Chapter 1 : Introduction to Accounting

Which of the following are true of sole traders?

1. A sole trader's financial statements are private; a company's financial statements are sent to shareholders and may be publicly filed

2. Only companies, and not sole traders, have capital invested into the business

3. A sole trader is fully and personally liable for any losses that the business might make; a company's shareholders are not personally liable for any losses that the company might make

• 1 & 3

• 2 & 3

• 1 & 2

• 1,2,3

Who is responsible for the preparation of the financial statements of a company?

1. The finance department

2. The board of directors

3. The external auditors

• 2 only

• 1,2,3

• 1

• 1 and 2

Which TWO of the following are advantages of trading as a partnership?

1. 1. Additional capital can be raised because more people are investing in the business

2. 2. A partnership has a separate legal identity from the individual partners

3. 3. Partners have limited liability and are not personally liable for the debts of the partnership

4. 4. A partnership is not required to make its financial accounts publicly available

• 1 and 2

• 1 and 4

• 2 and 4

• 2 and 3

Which TWO of the following are disadvantages of trading as a limited liability company?

1. 1. The shareholders of the company have limited liability for the debts of the company

1. 2. A company must publish annual financial statements

2. 3. Raising finance is easier as a company, as more shares can be issued

3. 4. The financial statements of larger limited liability companies must be audited

• 2 and 3

• 2 and 4

• 1 and 4

• 1 and 2

What should be the main aim for a director of a company?

• To manage the affairs of the company in order to contribute to the general wellbeing of society

• To manage the affairs of the company in order to earn a good bonus

• .

  To manage the affairs of the company in order to create wealth for the shareholders

• To manage the affairs of the company in order to generate the largest profits in the shortest time

There are a number of different statements within a set of financial statement.

Which of the following is LEAST likely to be included within a set of financial statements?

• Statement of Profit or Loss

• Statement of Cash Flows

• Statement of key business ratios

• Statement of Financial Position

How a business operates will determine the legal framework it faces and the sources of funds it can access

Which of the following statements is FALSE?

• 1. A business may operate as a limited company rather than as a sole trader for tax reasons.

• 1. A partnership can only be formed if a partnership agreement is drawn up.

• A limited company, not its shareholders, has legal ownership of its own assets

• Sole traders often use bank overdrafts as a significant source of finance

Naima is a sole trader who runs a grocery business.

Which of the following is most likely to be interested in Naima's financial statements

• 1. Naima's auditors

• 1. Naima's customers

• 1. Naima's bank manager

• 1. Naima's shareholders

Which of the following is NOT a component of financial statements?

• 1. A statement of profit or loss and other comprehensive income

• 1. A statement of changes in equity

• 1. A cash flow forecast

• 1. Accounting policies and explanatory notes

Which of the following users of financial statements has least need of published financial information?

• 1. Potential investors and their advisers

• Directors and management

• 1. Employees and their representatives

• 1. Customers and suppliers