Questions and Answers of Financial Accounting And Reporting

Why might an analyst want to supplement accrual-based ratios with cash-based ratios?
Identify four cash-based ratios that are relevant to the decision-making process.
During the first week of its existence, Fox Hauling Pty Ltd had these transactions:1. Issued 100 000 shares for $$800$ 000 cash.2. Borrowed $$200$ 000 from Castle Bank, signing a 5-year note
Which of the following would not affect the operating expenses to sales ratio? (Assume sales remains constant.)(a) An increase in advertising expense.(b) A decrease in depreciation expense.(c) An
Which of the following business transactions do not involve cash?(a) Collecting accounts receivable.(b) Buying office supplies.(c) Paying wages to workers.(d) Accruing depreciation expense.
How do the principles of internal control apply to cash receipts?
Liam Jeffery is concerned about control over cash receipts in his fast-food restaurant, Healthy Snap. The restaurant has two cash registers. At no time do more than two employees take customer orders
How do the principles of internal control apply to cash disbursements?
Kirsty Harris owns Harris Linen Hire. Kirsty asks you to explain how the following differences between the bank statement and the cash at bank ledger account should be treated: (1) an entry on the
The use of prenumbered cheques in disbursing cash is an application of the principle of:(a) establishment of responsibility.(b) segregation of duties.(c) physical, mechanical and electronic
Jet Ltd has been in business for 5 years. The ledger at the end of the current year shows: accounts receivable $$30$ 000, sales $$180$ 000, and allowance for doubtful debts with a debit balance
Taylor Stores Ltd accepts from Leonard Ltd a $$3400,$ 90-day note dated 10 May in settlement of Leonard Ltd’s overdue account. What is the maturity date of the note? What entry is made by Taylor
In a bank reconciliation, when the bank statement shows a credit balance, outstanding deposits are:(a) deducted from the business records balance.(b) added to the business records balance.(c) added
Why is it necessary to reconcile a bank account?
Grayson Ltd has been expanding faster than it can raise capital. According to its local banker, the entity has reached its debt ceiling. Grayson customers are slow in paying (60–90 days), but its
Which of the following is not an effective way to manage cash?(a) Invest idle cash.(b) Hold excessive inventory.(c) Speed up collection of accounts receivable.(d) Stretch payment for accounts payable.
What steps are involved in the reconciliation procedure?
Which of the following ratios is an indication of the effectiveness of cash management?(a) Inventory turnover ratio.(b) Gross margin ratio.(c) Cash to daily cash expenses ratio.(d) Return on assets.
What information is included in a bank reconciliation statement?
A cheque is written to replenish a $$100$ petty cash fund when the fund contains receipts of $$94$ and$$3$ in cash. In recording the cheque:(a) Cash over and short should be debited for
What are the five main elements of sound cash management?
Jones Pty Ltd on 15 June sells inventory on account to Bullock Ltd for $$1000,$ terms 2/7, n/30. On 20 June Bullock Ltd returns inventory worth $$300$ to Jones Pty Ltd. On 21 June payment is
How does Webjet define cash in the statement of financial position? What was the balance of cash at the end of the reporting period?
What is the formula for the cash to daily cash expenses ratio? What does it tell management about the entity’s cash position?
To maintain adequate internal controls over receivables, who should authorise receivables write-offs?
What is the main criticism of the direct write-off method?
What is the effect on the GST liability for a bad debt write-off?
Why are notes receivable accounted for separately from accounts receivable?
Explain the difference between holding a promissory note to maturity and exchanging it before maturity.
What is the interpretation of the receivables turnover and the average collection period?
For whom is the service charge on a credit card sale an expense?
Why do some businesses sell their receivables?
The gross profit ratio is equal to:(a) profit divided by net sales.(b) cost of sales divided by net sales.(c) net sales minus cost of sales, divided by net sales.(d) net sales minus cost of sales,
What inventory cost flow method does Domino’s Pizza Enterprises Ltd use for its inventories?
Which inventory cost flow method produces the highest profit in a period of rising prices?
The following events occurred during the first month of business of Hair Affair Pty Ltd, Kate Brown’s hairdressing salon:1. issued shares to shareholders in exchange for $$20$ 000 cash 2.
What contribution does the journal make to the recording process?
On 5 January, the day of her successful grand opening of Hair Affair Pty Ltd, Kate Brown collected $$2280$ in cash for hair styling services, and paid $$400$ in wages and $$92$ for rent. Kate
What are the standard form and content of a journal entry made in the general journal?
How does journalising differ from posting?
A revenue account:(a) has a normal balance of a debit.(b) is decreased by credits.(c) is increased by debits.(d) is increased by credits.
What is the purpose of (a) the ledger and (b) a chart of accounts?
How does the measurement of profit in amerchandising business differ fromthat in a service business?
On 5 September, De La Hoya Ltd buys inventories on account from Junot Ltd. The selling price of the goods is $$1500,$ and the cost to Junot Ltd was $$800.$ Due to an error in filling the order,
In what ways is a perpetual inventory system different from a periodic system?
Which of the following statements is true for the perpetual inventory system?(a) The increased use of computerised systems has increased the use of the perpetual system.(b) Cost of sales is
The preceding illustration demonstrated the purchase and sale transactions for Roger Retailer. Assume Roger Retailer paid to the manufacturer the balance owing and was entitled to claim a 5%
Under the perpetual inventory system, what entries are made to record purchases, purchase returns and allowances, discounts received, and freight costs?
Which of the following items does not result in an adjustment in the Inventory account under a perpetual system?(a) A purchase of inventory.(b) A return of inventory to the supplier.(c) Payment of
Games Mania made sales of $$11$ 000 (including GST) and purchases of $$7700$ (including GST) in the quarter ending December 2020. All transactions were on credit and all purchases and sales were
Under a perpetual inventory system, what are the two entries that must be recorded at the time of each sale?
Which of the following accounts normally has a credit balance?(a) Discount received.(b) Purchase returns and allowances.(c) Both (a) and (b).(d) Neither (a) nor (b).
Why is it important to use the sales returns and allowances account, rather than simply reducing the sales account, when goods are returned?
A credit sale of $$750$ is made on 13 June, terms 2/7, n/30, on which a return of $$50$ is granted on 16 June. The customer paid the amount owing on 17 June. What amount did the customer pay?(a)
Under the perpetual inventory system, what entries are made to record sales, sales returns and allowances, and discount allowed?
Gross profit will result if:(a) operating expenses are less than profit.(b) sales revenue is greater than operating expenses.(c) sales revenue is greater than cost of sales.(d) operating expenses are
How are sales and contra revenue accounts reported in the statement of profit or loss?
If net sales revenue is $$420$ 000, cost of sales is $$320$ 000, and operating expenses are $$60$ 000, what is the gross profit?(a) $$340$ 000.(b) $$100$ 000.(c) $$40$ 000.(d) $$420$
What is the significance of gross profit?
Which of the following are reported on the statement of profit or loss of a merchandising business?(a) Gross profit.(b) Cost of sales.(c) A sales revenue section.(d) All of the above.
In recording GST transactions, a business can use the following accounts: GST clearing, GST paid and GST collected. Explain the nature of each account and how it is used to record collections and
Which of the following would affect the gross profit ratio?(a) An increase in sales returns.(b) An increase in the depreciation expense.(c) A decrease in the electricity expense.(d) An increase in
In recording GST transactions, a business can use the following accounts — GST clearing, GST paid, GST collected. Explain the nature of each account and how it is used to record collections and
Which factor would not affect the gross profit ratio?(a) An increase in sales staff salaries.(b) An increase in the sales price of luxury items.(c) An increase in the use of ‘discount pricing’ to
When a business pays GST to suppliers it records(a) an asset.(b) a liability.(c) an expense.(d) a revenue.
If a business uses a GST clearing account to record GST transactions, then GST paid would:(a) be recorded as a credit to the GST clearing account.(b) be recorded as a debit to the GST clearing
Aussie Mac’s accounting records show the following at year-end: freight-in $$6100;$ sales $$240$ 000; purchases $$162$ 500; beginning inventory $$18$ 000; ending inventory $$20$ 000;
When goods are purchased for resale by a business using a periodic inventory system:(a) purchases on account are debited to inventory.(b) purchases on account are debited to purchases.(c) purchase
Discuss the three steps in determining cost of sales in a periodic inventory system.
In determining cost of sales:(a) purchase discounts are deducted from net purchases.(b) freight-out is added to net purchases.(c) purchase returns and allowances are deducted from net purchases.(d)
What accounts are used in determining the cost of goods purchased?
If beginning inventory is $$60$ 000, cost of goods purchased is $$380$ 000, and ending inventory is $$50$ 000, what is cost of sales?(a) $$390$ 000.(b) $$370$ 000.(c) $$330$ 000.(d)
In what ways is a perpetual inventory system different from a periodic inventory system?
Which of the following should not be included in the physical inventory of an entity?(a) Goods held on consignment from another entity.(b) Goods shipped on consignment to another entity.(c) Goods in
What factors should be considered by management in selecting an inventory cost flow method?
Lim Ltd has the following units and costs:If 9000 units are on hand at 31 December, what is the cost of the ending inventory under FIFO?(a) $99 000.(b) $108 000.(c) $113 000.(d) $117 000. Units
From the data in question 5.5, what is the cost of the ending inventory under LIFO? LO5 (a) $113 000. (b) $108 000. (c) $99 000. (d) $100 000.
When should inventory be reported at a value other than cost?
What is the purpose of calculating inventory turnover? What is the relationship between inventory turnover and average days in inventory?
In periods of rising prices, LIFO will produce:(a) higher profit than FIFO.(b) the same profit as FIFO.(c) lower profit than FIFO.(d) higher profit than average costing.
Considerations that affect the selection of an inventory costing method include:(a) nature of the inventory (e.g. perishable or non-perishable).(b) statement of financial position effects.(c)
Which of the following events could result in the cost of an item of inventory being higher than its net realisable value?(a) Inventory obsolescence.(b) A fall in the demand for inventory.(c) Water
Which of these would cause inventory turnover to increase the most?(a) Increasing the amount of inventory on hand.(b) Keeping the amount of inventory on hand constant but increasing sales.(c) Keeping
In a perpetual inventory system:(a) LIFO cost of sales will be the same as in a periodic inventory system.(b) average costs are based entirely on unit-cost simple averages.(c) a new average is
Neville Pty Ltd’s ending inventory is understated by $4000. The effects of this error on the current year’s cost of sales and profit, respectively, are:(a) understated and overstated.(b)
Firth Pty Ltd’s ending inventory is overstated by $10 000. The effect on the current year’s assets, liabilities and equity respectively, are:(a) overstated, no effect and overstated.(b)
Which of the following statements is true?(a) Using a periodic method, the cost of sales account is closed to the profit or loss summary at the end of the accounting period with a credit to the cost
What basic principles are followed in designing and developing an effective accounting information system?
Li Song owns a small retail store. Li wants to establish good internal control procedures but is confused about the difference between segregation of duties and independent internal verification.
The basic principles of an accounting information system include all of the following except:(a) cost-effectiveness.(b) flexibility.(c) useful output.(d) periodicity.
What are the major phases in the development of an accounting information system?
Presented below is information related to Sims Ltd for its first month of operations. Determine the balances that appear in the accounts payable subsidiary ledger. What accounts payable control
To be useful, accounting information must be:(a) understandable.(b) relevant.(c) timely.(d) all of the above.
Define internal control. What are the two main objectives of internal control?
Chiara Accessories Ltd uses special journals and a general journal. Identify the journal in which each of the following transactions is recorded.(a) Purchased equipment on account.(b) Purchased
Which of the following is not a major phase in the development of an accounting information system?(a) Design.(b) Responsiveness.(c) Implementation.(d) Follow-up.
Identify and describe the principles of internal control.
In developing an accounting information system, which of the following could be considered to be part of the implementation phase?(a) Determine the information needs of the external and internal
What are the limitations of internal control?
Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to:(a) safeguard its assets.(b) prevent mistakes.(c) produce correct financial

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