The purpose of a Provision for Bad and Doubtful Debts is to estimate present Accounts Receivable that are

unlikely to pay in the next accounting period

Why do we make balance day adjustments?

to match revenue with the expenses that help to earn it

The Accounting Period Concept assumes the

life of the business is divided into time periods to report performance

lack physical substance eg goodwill

The Statement of Profit or Loss is classified because

this gives more meaningful information

Selling expenses includes all expenses

in promotion, selling and distribution

Every time a bad debt occurs the Bad and Doubtful Debt Account is increased by a debit because

it is an expense that is increasing

The formula for straight line depreciation is

(historical cost - residual value) / useful life

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Balance Day Adjustments (Unit 3 QCE)

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Questions 20

Answers

1
If a physical stock take reveals 16 units on hand but the stock card shows 19 the Inventory Adjustment is
a revenue
a finance expense
ignored
a cost of sales expense
2
To remove the old Provision for Doubtful Debts (negative asset) the account is
debited
closed to Accounts Receivable
credited
increased
3
Working Capital is the net amount of funds available to meet commitments
to owner's drawings
to buy non-current assets
to build a slush fund
in the next accounting period
4
The purpose of a Provision for Bad and Doubtful Debts is to estimate present Accounts Receivable that are
able to pay cash within 30 days
good credit risks for the next accounting period
unlikely to pay in the next accounting period
likely to take a long time to pay their accounts
5
Bad Debts Recovered has a credit balance because it is
negative liability
money going directly to Owner's Equity
a liability
a revenue
6
Rent Received in Advance is
an unearned revenue
accrued expense
prepaid expense
an accrued revenue
7
Why do we make balance day adjustments?
to match revenue with the expenses that help to earn it
to provide employment to accountants and bookeepers
to reduce the amount of tax we pay
world domination
8
The negative asset which is the amount of the cost of an asset already allocated:
historical cost
depreciation
prepaid expense
accumulated depreciation
9
Current Assets are listed in order of liquidity which means able to be
converted into cash
the biggest economic impact
listed alphabetically
the highest $ value first
10
The Accounting Period Concept assumes the
life of the business is divided into time periods to report performance
business is to continue operations indefinitely
owner is separate from the owner for accounting purposes
assets are recorded at the amount paid at time of acquisition
11
Intangible Assets
are being constantly converted from one item to another
represent cash held temporarily to meet future commitments
are long-lived assets such as furniture
lack physical substance eg goodwill
12
Office salaries owing on Balance Day are
an asset
a prepaid expense
an unearned revenue
an accrued expense
13
The Statement of Profit or Loss is classified because
this gives more meaningful information
accountants can be gainfully employed
this shows the Accounting Equation in more detail
the more figures the better
14
Bad and Doubtful Debts is an account which is a
Finance Expense
Selling Expense
negative asset
Liability
15
An expense that has not been paid at balance day is known as
a prepaid expense
a dodgey expense
an accrued expense
a cause for celebration
16
Selling expenses includes all expenses
leading up to Gross Profit
associated with either financing or collecting cash
in promotion, selling and distribution
for the running of the office and and general expenses
17
An accrued expense would be classified in the Statement of Financial Position as
a current liability
a current asset
a selling expense
an intangible asset
18
Gross Profit is calculated by
Revenue minus expenses
Owner's Equity Plus Liabilities
Assets minus Liabilities
Net sales less Cost of Sales
19
Every time a bad debt occurs the Bad and Doubtful Debt Account is increased by a debit because
it is an asset that is decreasing
It is a revenue that is increasing
it is an expense that is increasing
it is an expense that is decreasing
20
The formula for straight line depreciation is
historical cost - useful life/residual value
(historical cost - residual value) / useful life
dependent upon the type of asset
residual value -historical cost / useful life

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