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Questions and Answers
What is the main objective of accounting for business transactions?
What is the main objective of accounting for business transactions?
What must be matched according to the matching principle?
What must be matched according to the matching principle?
Which of the following describes revenue expenditures?
Which of the following describes revenue expenditures?
What distinguishes capital expenditures from revenue expenditures?
What distinguishes capital expenditures from revenue expenditures?
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Where should revenue items be shown in financial statements?
Where should revenue items be shown in financial statements?
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What determines whether an item of expenditure is classified as goods or an asset?
What determines whether an item of expenditure is classified as goods or an asset?
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Which type of expenditure is incurred to maintain an asset in its normal operational state?
Which type of expenditure is incurred to maintain an asset in its normal operational state?
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How is expenditure classified if it generates revenue for more than one accounting period?
How is expenditure classified if it generates revenue for more than one accounting period?
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When is an expenditure considered material enough to be treated as capital expenditure?
When is an expenditure considered material enough to be treated as capital expenditure?
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Which of the following correctly defines the treatment of a purchase of furniture for a furniture trader?
Which of the following correctly defines the treatment of a purchase of furniture for a furniture trader?
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Study Notes
Accounting Objectives
- The primary goal of accounting is to determine business performance and financial status.
- Business transactions are recorded and analyzed.
- The main objective of accounting is to ascertain the results of operations and the financial position of the business.
Matching Principle
- Expenses should be matched with the period's revenues.
- This ensures accurate financial reporting.
- Revenues earned during an accounting period must be matched with expenses incurred during that period.
Revenue Expenditures
- Expenses whose benefits are realized in the accounting period.
- Examples include salaries, rent.
- These expenses benefit only the current accounting period. Examples include salaries and rent.
Capital Expenditures
- Expenses whose benefits extend beyond one accounting period.
- Examples include long-term investments.
- Expenditures benefitting beyond one accounting period are capital expenditures.
Financial Reporting
- Accurate portrayal of profitability and business condition is crucial.
- Proper allocation of capital and revenue items is essential.
- Revenue items are recorded in trading and profit & loss accounts.
- Capital items appear on the balance sheet.
- To demonstrate profitability and state of affairs, capital and revenue items must be properly allocated.
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Description
This quiz covers essential accounting concepts including objectives, matching principles, and types of expenditures. Learn how these principles apply to financial reporting and the importance of accurately capturing business performance. Test your knowledge on how to differentiate between capital and revenue expenditures.
