Tag: Accounting

The owner of a restaurant purchased some equipment on credit for business use but returned the equipment to the supplier as it was damaged.  How should the return of the equipment be recorded in the books of the restaurant?

Select ONE MOST LIKELY answer:

Why is this recorded as a general journal and not as a purchase returns journal?
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This is multiple choice question is suitable for Accounting KS5 classes.

The answer is 2 – Whilst the equipment was purchased on credit, the original invoice would have been recorded as Dr Equipment (Fixed Assets) Cr Supplier (Balance Sheet) through a general ledger journal. Returning the equipment when it was damaged simply means reversing this journal.

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A business has forecast its telephone expense for the year to be £1800. This consists of a fixed element for line rental which is 1/3 of the total cost; the remaining 2/3 are variable based on the telephone calls made. The business has been informed that the cost of the line rental will be reduced by 1⁄4. However, the cost of calls will increase by 20%.

How much will the revised forecast telephone expense be, assuming the number of calls does not change?

Select ONE answer:

1. £1,845
2. £1,890
3. £1,917
4. £2,040
5. £2,097

Explain and justify your answer?

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

The answer is 2 – Fixed rental element is £1,800 / 3 = £600. A 25% reduction is a £150 saving. The cost of calls is therefore £1,200 which is they go up by 20% will be a £240 cost increase (£1,200 *1.2). The difference between the cost decrease in the fixed and cost increase in the call cost is -£150+£240 = £90 cost increase.

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Which is the correct formula for calculating contribution?

Select ONE answer:

1. Fixed costs divided by variable costs
2. Fixed costs less variable costs
3. Sales revenue divided by variable costs
4. Sales revenue minus variable costs
5. Fixed costs plus semi-variable costs

Why is knowing the contribution or contribution margin important for any company to know?……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

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

The answer is 4 – Contribution margin is a product’s price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. The total contribution margin generated by an entity represents the total earnings available to pay for fixed expenses and to generate a profit.

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What does the abbreviation ‘Ltd’ indicate in the name of a company?

Select ONE answer:

1. The amount of debentures that can be issued is limited
2. The company’s capital is limited to a fixed account
3. The shareholder’s liability for the company’s debts is limited
4. The shareholder’s liability for the company’s debts is unlimited
5. The amount of debentures that can be issued is unlimited

What is a public limited company?……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

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

The answer is 3 – Limited mean Ltd is a suffix that follows the name of a company, indicating it is a private limited company. In a limited company, shareholders’ liability is limited to the capital they originally invested.

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Which of the following current assets should be ignored when calculating the liquid capital ratio?

Select ONE answer:

1. Cash and cash equivalents
2. Inventory
3. Other receivables
4. Trade receivables
5. Prepayments

What is the definition of inventory?……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

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

The answer is 2 – This ratio is an indicator of a company’s short-term liquidity. The ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows: Ratio = (current assets – inventories) / current liabilities, or (cash and equivalents + marketable securities + accounts receivable) / current liabilities

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