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Problem Set 1 Key 1. A. B. C. D.

The accounting equation can be stated as: Assets = Liabilities + Owner's Equity Assets + Liabilities = Owner's Equity Liabilities = Owner's Equity + Assets Assets = Liabilities - Owner's Equity

2. Revenue from sales decrease assets and decrease equity FALSE 3. Management accounting is primarily concerned with producing financial statements for shareholders and creditors FALSE

4. A. B. C. D.

An example of a long-term asset is: Cash Inventory Fixtures and fittings Prepayments

5. A. B. C. D.

The accounting equation can be stated as: Owner's Equity = Assets - Liabilities Assets + Liabilities = Owner's Equity Liabilities = Owner's Equity + Assets Assets = Liabilities - Owner's Equity

6. A. B. C. D.

An example of a current asset is: Inventory Equipment Retained earnings Owner's equity

7. What a company owns are known as assets and what a company owes are known as expenses FALSE

8. Non-current assets include inventories and trade receivables FALSE

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9. Non-current liabilities include long-term borrowings such as mortgages TRUE

10. A. B. C. D.

The main purpose of financial accounting information is to: Provide financial information for taxation purposes Provide financial information to managers Provide financial information for external users, such as shareholders and creditors Provide financial information to customers

11. A. B. C. D.

Inventory, trade receivables and cash are classified as: Current liabilities Long-term assets Current assets Long-term liabilities

12. If liabilities increase £3,000 during a given period and owner's equity decreases £1,000 during the same period, the assets must have: A. Increased by £3,000 B. Increased by £2,000 C. Decreased by £3,000 D. Decreased by £2,000 13. If non-current assets are £250,000, current assets £70,000, long-term borrowing £50,000 and current liabilities £10,000 , what is the value of owner's equity? A. £240,000 B. £260,000 C. £120,000 D. £270,000 14. Profit = revenue + expenses FALSE 15. Gross profit is the difference between sales and the cost of goods sold TRUE

16. Revenue is the amount received in cash during an accounting period FALSE

17. Expenses are the amount paid out in cash during an accounting period FALSE

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