FAR - THEORIES

What is the objective of financial statements?

• To prepare comparable, relevant, reliable and understandable information to investors and creditor

• To prepare financial statements in accordance with all applicable Standards and Interpretations

• To prepare a statement of financial position, an income statement, a statement of cash flows and a statement of changes in equity

• To provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

Liabilities are

• Deferred credits

• Any accounts with credit balances

• Obligations to transfer ownership shares to other entities in the future

• Present obligations arising from past events and result in an outflow of resources

If the partnership agreement does not specify how profit is to be allocated, profits or losses should be allocate

• A. Equally

• B. In accordance with their capital contribution

• C. In proportion to the average of capital invested during the period

• D. Equitable so that partners are well compensated for their time and effort

An entity shall present current and noncurrent assets and liabilities when the

• A. Entity is a public utility

• B. Entity is a government entity

• C. Entity supplies goods or services within a clearly identifiable operating cycle

• D. Presentation based on liquidity provides reliable and more relevant information

The accounting equation

• A. Is used to determine the amount of liabilities owned

• B. Shows the claims on the entity's assets represented by creditors and owners

• C. Shows the claims on the owner's equity represented by creditors

• D. Is used to determine the amount of income earned during the most recent accounting period

6. General ledger serves what phase of the accounting process?

• A. Reporting

• B. Recording

• C. Classifying

• D. Summarizing

The double entry system of accounting means that every transaction

• A. Is recorded initially on both the journal and the general ledger

• B. Increases one general ledger account while decreasing another

• C. Affects at least two general ledger accounts and is recorded by an equal amount of debits and credits

• D. Results in changes in accounts on both sides of the balance sheet

Debits

• A. Increase assets and decrease expenses, liabilities, revenue and equity

• B. Increase assets and expenses and decrease liabilities, revenue and equity

• C. Increase assets and equity and decrease liabilities, expenses and revenue

• D. Decrease assets and expenses and increase liabilities, revenue and equity

9. Which is the correct sequence for recording transactions and preparing financial statements?

• A. Journal, ledger, trial balance, financial statements

• B. Ledger, trial balance, journal, financial statements

• C. Financial statements, trial balance, ledger, journal

• D. Ledger, journal, trial balance, financial statements

10. Which statement about the trial balance is incorrect?

• A. A trial balance determines the equality between the total debits and credits

• B. A trial balance lists all open accounts in the general ledger as of a time period

• C. A trial balance proves that all amounts have been posted to the correct amounts

• D. A trial balance is required in the accounting process