = 100,000 + 0
80,000 (inventory) = 100,000 + 80,000
200,000 (Equipment) = + 200,000
– 40,000 = - 40,000
Change in Assets= 100,000 + 80,000 – 10,000 + 200,000 – 40,000 = 330,000
 Question 15
1 out of 1 points
Answer
Selected Answer:
current liability
Correct Answer:
current liability
 Question 16
1 out of 1 points
Answer
Selected Answer:
$60,000
Correct Answer:
$60,000
Response In accounting, Gross Profit is the difference between revenue and the cost of making a product or providing a
Feedback: service, before deducting operating expenses.
= 100,000 – 40,0000 = 60,000
 Question 17
1 out of 1 points
At 1 July 2010, Epsilon Pty Ltd had 100 items of inventory which had cost $50 each. During the year ended 30 June 2011, it
purchased 1500 items at a cost of $50 each. Of these, 200 were returned to the supplier as they were damaged. During the year,
1200 items were sold for $80 each, but 50 were returned by customers. Overhead expenses during the year amounted to $15
000.
What were Epsilon Pty Ltd’s net sales for the year?
Answer
Selected Answer:
$92 000
Correct Answer:
$92 000
Response Net Sales = Sales – Sales Returns and Allowances
Feedback: Gross Sales = 1,200 x 80 = $96,000
Sales Returns and Allowances. 50 items earning Epsilon a gross sales of 4,000 (50 x 80) have been returned and,
therefore, need to be deducted from gross sales
 Question 18
1 out of 1 points
Answer
Selected Answer:
$210 000
Correct Answer:
$210 000
Feedback: In this particular question we add up the accounts that make up shareholders’ equity and liabilities to determine
total assets.
100,000 + 80,000 + 30,000 = 210,000.
 Question 19
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response A liability is a present obligation that arises from a past transaction or event, the settlement of which will result in
Feedback: a sacrifice of economic benefits. Only B meets the stated definition.
 Question 20
1 out of 1 points
Answer
Selected Answer:
Accounts Receivable
Correct Answer:
Accounts Receivable
closed off, for it would not make sense to close off a balance sheet account: businesses don’t start re-accumulating
assets they already have in the New Year. For example, if you ended with $500 worth of inventory in 2011, then you
open with $500 worth of inventory in 2012. Your inventory account would not start off with a zero balance in the
New Year.
A-C are income statement accounts and would all be closed off at the end of the year. The only item that wouldn’t be
closed off is D, because it’s a permanent account and appears on the balance sheet.
 Question 21
0 out of 1 points
In preparing a bank reconciliation statement for a business with a substantial bank balance, the appropriate treatment for
monthly service charge appearing on the bank statement, $45, is to:
Answer
Selected Answer:
Correct Answer:
deduct it from the balance per company records
Response Banks often require customers to pay monthly account fees. Automatic withdrawals, like a bank service charge, are
Feedback: often brought to the company’s attention for the first time when the bank statement is received. Unrecorded service
charges must therefore be subtracted from the company’s book balance on the bank reconciliation; otherwise, cash as
per company records is overstated. Automatic withdrawals or deposits, that automatically get processed by the bank
and appear on the company’s bank statement, must be accounted for in the company’s books when performing the
bank reconciliation.
Thus, the answer is D.
 Question 22
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
10 months have passed between September 1, 2010 and June 30, 2011. Therefore, Choo needs to accrue and record
10 months worth of interest revenue.
accordingly:
10/12 x 24,000 = 20,000
Answer b.
 Question 23
0 out of 1 points
Answer
Selected Answer:
purchase of inventory
Correct Answer:
none of the above
dividends, and may reinvest the profits back into the company (retained earnings). There are no legal ramifications to
not paying dividends; It is the company’s choice.
Purchase of inventory. Inventory purchased is an asset, in accordance with the definition of an asset contained in the
accounting standards, which states that assets are resources controlled by an entity as a result of past events
 Question 24
1 out of 1 points
Answer
Selected Answer:
wages payable
Correct Answer:
wages payable
Response Share Capital is part of Shareholders’ equity; Wages Payable are wages owed to employees for work that has been
Feedback: performed; retained profits can be defined as a running account of a business’ year-to-year performance, including
deduction for dividends.
 Question 25
0 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response Outstanding cheques. A cheque that a company mails to a creditor may take several days to pass through the mail,
Feedback: be processed and deposited by the creditor, and then clear the banking system. Therefore, company records may
include a number of cheques that do not appear on the bank statement. These are called outstanding cheques and
cause the bank statement balance to overstate the company’s actual cash balance (as per bank records). Since
 Question 26
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Accounts that fall under the right-hand side of the accounting equation have as their normal balance an entry on the
right-hand side (credit balance) and are increased by credit entries and decreased by debit entries.
 Question 27
0 out of 1 points
The balance of retained profits at the beginning of a period was $1000 and at the end of the period $850. A dividend of $50 was
declared and paid. What was the net profit/loss for the period?
Answer
Selected Answer:
none of the above
Correct Answer:
net loss $100
Response At the end of an accounting period, usually one financial year, accountants close off temporary accounts: income and
Feedback: expense accounts. The reason for this is twofold: (1) To reset the accounts for the next period, and (2) To transfer the
net profit or loss from the income statement to retained earnings. Hence we have the equation below:
Retained Profit/Earnings = Opening Retained Profit + Net Profit/Loss for the new period – Dividends
The question asks us to determine net profit or loss for the period, and we can setup the following identity, based on
the information provided and the equation above, to help us solve the question:
850 = 1000 + X – 50
900 = 1000 + X
X = - 100
Therefore, the entity has made a net loss of 100.
Remember, not all cash distributions or payments are expenses. Cash can be used to buy assets or distribute profits,
for example. Dividends are distributions of profits to owners: the shareholders. Like a sole trader is entitled to the
profits of his/her business, a shareholder is entitled to the profits of the business he/she has invested in.
 Question 28
0 out of 1 points
The purpose of dividing assets and liabilities into current and non-current classes is to help the reader of the balance sheet to
determine:
Answer
Selected Answer:
the short-term financial position of the firm
Correct Answer:
both A and B
Response The terms current and short-term are used interchangeably in accounting, and so are non-current and long-term. The
Feedback: difference between current and non-current classes is really a question of liquidity. In arranging asset and liability
items in a balance sheet, we create two classes: current and non-current. This arrangement facilitates review of the
balance sheet information by interested parties and reflects a difference of liquidity, with current classes of assets and
liabilities determinative of short-term financial position, and non-current classes of assets and liabilities determinative
of long-term financial position. Thus, the answer is D.
C is incorrect because focusing solely on the division between current and non-current classes is an insufficient
indicator of future financial performance; moreover, the information presented in financial statements is historical,
and past performance is not always an accurate indicator of future performance.
 Question 29
1 out of 1 points
A $10 000 payment was made to accounts payable, as a result:
Answer
Selected Answer:
an asset decreased and a liability decreased
Correct Answer:
Response The following entry would be made when making a $10,000 payment to accounts payable.
Feedback: Dr Accounts Payable 10,000
Cr Cash 10,000
As a result, an asset would decrease, specifically cash, and a liability would also decrease, specifically accounts
payable – b.
 Question 30
1 out of 1 points
information?
Answer
Selected Answer:
Correct Answer:
Response A bond is a type of debt instrument whereby the issuer of a bond, the corporation in this case, borrows money from
Feedback: an investor(s) by issuing a bond for a defined period of time (e.g. 15 years) at a fixed interest rate. The bond states the
interest rate that will be paid and when the loaned funds (bond principal) are to be returned (maturity date).
Given the duration of the bond (15 years), its holders would be most interested in information concerning long-term
financial stability. Bondholders want to receive interest payments for the duration of the bond (15 years) and to have
their principal amount returned to them on the day the bond matures (sometime in the 15 th year). Thus, information
concerning long-term financial stability would take precedence.
Monday, 3 June 2013 14:39:38 o'clock EST
OK
 Question 1
1 out of 1 points
Answer
Selected Answer:
none of the above
Correct Answer:
none of the above
Response Prepaid insurance: Prepayments are assets that become expenses as they expire or get
Feedback: used up. Through passage of time we recognise the portion of prepaid insurance that
has become an actual expense. The portion that is used up through use or passage of
time is recorded as an expense.
Dividends are not expenses, they’re distributions of profits. Just like a sole trader is
entitled to the profits of his/her business, a shareholder is entitled to profits from
his/her investment. Further, a company isn’t obligated to pay out dividends, and may
reinvest the profits back into the company (retained earnings). There are no legal
Purchase of inventory. Inventory purchased is an asset, in accordance with the
definition of an asset contained in the accounting standards, which states that assets
are resources controlled by an entity as a result of past events (transactions) and from
which future economic benefits can be expected to flow to the entity.
 Question 2
1 out of 1 points

Answer
Selected Answer:
Correct Answer:
Response The following entry would be made when making a $10,000 payment to accounts
Feedback: payable.
Dr Accounts Payable 10,000
Cr Cash 10,000
As a result, an asset would decrease, specifically cash, and a liability would also
decrease, specifically accounts payable – b.
 Question 3
1 out of 1 points

Debit Credit
Answer
Selected Answer:
Correct Answer:
Feedback: reduce accounts receivable and allowance for bad debts by equal amounts. To reduce
an asset account we credit it, and to reduce a contra-asset account (like allowance for
doubtful debt) we debit it. Thus, the answer is C.
 Question 4
1 out of 1 points
The balance of retained profits at the beginning of a period was $1000 and at the end of the
period $850. A dividend of $50 was declared and paid. What was the net profit/loss for the
period?
Answer
Selected Answer:
net loss $100
Correct Answer:
net loss $100
Response At the end of an accounting period, usually one financial year, accountants close off
Feedback: temporary accounts: income and expense accounts. The reason for this is twofold: (1)
To reset the accounts for the next period, and (2) To transfer the net profit or loss
from the income statement to retained earnings. Hence we have the equation below:
Retained Profit/Earnings = Opening Retained Profit + Net Profit/Loss for the new
period – Dividends
The question asks us to determine net profit or loss for the period, and we can setup
the following identity, based on the information provided and the equation above, to
help us solve the question:
850 = 1000 + X – 50
900 = 1000 + X
X = - 100
Remember, not all cash distributions or payments are expenses. Cash can be used to
buy assets or distribute profits, for example. Dividends are distributions of profits to
owners: the shareholders. Like a sole trader is entitled to the profits of his/her
business, a shareholder is entitled to the profits of the business he/she has invested in.
 Question 5
0 out of 1 points
Red Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ. XYZ has accounts
receivable of $12 million and an allowance for doubtful debts of $500 000. XYZ does not adjust
the accounts for the $10 000 that will not be paid by Red Shoes Ltd. Which of the following
statements is true about the balance sheet of XYZ?
Answer
Selected Answer:
Correct Answer:
Response In the above question, XYZ has already made concessions for the possibility that
Feedback $500,000 might not be collectible. Included in this estimate is the $10,000, which has
: been deemed irrecoverable. Under the indirect method, a subsequent write-off does not
change the net realisable value of accounts receivable. It simply reduces accounts
receivable and allowance for bad debt by equal amounts.
 Question 6
1 out of 1 points
account is to:
Answer
Selected Answer:
Correct Answer:
receives automatic fund transfers from customers. A bank uses a credit memorandum
to notify companies about automatic deposits. The name applied to this
memorandum may sound confusing at first glance because we usually interpret a
 Question 7
1 out of 1 points
Shareholders invest $100 000 in a business. $80 000 worth of inventory was bought on credit,
and of that, $10 000 worth of damaged inventory was returned. Equipment costing $200 000
was purchased, which was financed by a loan from the seller, repayable in 5 years. The
business paid $40 000 to accounts payable. Total assets increased by:
Answer
Selected Answer:
$330 000
Correct Answer:
$330 000
Feedback: 100,000 (investment) = 100,000 + 0
80,000 (inventory) = 100,000 + 80,000
200,000 (Equipment) = + 200,000
– 40,000 = - 40,000
Change in Assets= 100,000 + 80,000 – 10,000 + 200,000 – 40,000 =
330,000
 Question 8
0 out of 1 points
A stapling machine costing $25 with a useful life of 5 years, is treated as a stationery expense
rather than as an asset. What assumption/concept underlies this procedure?
Answer
Selected Answer:
accounting period
Correct Answer:
materiality
owners. What this means is that business records must not include the personal assets
or liabilities of the owners. For example, a company is a separate entity from its
shareholders (owners); similarly, the accounting entity of a sole trader is separate
The economic benefit(s) received from using a stapling machine is as trivial as the
transaction which led to its purchase. Thus, sound accounting judgement would
suggest that it’s more appropriate to treat the transaction as an expense rather than an
asset, and this thinking is in line with the materiality assumption.
 Question 9
0 out of 1 points

Answer
Selected Answer:
$250 000
Correct Answer:
$240 000
Response Profit for the Period = 700,000 (Sales Revenue) – 450,000 (COGS) – 10,000
Feedback: (expense) = 240,000 – b.
Option A is not an expense but a payment of money owed to one’s supplier.
Accounts payable is a liability, and settling this liability reduces both your cash and
your accounts payable accounts. Option B is not a new sale but the receipt of money
owed to you from a previous sale; thus, no new revenue: Cash increases (asset) and
accounts receivables decreases (asset). Option C is not an expense but the purchase
of an asset – Inventory. One asset (cash) is being swapped for another asset
(inventory).
 Question 10
1 out of 1 points

Answer
Selected Answer:
Correct Answer:
 Question 11
0 out of 1 points

Answer
Selected Answer:
Sales of goods in cash
Correct Answer:
Response Revenues are increases in a business’ wealth arising from the provision of services or
Feedback: sales of goods to customers. The sale of goods is considered revenue, regardless of
whether it is a sale of goods for cash or credit, so long as the goods are delivered. A
dividend received on shares is also a type of revenue known as dividend revenue.
There are many different types of revenue. Thus, the answer is D, all of the above.
 Question 12
1 out of 1 points
In profit measurement, private transactions of owners are not taken into account. What
Answer
Selected Answer:
accounting entity
Correct Answer:
accounting entity
Feedback: preparation of financial statements, some of which are mentioned in the answers.
 Question 13
1 out of 1 points
Retained profits of Livermore Pty Ltd at 1 July 2010 were $5500. The accounting records for
year ended 30 June 2011 showed the following information:
Answer
Selected Answer:
$7250
Correct Answer:
$7250
Response Retained Earnings = Opening Retaining Earnings + Net Profit or Net Loss for the
Feedback: period – Dividends
Livermore’s Retained Earnings = 5,500 + (35,500 – 32,250) – 1,500 = $7,250.
When you collect cash from customers, you’re collecting money owed to you from
past transactions, from historical sales. Thus, you do not include these in the
calculation of net profit because there’s no new sale. Similarly, adding expenses paid
in cash to expenses incurred would also be erroneous because you would be double
counting the expenses for the period. An expense can either be paid when it’s
incurred or accrued and paid later (recognise an expense and a liability
simultaneously), but the common denominator in both situations is that an expense is
recorded regardless of whether an expense is paid now or later.
 Question 14
1 out of 1 points

Answer
Selected Answer:
Accounts Receivable
Correct Answer:
Accounts Receivable
Response Only temporary accounts, income and expense accounts (income statement accounts)
Feedback: are closed off at the end of year. The reason behind this is twofold: (1) to reset
income and expense accounts for next year to avoid double counting, and (2) to
transfer net profit or loss for the period to retained earnings in the balance sheet.
Permanent accounts, balance sheet accounts—assets, liabilities, and shareholders’
equity, continue on year-to-year and are not closed off, for it would not make sense
to close off a balance sheet account: businesses don’t start re-accumulating assets
they already have in the New Year. For example, if you ended with $500 worth of
inventory in 2011, then you open with $500 worth of inventory in 2012. Your
inventory account would not start off with a zero balance in the New Year.
A-C are income statement accounts and would all be closed off at the end of the
year. The only item that wouldn’t be closed off is D, because it’s a permanent
account and appears on the balance sheet.
 Question 15
1 out of 1 points

Answer
Selected Answer:
$210 000
Correct Answer:
$210 000
Assets
100,000 + 80,000 + 30,000 = 210,000.
 Question 16
1 out of 1 points
Which of the following entries correctly records the receipt of an electricity bill from the
power company?
Answer
Selected Answer:
Correct Answer:
Response From the consumer’s point of view, electricity has been consumed during the period
Feedback: but not paid for. Thus, the consumer must recognise the electricity expense and the
associated liability because he/she has used up electricity and has a present
obligation to pay the power company in the future. Hence the answer is A.
 Question 17
1 out of 1 points
A customer provides a deposit of $500 000 near year-end. The product will not be delivered
until next year. This transaction will:
Answer
Selected Answer:
Correct Answer:
Response Generally, a company records its revenue only when delivery of the product occurs.
Feedback: It is at the point of delivery that the company would discharge its obligations to a
customer by delivering the product it had promised to deliver in exchange for
monies or monies worth.
Cr Unearned Revenue 500,000 – the product hasn’t been delivered yet; therefore,
the revenue has not be earned.
Unearned revenue is a liability account because it reflects the fact that the company
still has a present obligation to deliver the product it promised to deliver to the
customer.
Thus, total assets increase because cash increases but net profit remains unchanged –
c.
 Question 18
1 out of 1 points
The life of a business is divided into equal periods to determine profit or loss for that period.
What assumption/concept underlies this procedure?
Answer
Selected Answer:
accounting period
Correct Answer:
accounting period

 Question 19
1 out of 1 points

Answer
Selected
Correct
Feedback: A business’ resources are financed by two key sources: either shareholder
investment or liabilities (various debts and borrowings).
C is the only answer where the accounting identity holds true, i.e., 90,000 = 50,000
+ 40,000.
A&B are possible answers but are not the best answers because they each fail to
consider the right hand-side of the equation in its totality. There are two possible
sources of finance.
 Question 20
1 out of 1 points
Answer
Selected Answer:
current assets
Correct Answer:
current assets
Response Allowance for doubtful debt is a contra-asset account and appears in the balance
Feedback: sheet under current assets, specifically accounts receivable. Net realisable value of
accounts receivable = Accounts Receivable – Allowance for Doubtful Debt.
 Question 21
0 out of 1 points
What is the correct adjusting entry at June 30, the end of the financial year, based on a
Supplies account balance, before adjustment, of $5200, and after adjustment, on June 30, of
$1200?
Answer
Selected Answer:
Correct Answer:
Response Before financial statements are prepared, additional journal entries, called adjusting
Feedback: entries, are made to ensure that the company's financial records adhere to the
revenue recognition and matching principles. For example, suppose in similar
fashion to the question above, a company has a $5,200 debit balance in its supplies
account at June 30, but a count of supplies on hand at June 30 finds only $1,200 of
them remaining. Since supplies of $4,000 have been used up, the supplies account
requires a $4,000 adjustment so assets are not overstated, and the supplies expense
account requires a $4,000 adjustment so expenses are not understated.
Cr Supplies 4,000
Answer c.
 Question 22
1 out of 1 points
Answer
Selected Answer:
current liability
Correct Answer:
current liability
 Question 23
0 out of 1 points
Accompanying the bank statement was a debit memorandum for an NSF (not sufficient funds)
cheque received from a customer. What entry is required in the company’s accounts?
Answer
Selected Answer:
Dr Other Revenue Cr Cash
Correct Answer:
Response Companies may authorise a bank to automatically transfer funds into or out of their
Feedback: account. Banks use debit memoranda to notify companies about automatic
withdrawals. A customer who owes you money may write you a cheque and when
you deposit it, you would record in your books:
DR Cash
However, when a cheque is recorded by the bank as NSF, the customer has
insufficient funds in their account to back up the payment they made by cheque.
Accordingly, you have not received the cash that you have recorded in your journals
and you will need to reverse the recording of the cash and reduction in Accounts
Receivable as the debtor still owes you money, hence:
CR Cash
 Question 24
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
 Question 25
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
 Question 26
1 out of 1 points
Answer
Selected Answer:
monetary concept
Correct Answer:
monetary concept
 Question 27
1 out of 1 points

Answer
Selected
Correct
 Question 28
1 out of 1 points
Patrick is a part-time accounting student who does tennis coaching during the day. He receives
revenue of $30 000 from clients for coaching and ball sales during the year. At year-end,
Patrick coaches one client who owes him $200 for the lesson. He paid out $10 000 for court hire
and purchase of tennis balls for resale. He owes $1000 to the court owner at year-end.
Depreciation on his equipment amounts to $400. Accrual profit is:
Answer
Selected Answer:
$18 800
Correct Answer:
$18 800
Feedback: accounting period in which the event occurs, regardless of when cash changes hands.
In other words, revenues are recorded when they occur (when they’re earned), and
promise to deliver the tickets in 7 days. Any money received by the ticketing
business up front, before the tickets have been delivered, is treated as a liability
under the accrual basis, specifically ‘Unearned revenue.’ This is because, while the
business has received money, it hasn’t discharged its obligations to the customer—it
hasn’t delivered the tickets. Therefore, the business has a present obligation to
deliver tickets. Once the tickets have been delivered, the business is said to have
earned its revenue. On the other hand, under cash accounting, once the business
receives cash, revenue is recorded, irrespective of when it performs its substantive
obligations for its customer. Cash is king, in other words.
The question asks us to determine Patrick’s accrual profit, so we must include
accrual accounts and entries.
Accrual Profit = 30,000 (revenue) + 200 (credit sale) – 10,000 (court hire + tennis
balls sold) – 1,000 (rent expense) – 400 (depreciation expense) = $18,800.
 Question 29
1 out of 1 points
Answer
Selected Answer:
$60,000
Correct Answer:
$60,000
Response In accounting, Gross Profit is the difference between revenue and the cost of
Feedback: making a product or providing a service, before deducting operating expenses.
= 100,000 – 40,0000 = 60,000
 Question 30
0 out of 1 points
Which of the following is NOT true of a sound system of internal control?

Answer
Selected Answer:
a sound system of internal control is the responsibility of management
Correct Answer:
all errors and irregularities should be eliminated
Respons Answer is
e C.
Feedbac No matter how sound an internal control system is, it cannot eliminate all
k: errors and irregularities.
 Question 1
1 out of 1 points
Using the Australian dollar to measure accounting transactions allows comparisons across periods. What
Answer
Selected Answer:
monetary concept
Correct Answer:
monetary concept
A - Accounting Entity. The accounting entity is separate and distinguishable from its owners. What this means is
that business records must not include the personal assets or liabilities of the owners. For example, a company
is a separate entity from its shareholders (owners); similarly, the accounting entity of a sole trader is separate
C - Historical Cost: According to the historical cost principle, assets are initially recorded at cost, which equals
the value exchanged at the time of their acquisition
 Question 2
1 out of 1 points
Answer
Selected Answer:
$200 000
Correct Answer:
$200 000

500,000 – 300,000 = $200,000
 Question 3
1 out of 1 points

Answer
Selected Answer:
$11 000
Correct Answer:
$11 000
Net Profit = 15,000 – 1,500 – 1,000 – 1,500 = 11,000 – d.
 Question 4
1 out of 1 points
Answer
Selected Answer:
current assets
Correct Answer:
current assets
Feedback: specifically accounts receivable. Net realisable value of accounts receivable = Accounts Receivable –
Allowance for Doubtful Debt.
 Question 5
1 out of 1 points
Greening Ltd is a newly established business selling computer hardware. Shown below are ledger accounts in T-account form, with
entries made for the first month of operations.
Answer
Selected Answer:
Correct Answer:
Response Under double-entry accounting, an entry affects at least two accounts. Transaction (2) debits Greening’s
Feedback: Inventory account and credits Greening’s bank account. Inventory is an asset, so a debit entry would increase
inventory. Cash at bank is also an asset, so a credit entry would decrease cash. Thus, the logical explanation for
this transaction is that inventory was bought with cash, resulting in an increase in inventory and a decrease in
Cash at bank.
 Question 6
1 out of 1 points
The balance of retained profits at the beginning of a period was $1000 and at the end of the period $850. A dividend of $50
was declared and paid. What was the net profit/loss for the period?
Answer
Selected Answer:
net loss $100
Correct Answer:
net loss $100
Response At the end of an accounting period, usually one financial year, accountants close off temporary accounts:
Feedback: income and expense accounts. The reason for this is twofold: (1) To reset the accounts for the next period, and
(2) To transfer the net profit or loss from the income statement to retained earnings. Hence we have the
equation below:
The question asks us to determine net profit or loss for the period, and we can setup the following identity,
based on the information provided and the equation above, to help us solve the question:
850 = 1000 + X – 50
900 = 1000 + X
X = - 100
Remember, not all cash distributions or payments are expenses. Cash can be used to buy assets or distribute
profits, for example. Dividends are distributions of profits to owners: the shareholders. Like a sole trader is
entitled to the profits of his/her business, a shareholder is entitled to the profits of the business he/she has
invested in.
 Question 7
1 out of 1 points
Answer
Selected Answer:
$32 000
Correct Answer:
$32 000
Response An adjusting entry to accrue expenses is necessary when there are unrecorded expenses and liabilities that apply
Feedback: to a given accounting period. These expenses may include, like in this question, wages for work performed in
the current accounting period (2011 Financial year) but not paid until the following accounting period (2012
Financial Year)
Able operates on a five-day working week, from Thursday to Wednesday, with payment on the Thursday for
work completed to Wednesday. If 30 June 2011 fell on a Tuesday, adjusting entries must be entered to accrue
wages for the four days the employees have worked, from Thursday 25 June 2011 to Tuesday 30th June 2011.
Thus, four days wages must be accrued.
4/5 x 40,000 = $32,000 – c.
 Question 8
1 out of 1 points

Answer
Selected Answer:
Correct Answer:
Response A liability is a present obligation that arises from a past transaction or event, the settlement of which will
Feedback: result in a sacrifice of economic benefits. Only B meets the stated definition.
 Question 9
1 out of 1 points
a cheque outstanding at end of month, $450, is to:
Answer
Selected Answer:
Correct Answer:
Response Outstanding cheques. A cheque that a company mails to a creditor may take several days to pass through the
Feedback: mail, be processed and deposited by the creditor, and then clear the banking system. Therefore, company records
may include a number of cheques that do not appear on the bank statement. These are called outstanding cheques
and cause the bank statement balance to overstate the company’s actual cash balance (as per bank records). Since
outstanding cheques have already been recorded in the company’s books as cash payments, they must be
subtracted from the bank statement balance.
 Question 10
1 out of 1 points
Answer
Selected Answer:
$24 000
Correct Answer:
$24 000
Response Accrual accounting captures the financial aspects of each economic event in the accounting period in which it
Feedback: occurs, regardless of when cash changes hands. In other words, revenues are recorded when they occur—when
they’re earned, and expenses are recorded when they’re incurred. Under cash accounting, revenues are
recognised only when the company receives cash or its equivalent, and expenses are recognised only when the
company pays with cash or its equivalent. For example, say we have a ticketing business that sells multiple
tickets to a customer with the promise to deliver the tickets in 7 days. Any money received by the business up
front is treated as a liability under the accrual basis, specifically ‘Unearned revenue.’ This is because, while the
business has received money, it hasn’t discharged its obligations to the customer, i.e., it hasn’t delivered the
tickets. Therefore, the business has a present obligation to deliver the tickets. Once the tickets have been
delivered, the business is said to have earned its revenue. On the other hand, under cash accounting, once the
business receives cash, revenue is recorded, irrespective of when it performs its substantive obligations to its
customer. Cash is king, in other words.
The question asks us to determine the cash profit for 2011; therefore, we must concentrate on cash receipts and
cash payments, and disregard accrual based entries and accounts.
B - Credit Sales: We would include credit sales in accrual calculations, but not in cash accounting—not until the
cash owed to us is received. A credit sale is a sale to a customer where money is not paid on delivery or
completion of service, but at a later date, expressly stated in the payment terms, which generally appear on the
sale invoice. Thus, we would not include this figure.
C - Cash received from accounts receivables: Part of cash basis accounting. Cash is being received.
D - Wages Paid: Part of cash basis accounting. An expense—wages expense—is paid.
E - Wages owing at the end of the year: A business may have wages owing at the end of the year, and will be
expected to pay it sometime in the future, but until that date—a cash accounting system remains unaffected.
Once the wages that are owed are paid, they’ll be processed by the cash accounting system.
Thus, 10,000 + 22,000 – 8,000 = 24,000
 Question 11
0 out of 1 points
A customer provides a deposit of $500 000 near year-end. The product will not be delivered until next year. This
transaction will:
Answer
Selected Answer:
increase cash but not increase net profit or total assets
Correct Answer:
Response Generally, a company records its revenue only when delivery of the product occurs. It is at the point of delivery
Feedback: that the company would discharge its obligations to a customer by delivering the product it had promised to
deliver in exchange for monies or monies worth.
Cr Unearned Revenue 500,000 – the product hasn’t been delivered yet; therefore, the revenue has not be
earned.
Unearned revenue is a liability account because it reflects the fact that the company still has a present
obligation to deliver the product it promised to deliver to the customer.
 Question 12
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response Before financial statements are prepared, additional journal entries, called adjusting entries, are made to ensure
Feedback: that the company's financial records adhere to the revenue recognition and matching principles. For example,
suppose in similar fashion to the question above, a company has a $5,200 debit balance in its supplies account at
June 30, but a count of supplies on hand at June 30 finds only $1,200 of them remaining. Since supplies of
$4,000 have been used up, the supplies account requires a $4,000 adjustment so assets are not overstated, and the
supplies expense account requires a $4,000 adjustment so expenses are not understated.

Cr Supplies 4,000
Answer c.
 Question 13
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
10 months have passed between September 1, 2010 and June 30, 2011. Therefore, Choo needs to accrue and
record 10 months worth of interest revenue.
Interest revenue per annum = 200,000 * 12% = 24,000, but since only 10 months have passed, Choo must
adjust accordingly:
10/12 x 24,000 = 20,000
Answer b.
 Question 14
0 out of 1 points
Answer
Selected Answer:
purchase of inventory
Correct Answer:
none of the above
Response Prepaid insurance: Prepayments are assets that become expenses as they expire or get used up. Through passage
Feedback: of time we recognise the portion of prepaid insurance that has become an actual expense. The portion that is
used up through use or passage of time is recorded as an expense.
Dividends are not expenses, they’re distributions of profits. Just like a sole trader is entitled to the profits of
his/her business, a shareholder is entitled to profits from his/her investment. Further, a company isn’t obligated
to pay out dividends, and may reinvest the profits back into the company (retained earnings). There are no legal
Purchase of inventory. Inventory purchased is an asset, in accordance with the definition of an asset contained in
the accounting standards, which states that assets are resources controlled by an entity as a result of past events
 Question 15
1 out of 1 points
Answer
Selected Answer:
None of the above
Correct Answer:
None of the above
Response In order to qualify as a financial accounting transaction, an event must normally have all five of the following
Feedback: characteristics:
A - Exchange: The event must involve an exchange of goods, money, cheques, legal promises or other items of
economic value;
B - Past: The exchange must have happened, even if just seconds good (remember—financial accounting is
essentially an historical information system);
C - External: The exchange must have been between the entity being accounted for and someone else.
D - Evidence: There must be some documentation of what has happened (recorded on paper or electronically)
E - Dollars: The event must be measurable in dollars (monetary concept) or the currency unit relevant in the
country where the transaction happens.
Answer Options:
A - Making a purchase order lacks exchange. Event A is recorded by the accounting system only when the item
ordered is delivered;
B - Establishing a bank overdraft is a precursor to an exchange; it’s not until the entity begins drawing down its
bank overdraft that a transaction occurs.
C - Hiring a new staff member is an internal transaction, lacking in substantive exchange, besides a legal
promise to perform contracted work on the part of the new staff member and a promise to remunerate the staff
member on the part of the entity. Also, the event is not measurable in dollars, failing the monetary assumption
that underpins the preparation and presentation of financial statements.
Therefore, D is the correct answer because the transactions above fail to meet the criteria that would be
necessary for them to be recorded by a financial accounting system.
 Question 16
1 out of 1 points
Management uses the percentage-of-sales approach method to calculate the allowance for doubtful debts. Management
calculated the allowance for doubtful debts on the basis of 2% of sales. However, by year-end it was aware that the rate
should have really been 3% of sales. Management does not adjust the allowance for doubtful debts at year-end. As a result:
Answer
Selected Answer:
assets are overstated, and net profit is overstated
Correct Answer:

Response Under the indirect method, an adjustment is made at the end of each accounting period to estimate bad debts
Feedback: based on business activity from the accounting period. The adjusting entry to estimate expected bad debt does
not reduce accounts receivable directly. The entry is Debit bad debt expense and credit Allowance for Doubtful
Debt. In the question, we are told management underestimates bad debts for the period. We know this because
the question tells us that the rate at which bad debt expense as proportion of sales should have been calculated at
was 3% rather than the 2% that was used by management. Thus, assets are overstated and profits are overstated.
In other words, bad debts expense should have been 1% higher, which would have reduced profits and increased
allowance for doubtful debts, which would have reduced the net realisable value of Accounts Receivable,
thereby reducing total assets.
 Question 17
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response Answer is C. No
Feedback: matter how sound an internal control system is, it cannot eliminate all errors and irregularities.
 Question 18
1 out of 1 points
information?
Answer
Selected Answer:
Correct Answer:
Response A bond is a type of debt instrument whereby the issuer of a bond, the corporation in this case, borrows money
Feedback: from an investor(s) by issuing a bond for a defined period of time (e.g. 15 years) at a fixed interest rate. The
bond states the interest rate that will be paid and when the loaned funds (bond principal) are to be returned
(maturity date).
Given the duration of the bond (15 years), its holders would be most interested in information concerning long-
term financial stability. Bondholders want to receive interest payments for the duration of the bond (15 years)
and to have their principal amount returned to them on the day the bond matures (sometime in the 15 th year).
Thus, information concerning long-term financial stability would take precedence.
 Question 19
1 out of 1 points
At year-end Shifty Ltd had a balance of Accounts Receivable of $90 000 and an Allowance for Doubtful Debts of $4000. It
was decided to write off the debt of Wriggler totalling $2500 as irrecoverable. It was further decided that the Allowance for
What was the journal entry needed to bring the Allowance for Doubtful Debts to the required level after writing off the
debt of Wriggler?
Answer
Selected Answer:
Correct Answer:
Response One way companies derive an estimate for the value of bad debts under the indirect method is to calculate bad
Feedback: debts as a percentage of the accounts receivable balance. Our first step in answering this question is to determine
at what level the allowance for doubtful debts should stand at. But before we do so, we must first factor in
Wriggler’s irrecoverable amount. We know that under the indirect method once an amount is deemed
uncollectible we simply reduce accounts receivable and allowance for bad debt by equal amounts; a debit to
allowance for doubtful debts, the contra-asset account, and a credit to accounts receivable account. Currently,
Allowance for Doubtful Debt has a balance of $4,000. Thus, when we factor in wriggler’s $2,500 irrecoverable
amount, the new balance is $1,500, and net accounts receivable is $87,500.
Now we’re ready to determine what level the Allowance for doubtful debt should stand at. 5% of $87,500 is
equal to $4,375. Thus, in order for the Allowance for Doubtful Debt account to stand at, or equal, $4,375, we
need to increase the Allowance for Doubtful debt account by a $2,875 ($4,375-$1,500) bad debt expense.
Given the reasoning above, the answer is D—Dr bad debt expense 2875, and Cr allowance for doubtful debt
2,875, which increases the allowance to the required percentage level (5% of $87,500, or $4,375).
 Question 20
1 out of 1 points
Answer
Selected Answer:
Correct Answer:

Response Banks often require customers to pay monthly account fees. Automatic withdrawals, like a bank service charge,
Feedback: are often brought to the company’s attention for the first time when the bank statement is received. Unrecorded
service charges must therefore be subtracted from the company’s book balance on the bank reconciliation;
otherwise, cash as per company records is overstated. Automatic withdrawals or deposits, that automatically get
processed by the bank and appear on the company’s bank statement, must be accounted for in the company’s
books when performing the bank reconciliation.
 Question 21
1 out of 1 points
Answer
Selected Answer:
materiality
Correct Answer:
materiality
A - Materiality: This principle states that the requirements of any accounting principle may be ignored when
there is no effect on the users of financial information. Professional judgement is needed to decide whether an
amount is insignificant or immaterial.
C - Accounting Period: The life of a business needs to be divided into discrete periods to evaluate performance
for that period. Dividing the life of an organisation into equal periods to determine profit or loss for that period
is known as the accounting period assumption.
D - Accounting Entity. The accounting entity is separate and distinguishable from its owners. What this means is
purchase. Thus, sound accounting judgement would suggest that it’s more appropriate to treat the transaction as
an expense rather than an asset, and this thinking is in line with the materiality assumption.
 Question 22
1 out of 1 points
The life of a business is divided into equal periods to determine profit or loss for that period. What assumption/concept
Answer
Selected Answer:
accounting period
Correct Answer:
accounting period
 Question 23
1 out of 1 points

Debit Credit
On 1 October 2009, an account for $1600 was determined to be uncollectable. The journal entry to be made on that date
would include a debit to:
Answer
Selected Answer:
Correct Answer:
 Question 24
1 out of 1 points
Answer
Selected Answer:
current liability
Correct Answer:
current liability
 Question 25
1 out of 1 points
Answer
Selected
Answer:
an amount that is deducted from the Accounts Receivable account to reduce it to the estimated realisable
value
Correct Answer:
value
Response See textbook for definition, but the Answer is C. Under the indirect method, an adjustment is made at the end of
Feedback: each accounting period to estimate bad debts based on business activity from the accounting period. Thus, A is
not the answer as allowance for doubtful debt estimates likely bad debts (but we have not yet written off the
accounts yet). Neither is it B, which is off-topic, nor D, because at the point of using the indirect method, a
business is merely making concessions for uncollectible amount but has yet deemed them to be uncollectible.
 Question 26
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Feedback: memoranda to notify companies about automatic withdrawals. A customer who owes you money may write you
a cheque and when you deposit it, you would record in your books:
DR Cash
However, when a cheque is recorded by the bank as NSF, the customer has insufficient funds in their account to
back up the payment they made by cheque. Accordingly, you have not received the cash that you have recorded
in your journals and you will need to reverse the recording of the cash and reduction in Accounts Receivable as
the debtor still owes you money, hence:
CR Cash
 Question 27
1 out of 1 points
Answer
Selected Answer:
accounts payable
Correct Answer:
accounts payable
Response Account classification takes time and comes with practice and interaction with accounting material, whether
Feedback: online, in our textbook, or in daily life. Without even studying accounting, we can intuitively classify items as
assets or liabilities, a knowledge we gain by simply interacting with the world around us; but there are specific
accounting definitions to many of the items we intuit.
In accounting, the current or non-current distinction simply refers to the liquidity of a given item, the time it
takes for it to be converted into cash, in the case of an asset, or for an obligation to be met, in the case of a
liability. A current liability is an obligation that will be met within one financial year. Thus, by a process of
elimination, the answer is B. Not only is B the only liability, but it is also generally considered to be a current
liability, because it is customary for suppliers to be repaid within one financial year.
 Question 28
1 out of 1 points
The statement that compares the balance as shown in the bank’s records with the balance in the Cash at Bank account at a
particular date is known as the:
Answer
Selected Answer:
Correct Answer:
Response A bank reconciliation statement aids a business in indentifying the differences between the company’s
Feedback: records and the bank’s records. B is the answer.
 Question 29
1 out of 1 points
The purpose of dividing assets and liabilities into current and non-current classes is to help the reader of the balance sheet
to determine:
Answer
Selected Answer:
both A and B
Correct Answer:
both A and B
Response The terms current and short-term are used interchangeably in accounting, and so are non-current and long-term.
Feedback: The difference between current and non-current classes is really a question of liquidity. In arranging asset and
liability items in a balance sheet, we create two classes: current and non-current. This arrangement facilitates
review of the balance sheet information by interested parties and reflects a difference of liquidity, with current
classes of assets and liabilities determinative of short-term financial position, and non-current classes of assets
and liabilities determinative of long-term financial position. Thus, the answer is D.
indicator of future financial performance; moreover, the information presented in financial statements is
historical, and past performance is not always an accurate indicator of future performance.
 Question 30
1 out of 1 points

Answer
Selected Answer:
$210 000
Correct Answer:
$210 000
Feedback: In this particular question we add up the accounts that make up shareholders’ equity and liabilities to
determine total assets.
100,000 + 80,000 + 30,000 = 210,000.
 Question 1
1 out of 1 points
A customer provides a deposit of $500 000 near year-end. The product will not be delivered
until next year. This transaction will:
Answer
Selected Answer:
Correct Answer:
Response Generally, a company records its revenue only when delivery of the product occurs.
Feedback: It is at the point of delivery that the company would discharge its obligations to a
customer by delivering the product it had promised to deliver in exchange for
monies or monies worth.
Cr Unearned Revenue 500,000 – the product hasn’t been delivered yet; therefore,
the revenue has not be earned.
Unearned revenue is a liability account because it reflects the fact that the company
still has a present obligation to deliver the product it promised to deliver to the
customer.
Thus, total assets increase because cash increases but net profit remains unchanged –
c.
 Question 2
0 out of 1 points
Answer
Selected Answer:
Correct Answer:
 Question 3
1 out of 1 points
Shareholders invest $100 000 in a business. $80 000 worth of inventory was bought on credit,
and of that, $10 000 worth of damaged inventory was returned. Equipment costing $200 000
was purchased, which was financed by a loan from the seller, repayable in 5 years. The
business paid $40 000 to accounts payable. Total assets increased by:
Answer
Selected Answer:
$330 000
Correct Answer:
$330 000
Feedback: 100,000 (investment) = 100,000 + 0
80,000 (inventory) = 100,000 + 80,000
200,000 (Equipment) = + 200,000
– 40,000 = - 40,000
Change in Assets= 100,000 + 80,000 – 10,000 + 200,000 – 40,000 =
330,000
 Question 4
1 out of 1 points
If we pay a 12-month insurance premium of $600 on 1 February 2011, at 30 June 2011 the
prepayment will be equal to:
Answer
Selected Answer:
$350
Correct Answer:
$350
Response Prepayments are assets that become expenses as they expire or get used up. Through
Feedback: passage of time we recognise the portion of prepaid insurance that has become an
actual expense. Through the passage of time—between the 1st of February and the
30th of June—we must recognise the portion of prepaid insurance that has become an
actual expense. 5 months of insurance has been used up; thus, on the 30th
June the insurance expense that would get recorded would be 5/12 x 600 =250.
 Question 5
1 out of 1 points
Answer
Selected Answer:
monetary concept
Correct Answer:
monetary concept
 Question 6
1 out of 1 points
Working capital is calculated as current assets less current liabilities. Consider the following
summarised balance sheet of Apcor Ltd at 30 June 2011:

Answer
Selected Answer:
$200 000
Correct Answer:
$200 000
500,000 – 300,000 = $200,000
 Question 7
1 out of 1 points
the appropriate treatment for monthly service charge appearing on the bank statement, $45, is
to:
Answer
Selected Answer:
Correct Answer:
Response Banks often require customers to pay monthly account fees. Automatic withdrawals,
Feedback: like a bank service charge, are often brought to the company’s attention for the first
time when the bank statement is received. Unrecorded service charges must therefore
be subtracted from the company’s book balance on the bank reconciliation;
otherwise, cash as per company records is overstated. Automatic withdrawals or
deposits, that automatically get processed by the bank and appear on the company’s
bank statement, must be accounted for in the company’s books when performing the
bank reconciliation.
 Question 8
0 out of 1 points

Answer
Selected Answer:
$14 000
Correct Answer:
$24 000
Feedback: accounting period in which it occurs, regardless of when cash changes hands. In
other words, revenues are recorded when they occur—when they’re earned, and
promise to deliver the tickets in 7 days. Any money received by the business up front
is treated as a liability under the accrual basis, specifically ‘Unearned revenue.’ This
is because, while the business has received money, it hasn’t discharged its
obligations to the customer, i.e., it hasn’t delivered the tickets. Therefore, the
business has a present obligation to deliver the tickets. Once the tickets have been
delivered, the business is said to have earned its revenue. On the other hand, under
cash accounting, once the business receives cash, revenue is recorded, irrespective of
when it performs its substantive obligations to its customer. Cash is king, in other
words.
The question asks us to determine the cash profit for 2011; therefore, we must
concentrate on cash receipts and cash payments, and disregard accrual based entries
and accounts.
B - Credit Sales: We would include credit sales in accrual calculations, but not in
cash accounting—not until the cash owed to us is received. A credit sale is a sale to a
customer where money is not paid on delivery or completion of service, but at a later
date, expressly stated in the payment terms, which generally appear on the sale
invoice. Thus, we would not include this figure.
C - Cash received from accounts receivables: Part of cash basis accounting. Cash is
being received.
D - Wages Paid: Part of cash basis accounting. An expense—wages expense—is
paid.
E - Wages owing at the end of the year: A business may have wages owing at the end
of the year, and will be expected to pay it sometime in the future, but until that
date—a cash accounting system remains unaffected. Once the wages that are owed
are paid, they’ll be processed by the cash accounting system.
Thus, 10,000 + 22,000 – 8,000 = 24,000
 Question 9
1 out of 1 points
In profit measurement, private transactions of owners are not taken into account. What
Answer
Selected Answer:
accounting entity
Correct Answer:
accounting entity
Feedback: preparation of financial statements, some of which are mentioned in the answers.
 Question 10
0 out of 1 points
Accompanying the bank statement was a debit memorandum for an NSF (not sufficient funds)
cheque received from a customer. What entry is required in the company’s accounts?
Answer
Selected Answer:
Dr Other Revenue Cr Cash
Correct Answer:
Response Companies may authorise a bank to automatically transfer funds into or out of their
Feedback: account. Banks use debit memoranda to notify companies about automatic
withdrawals. A customer who owes you money may write you a cheque and when
you deposit it, you would record in your books:
DR Cash
However, when a cheque is recorded by the bank as NSF, the customer has
insufficient funds in their account to back up the payment they made by cheque.
Accordingly, you have not received the cash that you have recorded in your journals
and you will need to reverse the recording of the cash and reduction in Accounts
Receivable as the debtor still owes you money, hence:
CR Cash
 Question 11
0 out of 1 points

Answer
Selected Answer:
$10 000
Correct Answer:
$11 000
Net Profit = 15,000 – 1,500 – 1,000 – 1,500 = 11,000 – d.
 Question 12
1 out of 1 points

Answer
Selected Answer:
accounts payable
Correct Answer:
accounts payable
Response Account classification takes time and comes with practice and interaction with
Feedback: accounting material, whether online, in our textbook, or in daily life. Without even
studying accounting, we can intuitively classify items as assets or liabilities, a
knowledge we gain by simply interacting with the world around us; but there are
specific accounting definitions to many of the items we intuit.
In accounting, the current or non-current distinction simply refers to the liquidity of a
given item, the time it takes for it to be converted into cash, in the case of an asset, or
for an obligation to be met, in the case of a liability. A current liability is an
obligation that will be met within one financial year. Thus, by a process of
elimination, the answer is B. Not only is B the only liability, but it is also generally
considered to be a current liability, because it is customary for suppliers to be repaid
within one financial year.
 Question 13
0 out of 1 points


Answer
Selected Answer:
Purchase of inventory on credit
Correct Answer:
 Question 14
1 out of 1 points
the appropriate treatment for a cheque outstanding at end of month, $450, is to:
Answer
Selected Answer:
Correct Answer:
Response Outstanding cheques. A cheque that a company mails to a creditor may take
Feedback: several days to pass through the mail, be processed and deposited by the creditor, and
then clear the banking system. Therefore, company records may include a number of
cheques that do not appear on the bank statement. These are called outstanding
cheques and cause the bank statement balance to overstate the company’s actual cash
balance (as per bank records). Since outstanding cheques have already been recorded
in the company’s books as cash payments, they must be subtracted from the bank
statement balance.
 Question 15
0 out of 1 points

Answer
Selected Answer:
decrease total assets but have no effect on profit or shareholders’ equity
Correct Answer:
Response Dividends are a distribution of a corporation’s profits to its shareholders. Dividends
Feedback: are not an expense of a corporation and, therefore, dividends do not reduce taxable
income or net profit. Dividends on ordinary shares are not legally required; therefore,
unlike other expenses and liabilities, if a corporation does not declare a dividend
there are no adverse legal ramifications for omitted dividends.
Cr Cash xx
Remember, Retained Earnings = Opening Retained Earnings + Net Profit/Loss for
the period – Dividends. Thus, when dividends are declared, retained earnings is
debited (decreased), regardless of whether the dividend is or is not paid immediately.
The answer is A because Assets decrease (cash decreases) and shareholders’ Equity
decreases (Retained earnings decreases).
 Question 16
0 out of 1 points
The purpose of dividing assets and liabilities into current and non-current classes is to help the
reader of the balance sheet to determine:
Answer
Selected Answer:
the likely future financial performance of the firm
Correct Answer:
both A and B
Response The terms current and short-term are used interchangeably in accounting, and so are
Feedback: non-current and long-term. The difference between current and non-current classes is
really a question of liquidity. In arranging asset and liability items in a balance sheet,
we create two classes: current and non-current. This arrangement facilitates review
of the balance sheet information by interested parties and reflects a difference of
liquidity, with current classes of assets and liabilities determinative of short-term
financial position, and non-current classes of assets and liabilities determinative of
long-term financial position. Thus, the answer is D.
C is incorrect because focusing solely on the division between current and non-
current classes is an insufficient indicator of future financial performance; moreover,
the information presented in financial statements is historical, and past performance
is not always an accurate indicator of future performance.
 Question 17
1 out of 1 points
Choo Ltd invested $200 000 with a bank for one year at 12% on 1 September 2010 (interest
payable at end of loan). What is the adjusting journal entry at balance date, 30 June 2011?
Answer
Selected Answer:
Correct Answer:
Response An adjusting entry to accrue revenues is necessary when revenues have been earned
Feedback: but not yet received. An example of an accrued revenue would be interest revenue.
At the end of each accounting period, the company recognises the interest revenue
that has accrued.
10 months have passed between September 1, 2010 and June 30, 2011. Therefore,
Choo needs to accrue and record 10 months worth of interest revenue.
Interest revenue per annum = 200,000 * 12% = 24,000, but since only 10 months
have passed, Choo must adjust accordingly:
10/12 x 24,000 = 20,000
Answer b.
 Question 18
1 out of 1 points
Answer
Selected Answer:
current liability
Correct Answer:
current liability
 Question 19
0 out of 1 points
The balance of retained profits at the beginning of a period was $1000 and at the end of the
period $850. A dividend of $50 was declared and paid. What was the net profit/loss for the
period?
Answer
Selected Answer:
net loss $200
Correct Answer:
net loss $100
Response At the end of an accounting period, usually one financial year, accountants close off
Feedback: temporary accounts: income and expense accounts. The reason for this is twofold: (1)
To reset the accounts for the next period, and (2) To transfer the net profit or loss
from the income statement to retained earnings. Hence we have the equation below:
The question asks us to determine net profit or loss for the period, and we can setup
the following identity, based on the information provided and the equation above, to
help us solve the question:
850 = 1000 + X – 50
900 = 1000 + X
X = - 100
Remember, not all cash distributions or payments are expenses. Cash can be used to
buy assets or distribute profits, for example. Dividends are distributions of profits to
owners: the shareholders. Like a sole trader is entitled to the profits of his/her
business, a shareholder is entitled to the profits of the business he/she has invested in.
 Question 20
1 out of 1 points

Answer
Selected Answer:
Correct Answer:
Response A, B, and C are all increases in sources of finance, the right-hand side of the
Feedback: accounting equation.
Assets = Shareholders’ Equity/Owners’ Equity + Liabilities.
Accounts that fall under the right-hand side of the accounting equation have as their
normal balance an entry on the right-hand side (credit balance) and are increased by
credit entries and decreased by debit entries.
Owners’ Equity has a credit balance; therefore, to decrease an account with a credit
balance you must debit it –d.
 Question 21
0 out of 1 points

Debit Credit
Answer
Selected Answer:
Bad Debts Expense
Correct Answer:
Feedback: reduce accounts receivable and allowance for bad debts by equal amounts. To reduce
an asset account we credit it, and to reduce a contra-asset account (like allowance for
doubtful debt) we debit it. Thus, the answer is C.
 Question 22
0 out of 1 points
Patrick is a part-time accounting student who does tennis coaching during the day. He receives
revenue of $30 000 from clients for coaching and ball sales during the year. At year-end,
Patrick coaches one client who owes him $200 for the lesson. He paid out $10 000 for court hire
and purchase of tennis balls for resale. He owes $1000 to the court owner at year-end.
Depreciation on his equipment amounts to $400. Accrual profit is:
Answer
Selected Answer:
$19 000
Correct Answer:
$18 800
Feedback: accounting period in which the event occurs, regardless of when cash changes hands.
In other words, revenues are recorded when they occur (when they’re earned), and
promise to deliver the tickets in 7 days. Any money received by the ticketing
business up front, before the tickets have been delivered, is treated as a liability
under the accrual basis, specifically ‘Unearned revenue.’ This is because, while the
business has received money, it hasn’t discharged its obligations to the customer—it
hasn’t delivered the tickets. Therefore, the business has a present obligation to
deliver tickets. Once the tickets have been delivered, the business is said to have
earned its revenue. On the other hand, under cash accounting, once the business
receives cash, revenue is recorded, irrespective of when it performs its substantive
obligations for its customer. Cash is king, in other words.
The question asks us to determine Patrick’s accrual profit, so we must include
accrual accounts and entries.
Accrual Profit = 30,000 (revenue) + 200 (credit sale) – 10,000 (court hire + tennis
balls sold) – 1,000 (rent expense) – 400 (depreciation expense) = $18,800.
 Question 23
1 out of 1 points

Answer
Selected
Correct
 Question 24
1 out of 1 points
account is to:
Answer
Selected Answer:
Correct Answer:
receives automatic fund transfers from customers. A bank uses a credit memorandum
to notify companies about automatic deposits. The name applied to this
memorandum may sound confusing at first glance because we usually interpret a
 Question 25
0 out of 1 points
Answer
Selected Answer:
bank statement
Correct Answer:
 Question 26
0 out of 1 points
Which of the following is NOT a way that management can establish proper control over the
enterprise’s affairs?
Answer
Selected Answer:
rotation of employees over a range of jobs
Correct Answer:
Response A sound system of internal control demands segregation of duties. The employee
Feedback: who records transactions should be different from the employee who handles the
assets. Having different employees perform these tasks helps minimise potential for
theft and misuse of assets. For example, if the asset was cash – it would not make
sense to have the same employee handle the cash and record how much of it there is.
A misappropriation could occur without anyone even realising! Thus, the answer is
B.
 Question 27
0 out of 1 points

Answer
Selected Answer:
$290 000
Correct Answer:
$210 000
Assets
100,000 + 80,000 + 30,000 = 210,000.
 Question 28
0 out of 1 points
At year-end Shifty Ltd had a balance of Accounts Receivable of $90 000 and an Allowance for
Doubtful Debts of $4000. It was decided to write off the debt of Wriggler totalling $2500 as
irrecoverable. It was further decided that the Allowance for Doubtful Debts should stand at
5% of Accounts Receivable.
Answer
Selected
Answer: Dr Bad Debts Expense..........$2500 Cr Accounts Receivable..........$2500
Correct Answer:
Dr Allowance for Doubtful Debts..........$2500 Cr Accounts
Receivable..........$2500
Feedback: reduce accounts receivable and allowance for bad debts by equal amounts, a debit to
allowance for doubtful debts, the contra-asset account, and a credit to accounts
receivable account. To reduce an asset account we credit it, and to reduce a contra-
asset account (like allowance for doubtful debt) we debit it. Thus, the answer is C.
 Question 29
1 out of 1 points
Answer
Selected Answer:
net profit
Correct Answer:
net profit
Response Net profit for the year appears in the income statement, and this amount increases
Feedback: retained profits, which appears in the balance sheet under shareholders’ equity. By
closing off temporary accounts (income statement accounts) at the end of the period,
we transfer net profit or loss for the period to retained earnings.
Retained Earnings = Opening Retained Earnings + Net Profit or Loss for the period –
Dividends
The answer is a choice between B and D, but D is the stronger answer because it is
the profit or loss at the end of the period that connects the two statements together.
Although opening retained profits is the sum of all the net profits a company has ever
made up to the start of a given accounting period, these net profits sit in the retained
earnings account, which is a balance sheet account.
 Question 30
1 out of 1 points

Answer
Selected Answer:
None of the above
Correct Answer:
None of the above
Response In order to qualify as a financial accounting transaction, an event must normally have
Feedback: all five of the following characteristics:
A - Exchange: The event must involve an exchange of goods, money, cheques, legal
promises or other items of economic value;
B - Past: The exchange must have happened, even if just seconds good (remember—
financial accounting is essentially an historical information system);
C - External: The exchange must have been between the entity being accounted for
and someone else.
D - Evidence: There must be some documentation of what has happened (recorded
on paper or electronically)
E - Dollars: The event must be measurable in dollars (monetary concept) or the
currency unit relevant in the country where the transaction happens.
Answer Options:
A - Making a purchase order lacks exchange. Event A is recorded by the accounting
system only when the item ordered is delivered;
B - Establishing a bank overdraft is a precursor to an exchange; it’s not until the
entity begins drawing down its bank overdraft that a transaction occurs.
C - Hiring a new staff member is an internal transaction, lacking in substantive
exchange, besides a legal promise to perform contracted work on the part of the new
staff member and a promise to remunerate the staff member on the part of the entity.
Also, the event is not measurable in dollars, failing the monetary assumption that
underpins the preparation and presentation of financial statements.
Therefore, D is the correct answer because the transactions above fail to meet the
criteria that would be necessary for them to be recorded by a financial accounting
system.
Question 1
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
 Question 2
1 out of 1 points
In preparing a bank reconciliation statement for a business with a substantial bank balance, the appropriate treatment
for a deposit for $2300 not appearing on the bank statement is to:
Answer
Selected Answer:
Correct Answer:
Response Deposits in transit: Companies may frequently make cash deposits. Therefore, the company’s records may
Feedback: show one or more deposits, usually made on the last day, that do not appear on the bank statement. These
deposits are called deposits in transit and cause the bank statement balance to understate the company’s actual
cash balance. Since these deposits have already been recorded in the company’s books as cash receipts, they
must be added to the bank statement balance.
 Question 3
1 out of 1 points

Answer
Selected Answer:
$11 000
Correct Answer:
$11 000
Net Profit = 15,000 – 1,500 – 1,000 – 1,500 = 11,000 – d.
 Question 4
1 out of 1 points
Shareholders invest $100 000 in a business. $80 000 worth of inventory was bought on credit, and of that, $10 000 worth
of damaged inventory was returned. Equipment costing $200 000 was purchased, which was financed by a loan from the
seller, repayable in 5 years. The business paid $40 000 to accounts payable. Total assets increased by:
Answer
Selected Answer:
$330 000
Correct Answer:
$330 000
100,000 (investment) = 100,000 + 0
80,000 (inventory) = 100,000 + 80,000
200,000 (Equipment) = + 200,000
– 40,000 = - 40,000
Change in Assets= 100,000 + 80,000 – 10,000 + 200,000 – 40,000 = 330,000
 Question 5
1 out of 1 points
The purpose of dividing assets and liabilities into current and non-current classes is to help the reader of the balance
sheet to determine:
Answer
Selected Answer:
both A and B
Correct Answer:
both A and B
 Question 6
1 out of 1 points
Answer
Selected Answer:
$32 000
Correct Answer:
$32 000
Response An adjusting entry to accrue expenses is necessary when there are unrecorded expenses and liabilities that apply
Feedback: to a given accounting period. These expenses may include, like in this question, wages for work performed in
the current accounting period (2011 Financial year) but not paid until the following accounting period (2012
Financial Year)
Able operates on a five-day working week, from Thursday to Wednesday, with payment on the Thursday for
work completed to Wednesday. If 30 June 2011 fell on a Tuesday, adjusting entries must be entered to accrue
wages for the four days the employees have worked, from Thursday 25 June 2011 to Tuesday 30th June 2011.
Thus, four days wages must be accrued.
4/5 x 40,000 = $32,000 – c.
 Question 7
1 out of 1 points
Answer
Selected Answer:
current liability
Correct Answer:
current liability
 Question 8
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
suppose in similar fashion to the question above, a company has a $5,200 debit balance in its supplies account
at June 30, but a count of supplies on hand at June 30 finds only $1,200 of them remaining. Since supplies of
$4,000 have been used up, the supplies account requires a $4,000 adjustment so assets are not overstated, and
the supplies expense account requires a $4,000 adjustment so expenses are not understated.

Cr Supplies 4,000
Answer c.
 Question 9
1 out of 1 points
Answer
Selected
Answer: an amount that is deducted from the Accounts Receivable account to reduce it to the estimated realisable
value
Correct Answer:
value
 Question 10
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Accounts that fall under the right-hand side of the accounting equation have as their normal balance an entry
on the right-hand side (credit balance) and are increased by credit entries and decreased by debit entries.
Owners’ Equity has a credit balance; therefore, to decrease an account with a credit balance you must debit it
–d.
 Question 11
0 out of 1 points
Answer
Selected Answer:
Dr Accounts Payable Cr Electricity Expense
Correct Answer:
Feedback: consumer must recognise the electricity expense and the associated liability because he/she has used up
electricity and has a present obligation to pay the power company in the future. Hence the answer is A.
 Question 12
1 out of 1 points
Answer
Selected Answer:
$60,000
Correct Answer:
$60,000
Response In accounting, Gross Profit is the difference between revenue and the cost of making a product or providing
Feedback: a service, before deducting operating expenses.
= 100,000 – 40,0000 = 60,000
 Question 13
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Cr Cash 10,000
As a result, an asset would decrease, specifically cash, and a liability would also decrease, specifically
accounts payable – b.
 Question 14
1 out of 1 points
Answer
Selected Answer:
Accounts Receivable
Correct Answer:
Accounts Receivable
accounts, balance sheet accounts—assets, liabilities, and shareholders’ equity, continue on year-to-year and are
not closed off, for it would not make sense to close off a balance sheet account: businesses don’t start re-
accumulating assets they already have in the New Year. For example, if you ended with $500 worth of
inventory in 2011, then you open with $500 worth of inventory in 2012. Your inventory account would not start
off with a zero balance in the New Year.
A-C are income statement accounts and would all be closed off at the end of the year. The only item that
wouldn’t be closed off is D, because it’s a permanent account and appears on the balance sheet.
 Question 15
1 out of 1 points
Using the Australian dollar to measure accounting transactions allows comparisons across periods. What
Answer
Selected Answer:
monetary concept
Correct Answer:
monetary concept
A - Accounting Entity. The accounting entity is separate and distinguishable from its owners. What this means
is that business records must not include the personal assets or liabilities of the owners. For example, a
company is a separate entity from its shareholders (owners); similarly, the accounting entity of a sole trader is
separate from the affairs of the owner.
C - Historical Cost: According to the historical cost principle, assets are initially recorded at cost, which equals
the value exchanged at the time of their acquisition
 Question 16
1 out of 1 points
The statement that compares the balance as shown in the bank’s records with the balance in the Cash at Bank account
at a particular date is known as the:
Answer
Selected Answer:
Correct Answer:
Response A bank reconciliation statement aids a business in indentifying the differences between the company’s
Feedback: records and the bank’s records. B is the answer.
 Question 17
1 out of 1 points
T Ltd paid $240 000 in wages during the year. The opening balance of Accrued Wages was $8000 and the closing
balance was $10 000. What was the wages expense for the year?
Answer
Selected Answer:
$242 000
Correct Answer:
$242 000
Feedback: Accrued Wages or Wages
Payable
240,000 o/b 8,000
(Wages Paid)
c/b 10,000 X
(Wages
Expense)
250,000 250,000
o/b 10,000
An adjusting entry to accrue expenses is necessary when there are unrecorded expenses and liabilities that apply
to a given accounting period. These expenses may include, like in this question, wages. T Ltd accrues wages
when they’ve been incurred but not paid. In answering the question through the use of t-accounts, you need to
first consider what the account is telling you.
The right-hand side of the account, the credit side, records accrued wages—wages that have been incurred but
not yet paid, e.g.
Dr Wages Expense x

Cr Cash x
10,000 = 8,000 + X – 240,000
X = $242,000
 Question 18
1 out of 1 points
Management uses the percentage-of-sales approach method to calculate the allowance for doubtful debts. Management
calculated the allowance for doubtful debts on the basis of 2% of sales. However, by year-end it was aware that the rate
should have really been 3% of sales. Management does not adjust the allowance for doubtful debts at year-end. As a
result:
Answer
Selected Answer:
Correct Answer:
Response Under the indirect method, an adjustment is made at the end of each accounting period to estimate bad debts
Feedback: based on business activity from the accounting period. The adjusting entry to estimate expected bad debt does
not reduce accounts receivable directly. The entry is Debit bad debt expense and credit Allowance for Doubtful
Debt. In the question, we are told management underestimates bad debts for the period. We know this because
the question tells us that the rate at which bad debt expense as proportion of sales should have been calculated at
was 3% rather than the 2% that was used by management. Thus, assets are overstated and profits are overstated.
In other words, bad debts expense should have been 1% higher, which would have reduced profits and increased
allowance for doubtful debts, which would have reduced the net realisable value of Accounts Receivable,
thereby reducing total assets.
 Question 19
0 out of 1 points
Red Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ. XYZ has accounts receivable of $12 million and an
allowance for doubtful debts of $500 000. XYZ does not adjust the accounts for the $10 000 that will not be paid by Red
Shoes Ltd. Which of the following statements is true about the balance sheet of XYZ?
Answer
Selected Answer:
Correct Answer:
Response In the above question, XYZ has already made concessions for the possibility that $500,000 might not be
Feedback collectible. Included in this estimate is the $10,000, which has been deemed irrecoverable. Under the indirect
: method, a subsequent write-off does not change the net realisable value of accounts receivable. It simply reduces
accounts receivable and allowance for bad debt by equal amounts.
 Question 20
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
B - Cost of Sale

B - Cost of Sale:

 Question 21
1 out of 1 points
Answer
Selected Answer:
net profit
Correct Answer:
net profit
Response Net profit for the year appears in the income statement, and this amount increases retained profits, which
Feedback: appears in the balance sheet under shareholders’ equity. By closing off temporary accounts (income statement
accounts) at the end of the period, we transfer net profit or loss for the period to retained earnings.
The answer is a choice between B and D, but D is the stronger answer because it is the profit or loss at the end
of the period that connects the two statements together. Although opening retained profits is the sum of all the
net profits a company has ever made up to the start of a given accounting period, these net profits sit in the
retained earnings account, which is a balance sheet account.
 Question 22
0 out of 0 points
Greening Ltd is a newly established business selling computer hardware. Shown below are ledger accounts in T-account form,
with entries made for the first month of operations.
Answer
Selected Answer:
Correct Answer:
Cash at bank.
 Question 23
1 out of 1 points

Answer
Selected Answer:
$210 000
Correct Answer:
$210 000
100,000 + 80,000 + 30,000 = 210,000.
 Question 24
1 out of 1 points
Working capital is calculated as current assets less current liabilities. Consider the following summarised balance sheet
of Apcor Ltd at 30 June 2011:

Answer
Selected Answer:
$200 000
Correct Answer:
$200 000
500,000 – 300,000 = $200,000
 Question 25
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response A sound system of internal control demands segregation of duties. The employee who records transactions
Feedback: should be different from the employee who handles the assets. Having different employees perform these tasks
helps minimise potential for theft and misuse of assets. For example, if the asset was cash – it would not make
sense to have the same employee handle the cash and record how much of it there is. A misappropriation could
occur without anyone even realising! Thus, the answer is B.
 Question 26
1 out of 1 points
The balance of retained profits at the beginning of a period was $1000 and at the end of the period $850. A dividend of
$50 was declared and paid. What was the net profit/loss for the period?
Answer
Selected Answer:
net loss $100
Correct Answer:
net loss $100
Response At the end of an accounting period, usually one financial year, accountants close off temporary accounts:
Feedback: income and expense accounts. The reason for this is twofold: (1) To reset the accounts for the next period, and
(2) To transfer the net profit or loss from the income statement to retained earnings. Hence we have the
equation below:
The question asks us to determine net profit or loss for the period, and we can setup the following identity,
based on the information provided and the equation above, to help us solve the question:
850 = 1000 + X – 50
900 = 1000 + X
X = - 100
Remember, not all cash distributions or payments are expenses. Cash can be used to buy assets or distribute
profits, for example. Dividends are distributions of profits to owners: the shareholders. Like a sole trader is
entitled to the profits of his/her business, a shareholder is entitled to the profits of the business he/she has
invested in.
 Question 27
1 out of 1 points
Retained profits of Livermore Pty Ltd at 1 July 2010 were $5500. The accounting records for year ended 30 June 2011
showed the following information:

Answer
Selected Answer:
$7250
Correct Answer:
$7250
When you collect cash from customers, you’re collecting money owed to you from past transactions, from
historical sales. Thus, you do not include these in the calculation of net profit because there’s no new sale.
Similarly, adding expenses paid in cash to expenses incurred would also be erroneous because you would be
double counting the expenses for the period. An expense can either be paid when it’s incurred or accrued and
paid later (recognise an expense and a liability simultaneously), but the common denominator in both situations
is that an expense is recorded regardless of whether an expense is paid now or later.
 Question 28
1 out of 1 points
Answer
Selected Answer:
accounting period
Correct Answer:
accounting period
D - Accounting Entity. The accounting entity is separate and distinguishable from its owners. What this means
is that business records must not include the personal assets or liabilities of the owners. For example, a
company is a separate entity from its shareholders (owners); similarly, the accounting entity of a sole trader is
separate from the affairs of the owner.
 Question 29
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
 Question 30
1 out of 1 points
The trial balance of Allen Ltd at balance date showed a credit balance of $5000 in the Allowance for Doubtful Debts
account. Although the account of a customer outstanding at $1400 had been determined to be uncollectable, this had not
been written off. What was the effect of this neglect on the year-end balance sheet?
Answer
Selected Answer:
Correct Answer:
Response Accounts receivable are amounts that customers owe a business for credit purchases. Businesses know that not all
Feedback: customers who purchase goods or services on credit will pay them back. These uncollectible accounts are known
as bad debts. Companies use two methods to account for bad debts: the direct write-off method and the indirect
(allowance) method. Under the direct write-off method, bad debts are recognised only after the company is certain
a debt will not be repaid.
Recognising the bad debt expense using the direct write-off method requires a debit to bad debt expense—to
record the expense—and a credit to accounts receivable—to decrease accounts receivable by the amount that will
no longer be collected.
Under the indirect method, an adjustment is made at the end of each accounting period to estimate the bad debts
based on credit sales of the current accounting period. To record this estimate:
We debit bad debts expense to recognise a cost to the firm of selling on credit. Notice that we recognise this
expense in the same period that we recognise the revenue from the credit sales to which these bad debts relate
(staying true to our matching principle).
Notice that the above entry does not reduce accounts receivable directly. It does so indirectly because allowance
for doubtful debts is a contra asset that sits against accounts receivable. Accordingly, an increase in allowance for
doubtful debts will not reduce accounts receivable but will reduce the net realisable value of accounts receivable.
In the above question, Allen Ltd has already made concessions for the possibility that $5,000 might not be
collectible. Included in this estimate, is $1,400, which has been deemed uncollectible. Under the indirect method,
a subsequent write-off does not change the net realisable value of accounts receivable. It simply reduces accounts
receivable and allowance for bad debt by equal amounts. To demonstrate, let’s say accounts receivable before any
write off is equal to 10,000.
QUIZ 1
 Question 1
1 out of 1 points
a cheque outstanding at end of month, $450, is to:
Answer
Selected Answer:
Correct Answer:
outstanding cheques have already been recorded in the company’s books as cash payments, they must be
subtracted from the bank statement balance.
 Question 2
0 out of 1 points

Greening Ltd is a newly established business selling computer hardware. Shown below are ledger accounts in T-account form, with
entries made for the first month of operations.

Answer
Selected Answer:
Correct Answer:
Cash at bank.
 Question 3
1 out of 1 points
T Ltd paid $240 000 in wages during the year. The opening balance of Accrued Wages was $8000 and the closing balance
was $10 000. What was the wages expense for the year?
Answer
Selected Answer:
$242 000
Correct Answer:
$242 000
Feedback:
Accrued Wages or Wages
Payable
240,000 o/b 8,000

(Wages Paid)
c/b 10,000 X
(Wages
Expense)
250,000 250,000
o/b 10,000

An adjusting entry to accrue expenses is necessary when there are unrecorded expenses and liabilities that apply
to a given accounting period. These expenses may include, like in this question, wages. T Ltd accrues wages
when they’ve been incurred but not paid. In answering the question through the use of t-accounts, you need to
first consider what the account is telling you.
The right-hand side of the account, the credit side, records accrued wages—wages that have been incurred but
not yet paid, e.g.
Dr Wages Expense x

Cr Cash x
10,000 = 8,000 + X – 240,000
X = $242,000
 Question 4
1 out of 1 points
Answer
Selected Answer:
$7250
Correct Answer:
$7250
Similarly, adding expenses paid in cash to expenses incurred would also be erroneous because you would be
double counting the expenses for the period. An expense can either be paid when it’s incurred or accrued and
paid later (recognise an expense and a liability simultaneously), but the common denominator in both situations
is that an expense is recorded regardless of whether an expense is paid now or later.
 Question 5
0 out of 1 points
What was the journal entry needed to bring the Allowance for Doubtful Debts to the required level after writing off the
debt of Wriggler?
Answer
Selected Answer:
Dr Bad Debts Expense ..........$4500 Cr Allowance for Doubtful Debts ..........$4500
Correct Answer:
Feedback: debts as a percentage of the accounts receivable balance. Our first step in answering this question is to determine
at what level the allowance for doubtful debts should stand at. But before we do so, we must first factor in
Wriggler’s irrecoverable amount. We know that under the indirect method once an amount is deemed
uncollectible we simply reduce accounts receivable and allowance for bad debt by equal amounts; a debit to
allowance for doubtful debts, the contra-asset account, and a credit to accounts receivable account. Currently,
Allowance for Doubtful Debt has a balance of $4,000. Thus, when we factor in wriggler’s $2,500 irrecoverable
amount, the new balance is $1,500, and net accounts receivable is $87,500.
Now we’re ready to determine what level the Allowance for doubtful debt should stand at. 5% of $87,500 is
equal to $4,375. Thus, in order for the Allowance for Doubtful Debt account to stand at, or equal, $4,375, we
need to increase the Allowance for Doubtful debt account by a $2,875 ($4,375-$1,500) bad debt expense.
Given the reasoning above, the answer is D—Dr bad debt expense 2875, and Cr allowance for doubtful debt
2,875, which increases the allowance to the required percentage level (5% of $87,500, or $4,375).
 Question 6
1 out of 1 points
Answer
Selected Answer:
current assets
Correct Answer:
current assets
Feedback: specifically accounts receivable. Net realisable value of accounts receivable = Accounts Receivable –
Allowance for Doubtful Debt.
 Question 7
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response Revenues are increases in a business’ wealth arising from the provision of services or sales of goods to
Feedback: customers. The sale of goods is considered revenue, regardless of whether it is a sale of goods for cash or credit,
so long as the goods are delivered. A dividend received on shares is also a type of revenue known as dividend
revenue. There are many different types of revenue. Thus, the answer is D, all of the above.
 Question 8
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Feedback: consumer must recognise the electricity expense and the associated liability because he/she has used up
electricity and has a present obligation to pay the power company in the future. Hence the answer is A.
 Question 9
1 out of 1 points

Debit Credit
On 1 October 2009, an account for $1600 was determined to be uncollectable. The journal entry to be made on that date
would include a debit to:
Answer
Selected Answer:
Correct Answer:
 Question 10
1 out of 1 points
Answer
Selected Answer:
Correct Answer:

B - Cost of Sale

B - Cost of Sale:

 Question 11
0 out of 1 points
Answer
Selected Answer:
Dr Cash Cr Accounts Receivable
Correct Answer:
Feedback: memoranda to notify companies about automatic withdrawals. A customer who owes you money may write you
a cheque and when you deposit it, you would record in your books:
DR Cash
back up the payment they made by cheque. Accordingly, you have not received the cash that you have recorded
in your journals and you will need to reverse the recording of the cash and reduction in Accounts Receivable as
the debtor still owes you money, hence:
CR Cash
 Question 12
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Accounts that fall under the right-hand side of the accounting equation have as their normal balance an entry
on the right-hand side (credit balance) and are increased by credit entries and decreased by debit entries.
Owners’ Equity has a credit balance; therefore, to decrease an account with a credit balance you must debit
it –d.
 Question 13
1 out of 1 points
Answer
Selected Answer:
none of the above
Correct Answer:
none of the above
Response Prepaid insurance: Prepayments are assets that become expenses as they expire or get used up. Through passage
Feedback: of time we recognise the portion of prepaid insurance that has become an actual expense. The portion that is
used up through use or passage of time is recorded as an expense.
Dividends are not expenses, they’re distributions of profits. Just like a sole trader is entitled to the profits of
his/her business, a shareholder is entitled to profits from his/her investment. Further, a company isn’t obligated
to pay out dividends, and may reinvest the profits back into the company (retained earnings). There are no legal
 Question 14
1 out of 1 points
Answer
Selected
Answer:
value
Correct Answer:
value
 Question 15
1 out of 1 points
The purpose of dividing assets and liabilities into current and non-current classes is to help the reader of the balance sheet
to determine:
Answer
Selected Answer:
both A and B
Correct Answer:
both A and B
 Question 16
1 out of 1 points
$650 that a customer paid directly into the company’s bank account is to:
Answer
Selected Answer:
Correct Answer:
Response Companies may authorise a bank to automatically transfer funds in or out of their account. Automatic deposits
Feedback: occur when, for example, the company’s bank account receives automatic fund transfers from customers. A bank
uses a credit memorandum to notify companies about automatic deposits. The name applied to this memorandum
may sound confusing at first glance because we usually interpret a credit to mean a reduction in cash. However,
from the bank’s point of view, an increase in cash is a credit because it is an increase in the amount that the bank
will have to give to the customer if the customer withdraws all its cash. Accordingly, a company’s deposits with
a bank are an asset from the company’s point of view, and i a liability from the bank’s point of view. Automatic
deposits are often brought to a company’s attention for the first time when the bank statement is received. Thus,
when performing bank reconciliation, the company must add unrecorded automatic deposits, deposits that appear
on the bank statement but that have not been included in the company’s records during the period.
 Question 17
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
 Question 18
1 out of 1 points
Answer
Selected Answer:
net profit
Correct Answer:
net profit
Response Net profit for the year appears in the income statement, and this amount increases retained profits, which appears
Feedback: in the balance sheet under shareholders’ equity. By closing off temporary accounts (income statement accounts)
at the end of the period, we transfer net profit or loss for the period to retained earnings.
The answer is a choice between B and D, but D is the stronger answer because it is the profit or loss at the end of
the period that connects the two statements together. Although opening retained profits is the sum of all the net
profits a company has ever made up to the start of a given accounting period, these net profits sit in the retained
earnings account, which is a balance sheet account.
 Question 19
1 out of 1 points
Answer
Selected Answer:
Correct Answer:
Response A sound system of internal control demands segregation of duties. The employee who records transactions
Feedback: should be different from the employee who handles the assets. Having different employees perform these tasks
helps minimise potential for theft and misuse of assets. For example, if the asset was cash – it would not make
sense to have the same employee handle the cash and record how much of it there is. A misappropriation could
occur without anyone even realising! Thus, the answer is B.
 Question 20
1 out of 1 points
a deposit for $2300 not appearing on the bank statement is to:
Answer
Selected Answer:
Correct Answer:
Response Deposits in transit: Companies may frequently make cash deposits. Therefore, the company’s records may
Feedback: show one or more deposits, usually made on the last day, that do not appear on the bank statement. These
deposits are called deposits in transit and cause the bank statement balance to understate the company’s actual
cash balance. Since these deposits have already been recorded in the company’s books as cash receipts, they
must be added to the bank statement balance.
 Question 21
1 out of 1 points
In profit measurement, private transactions of owners are not taken into account. What assumption/concept underlies this
procedure?
Answer
Selected Answer:
accounting entity
Correct Answer:
accounting entity
Feedback: statements, some of which are mentioned in the answers.
 Question 22
1 out of 1 points
Answer
Selected Answer:
Dr Allowance for Doubtful Debts..........$2500 Cr Accounts Receivable..........$2500
Correct Answer:
Dr Allowance for Doubtful Debts..........$2500 Cr Accounts Receivable..........$2500
Feedback: allowance for bad debts by equal amounts, a debit to allowance for doubtful debts, the contra-asset account, and
a credit to accounts receivable account. To reduce an asset account we credit it, and to reduce a contra-asset
 Question 23
1 out of 1 points
The trial balance of Allen Ltd at balance date showed a credit balance of $5000 in the Allowance for Doubtful Debts account.
Although the account of a customer outstanding at $1400 had been determined to be uncollectable, this had not been written
off. What was the effect of this neglect on the year-end balance sheet?
Answer
Selected Answer:
Correct Answer:
Respon Accounts receivable are amounts that customers owe a business for credit purchases. Businesses know that not all
se customers who purchase goods or services on credit will pay them back. These uncollectible accounts are known as bad
Feedba debts. Companies use two methods to account for bad debts: the direct write-off method and the indirect (allowance)
ck: method. Under the direct write-off method, bad debts are recognised only after the company is certain a debt will not be
repaid.
Recognising the bad debt expense using the direct write-off method requires a debit to bad debt expense—to record the
expense—and a credit to accounts receivable—to decrease accounts receivable by the amount that will no longer be
collected.
Under the indirect method, an adjustment is made at the end of each accounting period to estimate the bad debts based
on credit sales of the current accounting period. To record this estimate:
We debit bad debts expense to recognise a cost to the firm of selling on credit. Notice that we recognise this expense in
the same period that we recognise the revenue from the credit sales to which these bad debts relate (staying true to our
matching principle).
Notice that the above entry does not reduce accounts receivable directly. It does so indirectly because allowance for
doubtful debts is a contra asset that sits against accounts receivable. Accordingly, an increase in allowance for doubtful
debts will not reduce accounts receivable but will reduce the net realisable value of accounts receivable.
In the above question, Allen Ltd has already made concessions for the possibility that $5,000 might not be collectible.
Included in this estimate, is $1,400, which has been deemed uncollectible. Under the indirect method, a subsequent
write-off does not change the net realisable value of accounts receivable. It simply reduces accounts receivable and
allowance for bad debt by equal amounts. To demonstrate, let’s say accounts receivable before any write off is equal to
10,000.
 Question 24
0 out of 1 points
Answer
Selected Answer:
Amortisation Expense
Correct Answer:
Accounts Receivable
accounts, balance sheet accounts—assets, liabilities, and shareholders’ equity, continue on year-to-year and are
not closed off, because it would not make sense to close off a balance sheet account: businesses don’t start re-
accumulating assets they already have in the New Year. For example, if you ended with $500 worth of inventory
in 2011, then you open with $500 worth of inventory in 2012. Your inventory account would not start off with a
zero balance in the New Year.
A-C are income statement accounts and would all be closed off at the end of the year. The only item that
wouldn’t be closed off is D, because it’s a permanent account and appears on the balance sheet.
 Question 25
1 out of 1 points
Answer
Selected Answer:
Correct Answer:

Response Banks often require customers to pay monthly account fees. Automatic withdrawals, like a bank service charge,
Feedback: are often brought to the company’s attention for the first time when the bank statement is received. Unrecorded
service charges must therefore be subtracted from the company’s book balance on the bank reconciliation;
otherwise, cash as per company records is overstated. Automatic withdrawals or deposits, that automatically get
processed by the bank and appear on the company’s bank statement, must be accounted for in the company’s
books when performing the bank reconciliation.
 Question 26
1 out of 1 points

Answer
Selected Answer:
$240 000
Correct Answer:
$240 000
settling this liability reduces both your cash and your accounts payable accounts. Option B is not a new sale but
the receipt of money owed to you from a previous sale; thus, no new revenue: Cash increases (asset) and
accounts receivables decreases (asset). Option C is not an expense but the purchase of an asset – Inventory. One
asset (cash) is being swapped for another asset (inventory).
 Question 27
1 out of 1 points
A customer provides a deposit of $500 000 near year-end. The product will not be delivered until next year. This
transaction will:
Answer
Selected Answer:
Correct Answer:

Cr Unearned Revenue 500,000 – the product hasn’t been delivered yet; therefore, the revenue has not be
earned.
Unearned revenue is a liability account because it reflects the fact that the company still has a present
obligation to deliver the product it promised to deliver to the customer.
 Question 28
1 out of 1 points
Answer
Selected Answer:
accounting period
Correct Answer:
accounting period
 Question 29
0 out of 1 points
Answer
Selected Answer:
decrease total assets, total shareholders’ equity and profit

Correct Answer:
Response Dividends are a distribution of a corporation’s profits to its shareholders. Dividends are not an expense of a
Feedback: corporation and, therefore, dividends do not reduce taxable income or net profit. Dividends on ordinary shares
are not legally required; therefore, unlike other expenses and liabilities, if a corporation does not declare a
dividend there are no adverse legal ramifications for omitted dividends.
Cr Cash xx
Remember, Retained Earnings = Opening Retained Earnings + Net Profit/Loss for the period – Dividends. Thus,
when dividends are declared, retained earnings is debited (decreased), regardless of whether the dividend is or is
not paid immediately.
The answer is A because Assets decrease (cash decreases) and shareholders’ Equity decreases (Retained
earnings decreases).
 Question 30
0 out of 1 points
Answer
Selected Answer:
Establishing a bank overdraft
Correct Answer:
None of the above
economic value;
Answer Options:
C - Hiring a new staff member is an internal transaction, lacking in substantive exchange, besides a legal
promise to perform contracted work on the part of the new staff member and a promise to remunerate the staff
member on the part of the entity. Also, the event is not measurable in dollars, failing the monetary assumption
that underpins the preparation and presentation of financial statements.
Therefore, D is the correct answer because the transactions above fail to meet the criteria that would be
necessary for them to be recorded by a financial accounting system.
 Question 1
Answer
Correct Answer:
None of the above
economic value;
Answer Options:
C - Hiring a new staff member is an internal transaction, lacking in substantive exchange, besides a legal promise
to perform contracted work on the part of the new staff member and a promise to remunerate the staff member on
the part of the entity. Also, the event is not measurable in dollars, failing the monetary assumption that underpins
the preparation and presentation of financial statements.
Therefore, D is the correct answer because the transactions above fail to meet the criteria that would be necessary
for them to be recorded by a financial accounting system.
 Question 2
Answer
Correct Answer:
wages payable
Response Share Capital is part of Shareholders’ equity; Wages Payable are wages owed to employees for work that has
Feedback: been performed; retained profits can be defined as a running account of a business’ year-to-year performance,
including deduction for dividends.
 Question 3
Answer
Correct Answer:
accounts payable
Response Account classification takes time and comes with practice and interaction with accounting material, whether online,
Feedback: in our textbook, or in daily life. Without even studying accounting, we can intuitively classify items as assets or
liabilities, a knowledge we gain by simply interacting with the world around us; but there are specific accounting
definitions to many of the items we intuit.
In accounting, the current or non-current distinction simply refers to the liquidity of a given item, the time it takes
for it to be converted into cash, in the case of an asset, or for an obligation to be met, in the case of a liability. A
current liability is an obligation that will be met within one financial year. Thus, by a process of elimination, the
answer is B. Not only is B the only liability, but it is also generally considered to be a current liability, because it is
customary for suppliers to be repaid within one financial year.
 Question 4
Answer
:
Correct Answer:
B - Cost of Sale

B - Cost of Sale:

 Question 5
Answer
Correct Answer:
 Question 6
Answer
Correct Answer:
$240 000
settling this liability reduces both your cash and your accounts payable accounts. Option B is not a new sale but the
receipt of money owed to you from a previous sale; thus, no new revenue: Cash increases (asset) and accounts
receivables decreases (asset). Option C is not an expense but the purchase of an asset – Inventory. One asset (cash)
is being swapped for another asset (inventory).
 Question 7
Answer
Correct Answer:
Accounts that fall under the right-hand side of the accounting equation have as their normal balance an entry on
the right-hand side (credit balance) and are increased by credit entries and decreased by debit entries.
 Question 8
Answer
Correct Answer:
Response A sound system of internal control demands segregation of duties. The employee who records transactions should
Feedback: be different from the employee who handles the assets. Having different employees perform these tasks helps
minimise potential for theft and misuse of assets. For example, if the asset was cash – it would not make sense to
have the same employee handle the cash and record how much of it there is. A misappropriation could occur
without anyone even realising! Thus, the answer is B.
 Question 9
Answer
Correct Answer:
Response Dividends are a distribution of a corporation’s profits to its shareholders. Dividends are not an expense of a
Feedback: corporation and, therefore, dividends do not reduce taxable income or net profit. Dividends on ordinary shares are
not legally required; therefore, unlike other expenses and liabilities, if a corporation does not declare a dividend
there are no adverse legal ramifications for omitted dividends.
Cr Cash xx
Remember, Retained Earnings = Opening Retained Earnings + Net Profit/Loss for the period – Dividends. Thus,
when dividends are declared, retained earnings is debited (decreased), regardless of whether the dividend is or is
not paid immediately.
The answer is A because Assets decrease (cash decreases) and shareholders’ Equity decreases (Retained earnings
decreases).\
 Question 10
Answer
Correct Answer:
Response A liability is a present obligation that arises from a past transaction or event, the settlement of which will result
Feedback: in a sacrifice of economic benefits. Only B meets the stated definition.
 Question 11

Answer
Selected Answer:
$7250
Correct Answer:
$7250
Similarly, adding expenses paid in cash to expenses incurred would also be erroneous because you would be double
counting the expenses for the period. An expense can either be paid when it’s incurred or accrued and paid later
(recognise an expense and a liability simultaneously), but the common denominator in both situations is that an
expense is recorded regardless of whether an expense is paid now or later.
 Question 12
If we pay a 12-month insurance premium of $600 on 1 February 2011, at 30 June 2011 the prepayment will be equal to:
Answer
Correct Answer:
$350
Response Prepayments are assets that become expenses as they expire or get used up. Through passage of time we recognise
Feedback: the portion of prepaid insurance that has become an actual expense. Through the passage of time—between the
1st of February and the 30th of June—we must recognise the portion of prepaid insurance that has become an actual
expense. 5 months of insurance has been used up; thus, on the 30th
June the insurance expense that would get recorded would be 5/12 x 600 =250.
 Question 13
Answer
Correct Answer:
DR Cash
back up the payment they made by cheque. Accordingly, you have not received the cash that you have recorded in
your journals and you will need to reverse the recording of the cash and reduction in Accounts Receivable as the
debtor still owes you money, hence:
CR Cash
 Question 14
Answer
Correct Answer:
Accounts Receivable
closed off, because it would not make sense to close off a balance sheet account: businesses don’t start re-
accumulating assets they already have in the New Year. For example, if you ended with $500 worth of inventory in
2011, then you open with $500 worth of inventory in 2012. Your inventory account would not start off with a zero
balance in the New Year.
A-C are income statement accounts and would all be closed off at the end of the year. The only item that wouldn’t
be closed off is D, because it’s a permanent account and appears on the balance sheet.
 Question 15
Answer
Correct Answer:
Cr Cash 10,000
As a result, an asset would decrease, specifically cash, and a liability would also decrease, specifically
accounts payable – b.
 Question 16
Answer
Correct Answer:
 Question 17
Answer
Correct Answer:
$32 000
Response An adjusting entry to accrue expenses is necessary when there are unrecorded expenses and liabilities that apply to
Feedback: a given accounting period. These expenses may include, like in this question, wages for work performed in the
current accounting period (2011 Financial year) but not paid until the following accounting period (2012 Financial
Year)
Able operates on a five-day working week, from Thursday to Wednesday, with payment on the Thursday for work
completed to Wednesday. If 30 June 2011 fell on a Tuesday, adjusting entries must be entered to accrue wages for
the four days the employees have worked, from Thursday 25 June 2011 to Tuesday 30 th June 2011. Thus, four days
wages must be accrued.
4/5 x 40,000 = $32,000 – c.
 Question 18
Answer
Correct Answer:
suppose in similar fashion to the question above, a company has a $5,200 debit balance in its supplies account at
June 30, but a count of supplies on hand at June 30 finds only $1,200 of them remaining. Since supplies of $4,000
have been used up, the supplies account requires a $4,000 adjustment so assets are not overstated, and the supplies
expense account requires a $4,000 adjustment so expenses are not understated.

Cr Supplies 4,000
Answer c.
 Question 19
Answer
Correct
Answer: if the assets owned by a business total $90 000 and liabilities total $50 000, then shareholders’ equity totals $40
000
Feedback: A business’ resources are financed by two key sources: either shareholder investment or liabilities (various
debts and borrowings).
C is the only answer where the accounting identity holds true, i.e., 90,000 = 50,000 + 40,000.
A&B are possible answers but are not the best answers because they each fail to consider the right hand-side of
the equation in its totality. There are two possible sources of finance.
 Question 20
Answer
Correct Answer:
$200 000
500,000 – 300,000 = $200,000
 Question 21
Answer
Correct Answer:
materiality
A - Materiality: This principle states that the requirements of any accounting principle may be ignored when there
is no effect on the users of financial information. Professional judgement is needed to decide whether an amount is
that period. Dividing the life of an organisation into equal periods to determine profit or loss for that period is
known as the accounting period assumption.
that business records must not include the personal assets or liabilities of the owners. For example, a company is a
purchase. Thus, sound accounting judgement would suggest that it’s more appropriate to treat the transaction as an
expense rather than an asset, and this thinking is in line with the materiality assumption.
 Question 22
Answer
Correct Answer:
10 months have passed between September 1, 2010 and June 30, 2011. Therefore, Choo needs to accrue and
record 10 months worth of interest revenue.
accordingly:
10/12 x 24,000 = 20,000
Answer b.
 Question 23
Answer
Correct Answer:
none of the above
dividends, and may reinvest the profits back into the company (retained earnings). There are no legal ramifications
to not paying dividends; It is the company’s choice.
 Question 24
Answer
Correct Answer:
accounting period
A - Materiality: This principle states that the requirements of any accounting principle may be ignored when there
is no effect on the users of financial information. Professional judgement is needed to decide whether an amount is
that period. Dividing the life of an organisation into equal periods to determine profit or loss for that period is
known as the accounting period assumption.
that business records must not include the personal assets or liabilities of the owners. For example, a company is a
 Question 25
What was the journal entry needed to bring the Allowance for Doubtful Debts to the required level after writing off the debt
of Wriggler?
Answer
Correct Answer:
Feedback: debts as a percentage of the accounts receivable balance. Our first step in answering this question is to determine at
what level the allowance for doubtful debts should stand at. But before we do so, we must first factor in Wriggler’s
irrecoverable amount. We know that under the indirect method once an amount is deemed uncollectible we simply
reduce accounts receivable and allowance for bad debt by equal amounts; a debit to allowance for doubtful debts,
the contra-asset account, and a credit to accounts receivable account. Currently, Allowance for Doubtful Debt has a
balance of $4,000. Thus, when we factor in wriggler’s $2,500 irrecoverable amount, the new balance is $1,500, and
net accounts receivable is $87,500.
Now we’re ready to determine what level the Allowance for doubtful debt should stand at. 5% of $87,500 is equal
to $4,375. Thus, in order for the Allowance for Doubtful Debt account to stand at, or equal, $4,375, we need to
increase the Allowance for Doubtful debt account by a $2,875 ($4,375-$1,500) bad debt expense.
Given the reasoning above, the answer is D—Dr bad debt expense 2875, and Cr allowance for doubtful debt 2,875,
which increases the allowance to the required percentage level (5% of $87,500, or $4,375).
 Question 26
A customer provides a deposit of $500 000 near year-end. The product will not be delivered until next year. This transaction
will:
Answer
Correct Answer:
Cr Unearned Revenue 500,000 – the product hasn’t been delivered yet; therefore, the revenue has not be earned.
Unearned revenue is a liability account because it reflects the fact that the company still has a present obligation
to deliver the product it promised to deliver to the customer.
 Question 27
The statement that compares the balance as shown in the bank’s records with the balance in the Cash at Bank account at a
particular date is known as the:
Answer
Correct Answer:
Response A bank reconciliation statement aids a business in indentifying the differences between the company’s records
Feedback: and the bank’s records. B is the answer.
 Question 28

Answer
Correct Answer:
$11 000
Net Profit = 15,000 – 1,500 – 1,000 – 1,500 = 11,000 – d.
 Question 29
Answer
Correct Answer:
$330 000
100,000 (investment) = 100,000 + 0
80,000 (inventory) = 100,000 + 80,000
200,000 (Equipment) = + 200,000
– 40,000 = - 40,000
Change in Assets= 100,000 + 80,000 – 10,000 + 200,000 – 40,000 = 330,000
 Question 30

Answer
Correct Answer:
$210 000
100,000 + 80,000 + 30,000 = 210,000.
Good luck with accounting,
Regards Bobby

Master Acct1a Quiz 1 IMPORTANT

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Master acct quiz 1 file

Use the information given above to answer the following question.

What is the cash profit of the business for 2011?

Accrued Expenses/Liabilities Basics:

Dr Accrued Wages or Wages Payable x

Dr Supplies Expense 4,000

C - Accounting Period: The life of a business needs to be divided into discrete

What were Livermore’s retained profits at 30 June 2011?

Assume no dividends were declared during the year.

Net profit for the period is:

Dr Supplies Expense 4,000

Dr Accrued Wages or Wages Payable x

Given the information below:

What is the cash profit of the business for 2011?

What was Apcor Ltd’s working capital at 30 June 2011?

Dr Accounts Receivable 2,000,000

Dr Cost of Goods Sold 1,500,000

Net profit for the period is:

Dr Supplies Expense 4,000

A $10 000 payment was made to accounts payable, as a result:

The trial balance of Anderson Ltd included the following balances:

Consider the following information.

What does transaction (2) represent?

Which of the following is revenue of a business?

Which of the following accounts is not closed off at year end?

Given the information below:

Assume no dividends were declared during the year.

C - Accounting Period: The life of a business needs to be divided into discrete

Which of the following statements is true?

A chart of accounts is:

Given the following information, calculate gross profit:

Which of the following is NOT true of a sound system of internal control?

What was Apcor Ltd’s working capital at 30 June 2011?

Response Feedback: Working capital is equal to Current Assets – Current Liabilities =

The following accounts were taken from the trial balance:

Use the information given above to answer the following question.

Purchase of inventory for cash

Purchase of inventory for cash

net loss $100

net loss $100

Which of the following statements about a liability is true?

It must result from a past transaction or event.

It must result from a past transaction or event.

deduct it from the balance as per bank statement

deduct it from the balance as per bank statement

What is the cash profit of the business for 2011?

increase cash but not increase net profit or total assets

increase total assets and cash but not net profit

Dr Supplies Expense $4000 Cr Supplies $4000

Dr Supplies Expense $4000 Cr Supplies $4000

Dr Supplies Expense 4,000

Dr Accrued Interest $20 000 Cr Interest Revenue $20 000

Dr Accrued Interest $20 000 Cr Interest Revenue $20 000

Which of the following is an expense?

none of the above

Which of the following is an accounting transaction?

None of the above

None of the above

assets are overstated, and net profit is overstated

assets are overstated, and net profit is overstated

Which of the following is NOT true of a sound system of internal control?

all errors and irregularities should be eliminated

all errors and irregularities should be eliminated

long-term financial stability