11 Accounting Revision Sheet Unit One Topic One

Which of the following correctly describes a sole trader?

• A business owned and operated by one person

• A business owned by two or more people

• A business that sells shares to the public

• A business that is privately owned and does not sell shares to the public

Describe how each of the above types of business organisations are identified.

• By their legal structure

• By their size

• By their industry

• By their location

The difference between unlimited liability and limited liability is:

• Unlimited liability means personal assets are at risk; limited liability protects personal assets.

• Unlimited liability protects personal assets; limited liability means personal assets are at risk.

• Both mean personal assets are at risk.

• Neither affects personal assets.

Which of the following best describes the types of accounts: Asset, Liability, Owner’s equity, Revenue, and Expense?

• Asset accounts represent resources owned by a business; Liability accounts represent obligations; Owner’s equity accounts represent the owner's claims; Revenue accounts represent income; Expense accounts represent costs incurred.

• Asset accounts represent obligations; Liability accounts represent resources owned by a business; Owner’s equity accounts represent income; Revenue accounts represent costs incurred; Expense accounts represent the owner's claims.

• Asset accounts represent income; Liability accounts represent costs incurred; Owner’s equity accounts represent obligations; Revenue accounts represent the owner's claims; Expense accounts represent resources owned by a business.

Explain what ‘the accounting equation’ is and provide the 3 formulas.

• The accounting equation is a fundamental principle in accounting that represents the relationship between assets, liabilities, and owner's equity. The three formulas are: Assets = Liabilities + Owner's Equity, Liabilities = Assets - Owner's Equity, Owner's Equity = Assets - Liabilities.

• The accounting equation is a mathematical representation of the relationship between income, expenses, and profit. The three formulas are: Income = Expenses + Profit, Expenses = Income - Profit, Profit = Income - Expenses.

• The accounting equation is a financial statement that shows the relationship between cash flow, revenue, and expenses. The three formulas are: Cash Flow = Revenue - Expenses, Revenue = Cash Flow + Expenses, Expenses = Revenue - Cash Flow.

• The accounting equation is a theoretical concept that explains the relationship between market value, book value, and intrinsic value. The three formulas are: Market Value = Book Value + Intrinsic Value, Book Value = Market Value - Intrinsic Value, Intrinsic Value = Market Value - Book Value.

Explain the interrelationship between assets, liabilities and owner’s equity in the accounting equation.

• Assets = Liabilities + Owner’s Equity

• Liabilities = Assets + Owner’s Equity

• Owner’s Equity = Assets - Liabilities

• Assets = Liabilities - Owner’s Equity

The purpose of the statement of financial position is to:

• Provide a summary of a company's financial performance over a specific period

• Show the financial position of a company at a specific point in time

• Detail the cash inflows and outflows of a company

• Explain the company's revenue and expenses

What is the formula to calculate net profit?

• Net profit = Revenues + Expenses

• Net profit = Revenues - Expenses

• Net profit = Revenues * Expenses

• Net profit = Revenues / Expenses

• Net profit = $45,800

• Net profit = $40,000

• Net profit = $50,000

• Net profit = $35,000

Classify the following accounts as either asset, liability, owner’s equity, expense or revenue: Mortgage on buildings L, Dividends received R, Postage E, Stock A, Drawings OE, Supplies A, Accounts receivable A, Accounts payable L, Capital OE, Cash in hand A.

• Asset, Liability, Owner’s Equity, Expense, Revenue

• Asset, Revenue, Expense, Asset, Owner’s Equity, Asset, Asset, Liability, Owner’s Equity, Asset

• Liability, Revenue, Expense, Asset, Owner’s Equity, Asset, Asset, Liability, Owner’s Equity, Asset

• Liability, Revenue, Expense, Asset, Owner’s Equity, Asset, Asset, Liability, Owner’s Equity, Revenue