FUNDAMENTAL OF ACCOUNTING

1.1 The purpose of accounting

1 Which are examples of book-keeping?

[7707/June20/12/Q1]

1 entering details of a cheque received from a customer in a cash book

2 entering details of goods purchased on credit in a purchases journal
3 producing an income statement to calculate the profit for the year
4 recording details of credit sales in the account of a credit customer

A 1, 2 and 3 B 1, 2 and 4 C 1 and 2 only D 3 and 4

[ANSWER: B]

2 How does a trader use the information provided by financial statements?

[7707/June20/12/Q2]

A to calculate the amount of cash drawings taken

B to calculate the amount that is owed by trade receivables
C to check the balance shown on a bank statement
D to compare the business performance over a number of years

[ANSWER: D]

3 A trader prepares financial statements each year. What do these assist the trader to do?
[7707/Nov20/13/Q1]

A calculate the amount owing to credit suppliers

B calculate the cash drawings

C check the bank statement balance

D make decisions about the future

[ANSWER: D]
4 Which statements about book-keeping and accounting are correct?
[7707/June21/12/Q1]

1 Accounting is performed periodically rather than daily.

2 Accounting relies on having accurate book-keeping records.
3 Book-keeping includes the preparation of financial statements.

4 Book-keeping involves the recording of financial transactions.

A 1, 2 and 4 B 1 and 3 C 2, 3 and 4 D 2 and 4 only

[ANSWER: A]

5 Why does a trader calculate the profit of his business?

[7707/Nov21/13/Q1]

A to calculate the interest payable on a loan

B to calculate the provision for doubtful debts
C to know the total expenses of the business
D to know whether drawings are at a reasonable level

[ANSWER: D]
1.2 The accounting equation

1. A trader bought new fixtures. He paid half of the purchase price in cash and agreed to pay
the balance in two months’ time.

How does this purchase affect the accounting equation?

[7707/June20/12/Q3]

owner’s
assets liabilities
equity
A decrease decrease no effect
B decrease no effect increase
C increase decrease increase
D increase no effect increase

[ANSWER: D]

2 The following balances appeared in Hussein's books.

fixtures 6000
inventory 3300
trade receivables 3000
trade payables 4500
other receivables 500
other payables 300
loan to Imran 1000
bank overdraft 1400

What was the total of the liabilities?

[7707/Nov20/13/Q2]

A $4800 B $6200 C $6400 D $7200

[ANSWER: B]

3 What increases owner’s capital?

[7707/June21/12/Q2]

A bank loan extended from five to ten years

B purchase of inventory on credit
C purchase of machinery by cheque
D transfer of vehicle to business from private use

[ANSWER: D]