Questions and Answers
What is the profit recognized by XY PLC during the month of January 2023?
Which component is NOT considered an expense for XY PLC in January 2023?
How much revenue was generated from cash sales during January 2023?
How does the matching concept influence the accounting for XY PLC?
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What percentage of commission is the sales staff entitled to on their sales?
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Which of the following accurately describes the prudence concept in accounting?
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What was the total value of credit sales before adjusting for unsold stock in January 2023?
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What amount is owed for salaries at the end of January 2023 that will be paid next month?
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What does the business entity concept imply in accounting?
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What is the significance of the money measurement concept?
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Which concept dictates that financial statements are prepared for specific periods?
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What does the going concern concept allow accountants to assume about a business?
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Which concept states that revenue must be recognized when earned, regardless of cash flow?
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How does the matching concept guide financial reporting?
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What does the prudence concept emphasize in financial accounting?
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What role do accounting concepts play in financial reporting?
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How are liabilities classified in a business organization?
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At what point is revenue from the sale of goods considered realized?
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What is the main focus of the realization concept in accounting?
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Which situation could challenge the going concern assumption in a business?
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When can revenue from services be recognized as realized?
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What should the inventory be valued at when its market value is lower than its cost?
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If a company delivers stocks worth Rs 550,000 but only receives Rs 300,000 in cash before the year-end, how much revenue is recognized based on the realization concept?
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When a provision for doubtful receivables is made, what is the primary reason for this action?
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Which of the following is NOT typically included in the classification of liabilities?
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If the cost of the inventory is Rs 560,000 and the net realizable value is Rs 500,000, what loss is recognized?
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What happens to revenue recognition if cash is not received immediately upon the delivery of goods?
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What amount should be recognized for accounts receivable if a provision for doubtful receivables of Rs 10,000 is made from Rs 220,000?
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According to the prudence concept, what should be done if a non-current asset has been impaired?
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What is the recoverable amount of a non-current asset?
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What happens if the net realizable value of inventory is greater than its cost?
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How should the value of a machine with a cost of Rs 750,000 and accumulated depreciation of Rs 150,000 be treated if found impaired?
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Which revenue should be recognized by AB PLC for the stocks sold for cash in March 2023?
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What amount should AB PLC recognize as revenue for the stocks sold on credit in April 2023?
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According to the accrual concept, when is income recognized?
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What is the revenue recognition status of the advance payment of Rs.300,000 received for stocks not yet supplied?
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What amount of rent expense will be recognized if the monthly rent is Rs.15,000 and it has not been paid?
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In which month will the Rs.400,000 from stocks sold in March be recorded as revenue?
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What is the implication of the accrual concept for the receipt of an electricity bill of Rs.10,000?
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What total revenue should AB PLC recognize for April 2023 considering all transactions?
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Study Notes
Accounting Concepts Overview
- Accounting concepts form the theoretical foundation for financial accounting.
- They ensure consistency and uniformity in recording financial transactions and presenting results in financial statements.
- Essential concepts include: Business Entity, Money Measurement, Accounting Period, Going Concern, Realization, Accrual, Matching, and Prudence.
Business Entity Concept
- The business and its owners are treated as separate legal entities.
- Business transactions are recorded independently from personal transactions of owners.
- Owner's investment in the business is classified as "capital" or "equity".
Money Measurement Concept
- Only transactions that can be quantified in monetary terms are recorded in financial statements.
- This promotes objectivity and comparability in financial reporting.
Accounting Period Concept
- Financial statements are prepared for specific periods to provide timely information.
- This aids users in assessing performance and making economic decisions.
Going Concern Concept
- Assumes that the business will continue its operations indefinitely.
- Any indication of potential business closure raises questions about asset valuations in financial reporting.
Realization Concept
- Income is recognized only when it's realized, meaning when the right to receive payment is established.
- Example: Revenue from goods is realized upon delivery, not when cash is received.
Accrual Concept
- Income and expenses are recognized when they incur, regardless of cash flow.
- Ensures financial statements reflect true financial position and performance.
Matching Concept
- Requires that expenses be matched with the revenues they help generate in the same period.
- This provides a more accurate representation of profit or loss.
Prudence Concept
- Promotes caution in financial reporting to avoid overstatement of income or understatement of expenses.
- Key applications include:
- Valuing inventory at the lower of cost and net realizable value.
- Creating provisions for doubtful receivables to reflect true collectability.
- Recognizing impairments to non-current asset values, ensuring they are not overstated.
Review and Learning Outcomes
- Understanding these concepts is crucial for proper financial reporting and analysis.
- Knowledge of the concepts enhances decision-making capabilities for stakeholders using financial statements.
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Description
Explore the fundamental accounting concepts that form the backbone of financial accounting in this engaging quiz. Topics covered include the business entity concept, money measurement, and the accrual concept among others. Test your knowledge and understanding of how these principles apply to real-world scenarios.