A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 53 - 55 of 93

Question 53

Question

MCQ▾

Income and Expenditure Account is prepared by the

Choices

Choice (4)

a.

Non-profit organizations

b.

Partnership firms

c.

Companies

d.

Sole-proprietary concerns

Answer

a.

Explanation

  • Income and expenditure account are the summary of incomes and expenditure of the complete year. It is like profit and loss account prepared on accrual basis. It is prepared at the end of the accounting year and includes only items of revenue nature (not capital items) and the balance at the end represents surplus of income over expenditure or vice versa.
  • It is the profit and loss account prepared by the non-trading concerns. The balance in this account shows surplus or deficit in the amount.

Question 54

Question

MCQ▾

The following information has been calculated from the accounts of a business.

Days taken to pay creditors 37

Days taken by debtors to pay 65

Stock turnover in days 15

What is the cash operating cycle?

Choices

Choice (4)

a.

29 days

b.

43 days

c.

15 days

d.

79 days

Answer

b.

Explanation

Question 55

Question

MCQ▾

Which one of the following is a component of the entity convention of accounting?

Choices

Choice (4)

a.

The owner of a unit and the unit itself is one

b.

No separate accounts for the unit are required

c.

The unit is a private affair of the owner, hence no accounting is required

d.

The owner and the unit are treated separatel

Answer

d.

Explanation

According to this assumption, business is treated as a unit separate and distinct from its owners, creditors, managers, and others. Business unit should maintain a separate set of accounting books and transactions should be recorded from firm՚s point of view and not from the point of view of the proprietor. The proprietor is treated as a creditor of the business to the extent of capital invested by him in the business. The capital of a firm is treated as a liability of the firm as it is assumed that the firm has borrowed capital from its own proprietors instead of borrowing it from outside. Interest on capital reduces the profits of the firm and at the same time it increases the capital of the proprietor. Similarly, the amount withdrawn by the proprietor from the business for his personal use is treated as his drawings. Likewise, goods used from the stock of the business for business purposes are treated as the expenditure of the business but similar goods used by the proprietor for his personal use are treated as his drawings.

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