SWINBURNE UNIVERSITY OF TECHNOLOGY

SARAWAK CAMPUS

FACULTY OF BUSINESS, DESIGN AND ARTS

ACC10007 FINANCIAL INFORMATION FOR

DECISION MAKING

Semester 1, 2022

Practice MCQs (Multiple Choice Questions)

Topic 2: Recording and reporting business

transactions using accrual accounting

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Chapter 4 (Textbook): Business transactions

1. Which of the events listed below is not considered a business transaction?

a. A business owner withdrawing cash from the business bank account for personal
use
b. Selling goods to a customer on credit
c. Signing a new employee’s contract
d. The purchase of office equipment for cash

2. What type of event or transaction occurs if an owner pays her private motor vehicle
insurance from the business bank account?

a. a business transaction.
b. a business event.
c. a personal transaction.
d. none of the above.

3. Which of the following is an example of a personal transaction?

a. The business paying for lunch

b. Buying textbooks for the owner’s children on a company credit card
c. An owner buying lunch with their own money
d. Paying wages to the owner’s personal assistant

4. Which of the following is an example of a business transaction?

a. Hiring a new contractor to perform work for your business next week
b. Negotiating trading terms with a new supplier
c. Buying a new printer
d. Meeting with the bank manager to extend the bank overdraft

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5. The concept of duality requires that each transaction must be recorded:

a. in at least two different accounts.

b. on both sides of the accounting equation.
c. in both the statement of comprehensive income and the statement of financial
position.
d. first as an expense then as equity.

6. What is the effect of profit on the accounting equation?

a. To decrease liabilities
b. To increase assets
c. To decrease expenses
d. To increase equity

7. Assets should always be:

a. equal to liabilities.
b. equal to liabilities plus equity.
c. greater than equity.
d. less than liabilities plus equity.

8. The receipt of payment for an account receivable:

a. affects only the asset side of the accounting equation.

b. affects assets and equity.
c. affects assets and liabilities.
d. has no effect on the accounting equation.

9. A business purchasing inventory on credit creates a liability known as:

a. accounts receivable.
b. inventory.
c. supplies.
d. accounts payable.

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10. On 13 February, ATD Customs Pty Ltd provides a service to MJ Civil Pty Ltd with
payment due within 30 days. On ATD Customs’ statement of financial position, the
amount owed by MJ Civil will be recorded as:

a. a prepayment.
b. an account payable.
c. services income.
d. an account receivable.

11. If a transaction causes an asset account to decrease, which of the following effects of
equal amount may also occur?

a. A decrease in a liability account

b. A decrease in another asset account
c. An increase in an equity account
d. An increase in a liability account

12. For the accounting equation to balance each transaction must:

a. affect the same number of asset and liability accounts.

b. always affect two accounts.
c. affect two or less accounts.
d. affect two or more accounts.

13. Which of the following transactions could explain the reason for a decrease in the cash
account and a decrease in profit?

a. Owner withdrawing cash from the business bank account

b. Payment to a supplier for goods purchased on credit
c. Payment of wages
d. Loan repayment

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14. Accounts for Excavators Ltd are as follows:

Cash $8 000
Accounts payable 15 000
Wages payable 2 000
Inventory 8 500
Accounts receivable 4 200
Equipment 14 500
Loan payable 15 000
Motor vehicles 22 000

What is the amount for equity?

a. $57 200
b. $27 000
c. $32 000
d. $25 200

15. What should you do once all entries have been recorded in the worksheet?

I. Use the column totals to prepare a statement of financial position and statement of
comprehensive income
II. Total all the columns
III. Check the total of the asset accounts equals the total of the liability and equity
accounts

a. I and II
b. I and III
c. II and III
d. I, II and III

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Chapter 5 (Textbook): Statement of financial position

1. The statement of financial position is also known as the:

a. statement of cash flows.

b. statement of comprehensive income.
c. balance sheet.
d. statement of profit or loss.

2. Which of the following statements about the statement of financial position is not true:

a. Assets are listed in order of liquidity.

b. It is reported at a particular point in time.
c. The total of the assets must equal the total of the liabilities plus equity.
d. It represents the cash received and paid during the period.

3. Which of the following characteristics are essential to all assets?

I. A result of a past event

II. A resource controlled by the entity
III. A present economic resource

a. I and II
b. I and III
c. II and III
d. I, II and III

4. Which of these is not a current liability?

a. Dividend payable
b. Accounts payable
c. General reserve
d. Accrued expenses

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5. Which of the following is not an essential characteristic of a liability?

a. It has arisen as a result of a past transaction or event.

b. It represents an internal claim on the entity’s assets.
c. It represents a present obligation to another entity.
d. It requires the transfer of an economic resource to another entity.

6. Which of the following statements regarding equity is not true?

a. It is increased by profit.
b. It can be increased by additional contributions by the owners.
c. It is defined independently of assets and liabilities.
d. It includes the retained earnings of the entity.

7. The statement of financial position usually reports the entity’s financial position for both
the current period and the previous period. This information is known as:

a. comparative information.
b. comprehensive information.
c. financial reporting.
d. narrative information.

8. How are assets, liabilities and equity presented in a statement of financial position
prepared in a narrative format?

a. Assets on the left and liabilities and equity on the right

b. Assets followed by liabilities then equity down the page
c. Assets followed by equity then liabilities down the page
d. Assets on the right and liabilities and equity on the left

9. In the statement of financial position, how is inventory categorised?

a. Current liability
b. Non-current asset
c. Non-current liability
d. Current asset

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10. How are current and non-current liabilities categorised?

a. Based on whether the liability is secured or unsecured

b. Based on the size of the liability
c. Based on to whom the liability is owed
d. Based on when the liability is due for payment

11. Office furniture was purchased for $15 000 and its useful life is estimated to be 7 years.
The residual value of the furniture is $1000. What is the annual depreciation amount?

a. $1000
b. $14 000
c. $2000
d. $1400

12. How is the accumulated depreciation account reported?

a. As an expense on the statement of financial position

b. As an expense on the statement of comprehensive income
c. As a contra asset account on the statement of financial position
d. As a liability on the statement of financial position

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Chapter 6 (Textbook):
Statement of profit or loss and Statement of changes in equity

1. The statement of comprehensive income:

a. reports the assets, liabilities and equity at a specific point in time.

b. summarises the change in retained earnings over a specific period of time.
c. presents the income and expenses of an entity for a specific period of time.
d. reports the changes in assets, liabilities and equity over a period of time.

2. Cars Cars Cars Ltd serviced a motor vehicle on 30 April and issued the invoice to the
owner when the motor vehicle was picked up at the end of the day. The owner sends a
cheque to Cars Cars Cars Ltd on 2 May which is received and banked by Cars Cars Cars
Ltd on 6 May. On what date will Cars Cars Cars Ltd recognise income?

a. 2nd May
b. 6th May
c. 30th April
d. 31st May

3. Machinery is purchased for $140 000. It is estimated that it has a useful life of 5 years
and a residual value of $20 000. Using the straight-line method, calculate the amount of
annual depreciation to be charged.

a. $12 000
b. $24 000
c. $28 000
d. $14 000

4. Machinery is purchased for $140 000. It is estimated that it has a useful life of 5 years
and a residual value of $20 000. Using the straight-line method, the balance in the
accumulated depreciation account at the end of the third year of the machine’s useful life
is:

a. $140 000
b. $68 000
c. $24 000
d. $72 000

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5. Machinery is purchased for $80 000. It is estimated that it has a useful life of 5 years and
a residual value of $5000. Using the straight-line method, calculate the carrying value of
the machine at the end of the fourth year of the machine’s useful life.

a. $15 000
b. $80 000
c. $20 000
d. $60 000

6. An owner contributes $88 000 to expand the business. What effect would this transaction
have on the business?

a. Increase income
b. Increase expenses
c. Increase capital
d. Decrease income

7. Of the following transactions, which should be recorded as income?

a. Harry’s Hats sold inventory on credit for $3000.

b. Chandler & Co Plumbing’s owner contributes $10 000 of personal funds to the
business.
c. M. Witham borrowed $80 000 from the bank.
d. T. O’Toole pays $5500 for goods sold to her on credit last month.

8. Which of the following must exist before income can be recognised?

I. Income recognition must occur at the same time as the recognition of increases in
assets or reductions in liabilities.
II. The increase in future economic benefits related to an increase in an asset or a
decrease in a liability must have arisen.
III. The increase in future economic benefits must be able to be measured reliably.

a. I and II
b. I and III
c. II and III
d. I, II and III

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9. For a retailing or manufacturing entity, gross profit is equal to sales less:

a. purchases.
b. all expenses.
c. cost of sales.
d. all expenses other than cost of sales.

10. For the financial year ending 30 June, Daily Ltd had a beginning balance for equity of
$180 000 and an ending balance of $175 000. During the year, the owner withdrew $120
000 for private use. How much profit did Daily Ltd earn during the year?

a. $60 000
b. $5 000
c. $115 000
d. $125 000

11. Calculator Pty Ltd has a beginning balance of equity of $82 000; an ending balance of
$37 000; and a loss for the period of $33 000. Calculate how much the owner of
Calculator Pty Ltd withdrew during the period for personal use.

a. $12 000
b. $45 000
c. $49 000
d. $78 000

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