Tag: Accounting Concepts

If accrued revenue was omitted from a company’s financial statements, the effect on the company’s statement of profit or loss and other comprehensive income and statement of financial position would be that?

Select ONE answer:

1. The revenue, retained earnings and current liabilities will be understated
2. The revenue, retained earnings, and current assets will be understated
3. Retained earnings and non-current assets will be understated
4. Current assets will be understated and retained earnings will be overstated

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct == > Accrued revenue is revenue that, as at the reporting date, has been earned but not yet received. If it was included it would boost the revenue figure, it would therefore boost the retained earnings figure and it would boost the current assets figure (as this is where accrued revenue is recorded).
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Which accounting principle states that an item in the financial statements would make a difference if its omission or misstatement would mislead the reader of the financial statements under consideration?

Select ONE answer:

1. The going concern principle
2. The materiality principle
3. The cost-benefit principle
4. The substance over form principle

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct == > The accounting principle that states that an item in the financial statements would make a difference if its omission or misstatement would mislead the reader of the financial statements under consideration is the materiality principle.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Keith is a newly qualified finance manager with Ted plc.

In a conversation with one of his colleagues he has made the following assertions regarding fundamental accounting principles.

Which of Keith’s assertions is correct?

Select ONE answer:

1. The principles must be strictly followed even when an amount is insignificant
2. When in doubt, understate assets and overstate liabilities
3. A company can never change accounting policies
4. The choice of inventory valuation method does not need to be disclosed in the financial statements

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct == > According to fundamental accounting principles, when there is uncertainty caution must be exercised so as not to overstate assets nor understate liabilities – the prudence principle. When an amount is insignificant in the specific context it can be omitted – the materiality principle (1). Companies are allowed to change accounting policies if by so doing a fairer presentation is achieved (3). The inventory valuation method(s) used should be disclosed in the notes to the financial statements (4).
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.