ACC101 Quiz - Xirius

1. In the context of bad debts, what does the "provision for bad and doubtful debts" represent?

A. A contra asset account reducing receivables B. A liability account C. An expense account D. A revenue account

2. What impact does prepayment of expenses have on the statement of financial position?

A. It increases current liabilities B. It decreases current liabilities C. It decreases current assets D. It increases current assets

3. In the statement of financial position, where is closing inventory reported?

A. Non-current asset B. Current liability C. Current asset D. Equity

4. What is the effect of net profit on capital in the statement of financial position?

A. It decreases capital B. It is added to capital C. It is treated as a liability D. No effect on capital

5. Why must closing inventory be treated as a current asset in the statement of financial position?

A. Because it represents goods available for sale in the future B. Because it is the same as opening inventory C. Because it is an expense D. Because it is a liability

6. How should drawings by the owner be shown in the financial statements?

A. As an expense in the profit or loss B. Deducted from capital in the statement of financial position C. Added to current liabilities D. Added to revenue

7. What is the purpose of creating a provision for bad and doubtful debts?

A. To increase revenue B. To estimate and account for potential future bad debts C. To record prepaid expenses D. To increase accounts receivable

8. Which account would commission income earned but not yet received be classified under?

A. Prepaid expenses B. Accrued income C. Trade payables D. Deferred income

9. How is net profit reflected in the statement of financial position?

A. As an increase in liabilities B. As an addition to capital C. As a reduction in current assets D. As an accrued expense

10. If prepaid insurance at the beginning of the year is higher than prepaid insurance at the end of the year, how does this affect the insurance expense for the year?

A. Expense increases B. Expense decreases C. No effect on expense D. Expense is the same as cash paid

11. According to the summary, how is accrued expenses treated in the current year in accounting adjustments?

A. Subtracted from current assets B. Added to current liabilities C. Added to current assets D. Subtracted from current liabilities

12. When preparation of financial statements mentions "Accrued last year (subtract)," what does this refer to?

A. Deducting accrued income from current assets B. Removing prior year accruals from current liabilities or assets in current year statements C. Adding prior year accruals as expenses this year D. Ignoring prior year accruals

13. What is the double effect of recognizing closing inventory in the accounts?

A. increasing both expenses and liabilities B. reducing cost of goods sold and increasing current assets C. increasing capital and reducing liabilities D. increasing purchases and decreasing expenses

14. How are drawings treated in the statement of financial position?

A. Added to capital B. Treated as an expense in SOPL C. Subtracted from capital D. Added to current liabilities

15. How should drawings by the owner be treated in the financial statements?

A. Deducted from net profit B. Added to capital C. Deducted directly from capital in the statement of financial position D. Recorded as expense

16. When a closing inventory is included in the trial balance, what implication does this have?

A. Closing inventory has been adjusted in purchases and requires no further adjustment in the SOPL B. Closing inventory must be added to purchases C. Inventory values are incorrect D. It should be treated as a prepaid expense

17. If a business purchases inventory and pays in cash immediately, how is this reflected?

A. Increased closing inventory and increased cash B. Increased purchases and decreased cash C. Increased prepaid expenses and increased cash D. Increased accounts receivable and increased cash

18. What effect does an increase in prepaid expenses have on the statement of profit or loss?

A. It increases expenses B. It decreases expenses C. No effect D. Treat as revenue

19. What is the correct treatment of accrued income when preparing financial statements?

A. Subtract from current liabilities B. Add to current liabilities C. Add to current assets D. Subtract from current assets

20. If a bad debt is written off during the year, how does it affect the financial statements?

A. It decreases both receivables and net profit B. It increases prepaid expenses C. It increases cash at bank D. No effect on net profit

21. What does trade payable represent in the statement of financial position?

A. Amount owed by the business to suppliers B. Amount owed by customers to the business C. Prepaid expenses D. Accrued income

22. What does the gross profit represent in the statement of profit or loss?

A. Sales minus operating expenses B. Sales minus cost of goods sold C. Total revenue minus net profit D. Total purchases minus expenses

23. How do you treat accrued expenses in the financial statements?

A. As current assets B. As current liabilities and added to expenses C. Deducted from expenses D. As equity

24. How does writing off a bad debt affect the balance sheet?

A. Decrease in receivables and provision for bad debts B. Increase in receivables and expenses C. Decrease in receivables and increase in expenses D. No change in balance sheet

25. How should accrued income be treated in the financial statements?

A. Shown as current liability B. Added to income and shown as current asset C. Ignored until cash is received D. Deducted from income

26. How is an increase in prepaid insurance from previous year to current year reflected in the profit or loss account?

A. Increase in insurance expense B. Decrease in insurance expense C. No change in insurance expense D. Increased insurance revenue

27. When insurance is paid in advance, what is the correct accounting treatment?

A. Increase expenses B. Increase prepaid expenses and reduce actual insurance expense C. Decrease assets D. Increase liability

28. How should closing inventory be treated in the statement of profit or loss if it appears on the debit side of the trial balance?

A. It requires an additional adjustment in the SOPL B. It should be ignored C. No further adjustment in SOPL, but shown as current asset in SOFP D. Deducted from purchases directly in SOFP

29. What does the term "goods available for sale" mean?

A. Opening inventory plus purchases during the period B. Closing inventory minus purchases C. Sales minus closing inventory D. Purchases minus opening inventory

30. If trade payables increase at year-end, what does that imply?

A. More expenses paid B. More expenses accrued but not paid C. Decrease in liabilities D. More cash received

31. When preparing the statement of profit or loss, what happens to opening inventory?

A. It is added to purchases to calculate goods available for sale B. It is subtracted from closing inventory C. It is ignored D. It is treated as a liability

32. How is an increase in the provision for bad debts recorded in the statement of profit or loss?

A. As a gain B. As an expense C. As a revenue D. As a liability reduction

33. What is the effect of prepaid expenses on the financial statements?

A. They increase expenses and decrease assets B. They are recorded as liabilities C. They are recorded as current assets and reduce expenses D. They increase revenue

34. If accrued income at the previous year-end was understated, what effect does this have on the current year's income?

A. Income is understated B. Income is overstated C. No effect D. Income is equal to accrued income

35. If accrued expenses decrease from one year to the next, what is its effect on expenses for the year?

A. Expenses increase B. Expenses decrease C. No effect on expenses D. Expenses equal accrued expenses

36. How are bad debts earlier accounted for in receivable accounts treated in the statement of financial position?

A. As an increase to assets B. No further adjustment if previously accounted for C. As a liability D. As revenue

37. When there is an increase in the provision for bad debts, how is it treated in the statement of profit or loss?

A. As income B. As an expense C. As a deduction from capital D. It is ignored

38. What is the effect of prepaid income on the statement of profit or loss and statement of financial position in the current year?

A. Add prepaid income to current liabilities and subtract from current assets B. Subtract prepaid income from current liabilities and subtract from current assets C. Subtract prepaid income from current liabilities and from income in SOPL D. Add prepaid income to income in SOPL and current assets in SOFP

39. When a commission income is earned but not received by year-end, what adjusting entry is necessary?

A. Debit commission income, credit accrued income B. Debit accrued income, credit commission income C. Debit cash, credit commission income D. Debit commission income, credit cash

40. What is the primary reason for adjusting prepaid expenses at year-end?

A. To match expenses with revenues of the period B. To increase cash balance C. To record liabilities D. To defer revenue recognition

41. How does an increase in trade payables affect the statement of profit or loss?

A. Increases expenses and decreases net profit when recognized as accrued expenses B. Decreases expenses C. Has no effect D. Increases equity

42. How should salaries accrued but unpaid at the year-end be recorded?

A. As prepaid expenses B. As accrued expenses and current liabilities C. As capital D. As revenue

43. If commission income earned during the year is owed at the end of the year, how should it be treated in the final accounts?

A. Deducted from sales B. Added to accrued income (current asset) C. Added as prepaid expenses D. Ignored in final accounts

44. How is accrued income shown in the statement of financial position?

A. As a trade payable B. As a prepaid expense C. As a current asset D. As equity

45. Why is it important to adjust for prepayments and accruals in financial statement preparation?

A. To comply with matching principle ensuring income and expenses relate to the correct period B. To reduce tax liability C. To overstate profits deliberately D. To avoid preparing balance sheets

46. In adjusting for bad debts, what does the creation or increase of a provision for doubtful debts represent?

A. Future income to be earned B. Estimated future potential loss on receivables C. Payment made to creditors D. Cash received in advance

47. What is the purpose of adjusting entries related to accruals and prepayments?

A. To comply with cash basis accounting B. To match income and expenses to the period they relate to (accrual concept) C. To increase capital reserves D. To defer tax payments

48. How do bad debts affect the statement of profit or loss?

A. They increase commission income B. They are treated as an expense, reducing net profit C. They increase assets D. They increase equity

49. When closing inventory is not accounted for in the books, how should it be treated in the statement of profit or loss?

A. Added to purchases B. Deducted from goods available for sale C. Ignored D. Treated as an expense

50. How is bad debt written off reflected in the financial statements?

A. As an expense in the SOPL and reduction in receivables in SOFP B. As an income adjustment C. As an addition to capital D. As a prepaid expense

Xirius-ADJUSTMENTSTOSTATEMENTOFPROFITANDLOSSANDSTATEMENTOFFINANCIALPOSITION1-ACC101.pdf