Chapter 2 - accounting equation

Question 1

1. What is a non current liabilty?
2. What is a current liability?

Answer 1

1. Long term liabilities payable 12 months after the SFP date
2. Liabilities payable within 12 months of the SFP date

Question 2

1. What is inventory?
2. How does its sales relate to capital

Answer 2

1. Stock
2. Making a profit on inventory = increased capital

Making a loss on inventory = reduced capital

Question 3

1. What is a statment of financial? (3 marks)
2. What is the purpode of it?

Answer 3

1. A snapshot of assets, liabilities and capital at a point in time
2. To show the net asset (capital) at the end of each accounting period. assets - liabilities

Question 4

How is a SFP laid out?

Answer 4

Assets

• Non current assets
• Current assets
• Total assets

Capital

• Balance at start of year
• • net profit for year (SPL)
• Increase in capital
• • drawings for year

Liabilities

• Non current liability
• Current liability
• Trade payables

Question 5

What does a statment of profit and loss show?

Answer 5

The revenue and expenses for an accounting period.

Question 6

How is a SPL laid out?

Answer 6

• Revenue (sales)
• Cost of sales (purchases)
• Gross profit
• Expenses
• Profit before tax
• Taxation
• Net profit for the period

Question 7

Post SPL where is the net profit for the period used?

Answer 7

SFP as part of the capital

Question 8

What is a full set of finacial statments made up off?

(5 marks)

Answer 8

• Statment of financial possition (SFP)
• Statmemt of proit or less (SPL)
• Statment of cash flow
• Changes in equity _{(not in exam)}
• Notes to financail statment _{<em>(not in exam)</em>}

Question 9

How are recievables and payables accounted for in double entry?

Answer 9

• Increase in recievables = Debit (asset)
• Increase in payables = Credit (liability)

Question 10

What are the 3 elements to recording cost of sales?

Answer 10

• Oening inventory → held in the business on the first day of the purchases.
• Purchases (cash and credit)
• Less closing inventory → inventory left in the business at the end of the period.