ACCOUNTING EXAMPREP FULLY
SOLVED EDITION WITH DETAILED
VERIFIED ANSWERS
Accounting - answers A way of recording, analysing and summarising transactions of an
entity.
Statement of Profit and Loss - answers It reflects the performance of a business over a
period of time.
Statement of Financial Position - answers It reflects the position of a business at a point
in time.
Users of Accounting - answers Any organisation/business/individual who needs to keep
track of their income, expenses, assets and liabilities.
Types of Business Entity - answers • Sole trader
• Partnership
• Limited Liability Companies
SOFP - answers A list of assets and liabilities of the business.
SPL - answers The revenue and expense of a business for the accounting period.
Purpose of SOFP - answers To show the total value of the net assets of the business at
the end of a period.
Purpose of SPL - answers To show the amount of profit and loss that the business has
made during that period.
Stakeholders for financial information - answers • Managers/Directors
• Owners of the company
• Trade contracts
• Finance providers
•HMRC
Capital Expenditure - answers Expenditure which results in the acquisition of non-
current assets or an improvement or enhancement of their earning capacity (>1yr)
(NCA)
Revenue Expenditure - answers Expenditure which is incurred either for trade purposes
(e.g. items for resale) or to maintain the existing earning capacity of non-current assets
(e.g repairing)
,Code of Ethics (IFAC) - answers • Professional Behaviour
• Objectivity
• Professional Competence & due care
• Confidentiality
• Integrity
Business entity concept - answers A business is a separate entity from its owner.
Capital - answers How much the business owes back to the owner.
Year-end capital Equation - answers Bal. at start of year + net profit + capital inj. -
drawings
Share capital Equation - answers Bal. at start of year + Further investment in shares by
new stakeholders
Retained Earnings Equation - answers Bal. at start of year + Profit - dividends
Accounting equation - answers Assets = Liability + Capital
Cost of Sales/Inventory Equation - answers Opening inv. + Purchases - Closing
inventory
Types of discounts - answers • Trade (Bulk Buy)
• Early settlement (Prompt)
Total Staff Costs Equation - answers Gross salaries + Employer's NICs
Components of Gross Salary - answers • Net Salary
• Income tax (PAYE)
• National Insurance
Conceptual Framework - answers Sets out the concepts that underline the preparation
& presentation of financial statements.
Objective of Financial Statements - answers To provide information about the reporting
entity, that is useful to a wide variety of users in making economic decisions about an
entity.
Qualitative characteristics of Conceptual Framework - answers • Relevance
• Faithful Representation
Ways of enhancing Qualitative characteristics - answers • Comparability
• Verifiability
• Timelines
, • Understandability
Accruals concept - answers It requires that transactions and events are recognised
when they occur, not when cash is received or paid.
Going concern concept - answers • The entity is viewed as continuing its operations for
the foreseeable future.
• Assumption that there is no intention or necessity to liquidate or curtail materially its
operations.
Accounting Concepts & Conventions - answers • Materiality
• Offsetting
• Money measurement
• Realisation
• Historical cost convention
Regulation in Accounting - answers It ensures that accounts are sufficiently reliable,
useful and prepared without delay. They are relied by many users e.g. stakeholders
Delivery inwards - answers Amount paid by a business for having the goods delivered
to it
Delivery outwards - answers Amount paid by a business for delivering goods to its
customers.
Prepayment (Dr Prepayment, Cr Expense) - answers When we have paid for an
expense in advance.
Accrual (Dr Expense, Cr Accruals) - answers When we have incurred an expense but
not yet paid for it at year end.
Double entry for Inventory - answers Dr Inventory
Cr Closing inventory/Cost of Sales
Lower of cost - answers All expenditure incurred in bringing the product or service to its
present location and condition i.e. historical costs, those already incurred.
Lower of Net Realisable Value - answers Revenue expected to be earned in the future
when the goods are sold less any selling costs or rectification/modification costs to
enable sale i.e future costs required to sell.
Methods of calculating inventory - answers • FIFO
• LIFO
• AVCO
Double Entry for drawings of inventory - answers Dr Drawings
SOLVED EDITION WITH DETAILED
VERIFIED ANSWERS
Accounting - answers A way of recording, analysing and summarising transactions of an
entity.
Statement of Profit and Loss - answers It reflects the performance of a business over a
period of time.
Statement of Financial Position - answers It reflects the position of a business at a point
in time.
Users of Accounting - answers Any organisation/business/individual who needs to keep
track of their income, expenses, assets and liabilities.
Types of Business Entity - answers • Sole trader
• Partnership
• Limited Liability Companies
SOFP - answers A list of assets and liabilities of the business.
SPL - answers The revenue and expense of a business for the accounting period.
Purpose of SOFP - answers To show the total value of the net assets of the business at
the end of a period.
Purpose of SPL - answers To show the amount of profit and loss that the business has
made during that period.
Stakeholders for financial information - answers • Managers/Directors
• Owners of the company
• Trade contracts
• Finance providers
•HMRC
Capital Expenditure - answers Expenditure which results in the acquisition of non-
current assets or an improvement or enhancement of their earning capacity (>1yr)
(NCA)
Revenue Expenditure - answers Expenditure which is incurred either for trade purposes
(e.g. items for resale) or to maintain the existing earning capacity of non-current assets
(e.g repairing)
,Code of Ethics (IFAC) - answers • Professional Behaviour
• Objectivity
• Professional Competence & due care
• Confidentiality
• Integrity
Business entity concept - answers A business is a separate entity from its owner.
Capital - answers How much the business owes back to the owner.
Year-end capital Equation - answers Bal. at start of year + net profit + capital inj. -
drawings
Share capital Equation - answers Bal. at start of year + Further investment in shares by
new stakeholders
Retained Earnings Equation - answers Bal. at start of year + Profit - dividends
Accounting equation - answers Assets = Liability + Capital
Cost of Sales/Inventory Equation - answers Opening inv. + Purchases - Closing
inventory
Types of discounts - answers • Trade (Bulk Buy)
• Early settlement (Prompt)
Total Staff Costs Equation - answers Gross salaries + Employer's NICs
Components of Gross Salary - answers • Net Salary
• Income tax (PAYE)
• National Insurance
Conceptual Framework - answers Sets out the concepts that underline the preparation
& presentation of financial statements.
Objective of Financial Statements - answers To provide information about the reporting
entity, that is useful to a wide variety of users in making economic decisions about an
entity.
Qualitative characteristics of Conceptual Framework - answers • Relevance
• Faithful Representation
Ways of enhancing Qualitative characteristics - answers • Comparability
• Verifiability
• Timelines
, • Understandability
Accruals concept - answers It requires that transactions and events are recognised
when they occur, not when cash is received or paid.
Going concern concept - answers • The entity is viewed as continuing its operations for
the foreseeable future.
• Assumption that there is no intention or necessity to liquidate or curtail materially its
operations.
Accounting Concepts & Conventions - answers • Materiality
• Offsetting
• Money measurement
• Realisation
• Historical cost convention
Regulation in Accounting - answers It ensures that accounts are sufficiently reliable,
useful and prepared without delay. They are relied by many users e.g. stakeholders
Delivery inwards - answers Amount paid by a business for having the goods delivered
to it
Delivery outwards - answers Amount paid by a business for delivering goods to its
customers.
Prepayment (Dr Prepayment, Cr Expense) - answers When we have paid for an
expense in advance.
Accrual (Dr Expense, Cr Accruals) - answers When we have incurred an expense but
not yet paid for it at year end.
Double entry for Inventory - answers Dr Inventory
Cr Closing inventory/Cost of Sales
Lower of cost - answers All expenditure incurred in bringing the product or service to its
present location and condition i.e. historical costs, those already incurred.
Lower of Net Realisable Value - answers Revenue expected to be earned in the future
when the goods are sold less any selling costs or rectification/modification costs to
enable sale i.e future costs required to sell.
Methods of calculating inventory - answers • FIFO
• LIFO
• AVCO
Double Entry for drawings of inventory - answers Dr Drawings
