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Principles of Accounting Questions and Answers.
The Candidates who are searching for Principles of Accounting Questions and Answers can find here. We have uploaded all the Questions and answers for Principles of Accounting for Commerce, CA IPCC, B.com and for BBA students. Interested candidates who are preparing for the Principles of Accounting exam can find here. Here we have given some important questions for Principles of Accounting subject. Also we have given Principles of Accounting Questions and Answers pdf in this website.
Expected Question for Principles of Accounting:
1. What are the main reasons for organizations maintaining financial and management accounts? (4 marks)
2. What information can be gleaned from the final accounts of a business that will assist the credit management in making a more informed decision? (6 marks)
3. For each of the following stakeholders, identify the accounting information that will be of interest to them and why?
- Investors. (2 marks)
- Lenders. (2 marks)
- Employees and their representatives. (2 marks)
- Customers. (2 marks)
- The general public. (2 marks)
4. All businesses whether they are incorporated or unincorporated require additional sources of finance to fund their operations.
Identify the key characteristics together with one advantage and one limitation for each of
a) Bank overdraft. (4 marks)
b) Trade credit. (4 marks)
c) Term loans. (4 marks)
d) Factoring. (4 marks)
e) Retained profits. (4 marks)
5. Describe the role and purpose of an internal auditor for a business. (4 marks)
b) Neha has drafted the ledger accounts and financial statements at year end for her promotions and marketing business and is pleased that Gross Profit is £74,500 and Net Profit is £14,500. However, on checking the details more closely, she identifies the following:
- Rent from a client of £3,500 for the short-term use of an unwanted outbuilding for storage has been credited to the Land and Buildings account.
- The cost of a colour photocopier for the business, £13,500 including installation costs, has been debited to the Purchases account.
- A bill for £650 for repairing some office equipment has been debited to the Vehicle Expenses account.
- The price of a motor vehicle for business use, namely £7,500, has been debited to the Vehicle Expenses account. Carriage in of £80 has been entered to the Postage and Delivery account.
- £18,000 from the sale of the outbuilding has been credited to the Sales Revenue account
6. There are four general assumptions that specifically underlie the preparation of the financial (final) accounts of an incorporated business.
a) What is the purpose of these four key accounting concepts? (4 marks)
b) Describe and assess the importance of each of those concepts with regards to the interpretation of prepared financial statements. (16 marks).
7. The final accounts of an incorporated business contain a great deal of information that will help the credit manager in making a more informed decision whether to grant or extend credit facilities.
Assess the credit intelligence that might be gleaned from the following:
a) The Auditors’ Report. (6 marks)
b) The Directors’ Report. (8 marks)
c) The Chairman’s Statement or Report. (6 marks).
Practice and Theory Questions for Principles of Accounting
8. J Jones is a small high street business selling computer software. The following account balances were brought forward on 1 January 2014.
|VAT owing 850|
|C Mulhearn (a supplier)||3,400|
|P Hughes (a customer)||5,500|
During January the following transactions took place:
2 January 2014 – An invoice for £1,200 plus VAT was sent to P Hughes.
3 January 2014 – A credit note for £750 plus VAT was received from C Mulhearn in respect of returned goods.
8 January 2014 – A cheque for £2,200 was sent to C Mulhearn in full settlement of their account. The balance remaining is to be treated as a discount.
9 January 2014 – A credit note was sent to P Hughes for £1,500 including VAT in respect of damaged software.
12 January 2014 – P Hughes sent a cheque for £4,900 in full settlement of the amount outstanding. The rest is to be treated as a discount.
15 January 2014 – J Jones took £350 out of the bank for his own personal use.
17 January 2014 – An invoice is received from C Mulhearn for £790 plus VAT for the supply of new software.
20 January 2014 – A cheque was sent to HMRC for VAT owing.
25 January 2014 – A water bill of £1,500 is now due to be paid. There is no VAT on this service
a) Open all the appropriate accounts that are necessary to record the above transactions and enter all balances brought forward on 1 January 2014. (4 marks)
b) Make the necessary entries in the relevant accounts to record the transactions including discounts and value added tax at 20%.
9. Describe the major practical differences between a cash budget and other budgets within a business’s budgetary control system. (4 marks)
b) The following information relates to Whyzee Limited in 2017 and comes from its various budgets, management decisions, activities and expectations during the year:
- It has agreed to buy new machinery in July for £200,000 and a finance arrangement to pay for it in 5 equal monthly instalments, the first due on the date of purchase.
- The machinery attracts a government grant worth 15% of its purchase price, on evidence that the machinery instalments are being made on time. This is expected in 3 equal monthly instalments from August.
- Rent payable for their premises is £24,000 per year, payable quarterly in advance. The next payment is due in July.
- Purchases of Raw Materials are budgeted to be £10,000 per month with a variety of payment terms, but averages out as 40% is paid in the current month and 60% in the month afterwards.
- Other overheads and expenses are budgeted in each month, as follows:
- Wages of £5,000, payable in the month earned
- Depreciation of £150 in July, and £450 in each following month, applied in the relevant month
- Electricity, Water and Gas usage of £1,350 each month settled monthly
- Administration costs of 5% of each months’ receipts from sales, and paid in the following month.
- Cash sales are treated as fully paid at the time of purchase and Whyzee Ltd.’s standard credit term for its customers is full payment by the end of the following month. The pattern of sales is expected to be:
The bank balance on 30 June is budgeted to be £25,000 (in funds). An overdraft fee of £20 is charged when any end-of-month bank balance is overdrawn, and any end-of-month positive bank balance (that is, it is not overdrawn) attracts 1% interest. Bank fees and interest, where arising, are applied in the following month.
b)Using the information given above relating to Whyzee Limited, prepare their cash budget for the four months from July to October 2017. (12 marks).
(c) Based upon the scenario and your cash budget in 4b) above, what conclusions can be drawn and therefore what recommendations can be given to Whyzee Limited? (4 marks)
10.Explain the Accruals (or Matching) Concept in relation to the financial accounts and statements of a business. (4 marks).
A business information report has been obtained on Lucrative Prospects Ltd, a new sales lead. Your Sales Manager is naturally keen that credit terms can be agreed as soon as possible, and is very interested to learn what the data in the report means and how it helps with the account opening decision.
Explain the usefulness of each of the following ratios in reviewing the (6 marks)
The following data has been extracted from the business information report for Lucrative Prospects Ltd. Analyse the changes for each between 2015 and 2016, showing the potential impact upon Lucrative Prospects Ltd in general and making reference to its management of its working capital in particular.
|Business Information Report (extract) on Lucrative Prospects Limited|
|Acid Test Ratio||0.7:1||1.1:1|
|Receivables Collection Period||49.5 days||33.3 days|
|Payables Settlement Period||24.8 days||28.7 days|
|Inventory Turnover Rate||80.7 days||63.5 days|
To test candidates’ ability to:
- Explain the recognized concepts which underpin the principles of accounting and bookkeeping
- Describe the usefulness of ratios in reviewing business performance Use ratio data to analyse business performance.
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