Q. In the Profit and Loss Account, which of the following is considered an expense?
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A.
Sales Revenue
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B.
Drawings
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C.
Cost of Goods Sold
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D.
Capital Introduced
Solution
Cost of Goods Sold is considered an expense in the Profit and Loss Account.
Correct Answer:
C
— Cost of Goods Sold
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Q. What is the accounting equation that underlies the preparation of final accounts?
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A.
Assets = Liabilities + Equity
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B.
Revenue = Expenses + Profit
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C.
Assets + Liabilities = Equity
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D.
Equity = Assets - Liabilities
Solution
The accounting equation is Assets = Liabilities + Equity.
Correct Answer:
A
— Assets = Liabilities + Equity
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Q. What is the accounting treatment for depreciation in the final accounts of a sole trader?
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A.
It is added to the asset value
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B.
It is deducted from the asset value
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C.
It is recorded as a liability
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D.
It is ignored
Solution
Depreciation is deducted from the asset value to reflect the reduction in value over time.
Correct Answer:
B
— It is deducted from the asset value
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Q. What is the effect of closing stock on the final accounts of a sole trader?
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A.
Increases profit
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B.
Decreases profit
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C.
Has no effect
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D.
Increases liabilities
Solution
Closing stock is subtracted from the cost of goods sold, which increases the profit for the period.
Correct Answer:
A
— Increases profit
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Q. What is the effect of depreciation on the final accounts of a sole trader?
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A.
Increases net profit
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B.
Decreases net profit
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C.
Has no effect on net profit
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D.
Increases total assets
Solution
Depreciation decreases net profit as it is recorded as an expense.
Correct Answer:
B
— Decreases net profit
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Q. What is the formula for calculating net profit in the income statement?
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A.
Total Revenue - Total Expenses
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B.
Total Assets - Total Liabilities
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C.
Sales - Cost of Goods Sold
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D.
Gross Profit - Operating Expenses
Solution
Net profit is calculated by subtracting total expenses from total revenue.
Correct Answer:
A
— Total Revenue - Total Expenses
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Q. What is the impact of an error in the trial balance on the final accounts of a sole trader?
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A.
It will not affect the final accounts
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B.
It may lead to incorrect profit calculation
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C.
It will always result in a balanced trial balance
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D.
It only affects the balance sheet
Solution
An error in the trial balance can lead to incorrect profit calculations, affecting the accuracy of the final accounts.
Correct Answer:
B
— It may lead to incorrect profit calculation
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Q. What is the primary purpose of preparing final accounts for a sole trader?
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A.
To calculate the tax liability
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B.
To assess the financial position of the business
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C.
To determine the amount of inventory
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D.
To prepare for an audit
Solution
The primary purpose of preparing final accounts is to assess the financial position of the business.
Correct Answer:
B
— To assess the financial position of the business
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Q. What is the purpose of the trial balance in the context of final accounts?
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A.
To summarize all income and expenses
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B.
To ensure that debits equal credits
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C.
To calculate the net profit
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D.
To prepare the balance sheet
Solution
The trial balance is used to ensure that debits equal credits before preparing final accounts.
Correct Answer:
B
— To ensure that debits equal credits
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Q. What is the treatment of drawings in the final accounts of a sole trader?
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A.
Recorded as an expense
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B.
Recorded as a liability
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C.
Recorded as a reduction in equity
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D.
Not recorded at all
Solution
Drawings are recorded as a reduction in equity in the final accounts of a sole trader.
Correct Answer:
C
— Recorded as a reduction in equity
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Q. What is the typical format of the Balance Sheet for a sole trader?
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A.
Assets = Liabilities + Owner's Equity
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B.
Assets + Liabilities = Owner's Equity
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C.
Assets = Owner's Equity - Liabilities
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D.
Owner's Equity = Assets + Liabilities
Solution
The typical format of the Balance Sheet is Assets = Liabilities + Owner's Equity.
Correct Answer:
A
— Assets = Liabilities + Owner's Equity
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Q. Which accounting standard is most relevant for the preparation of final accounts for sole traders?
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A.
IFRS
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B.
GAAP
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C.
IAS
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D.
None of the above
Solution
Sole traders often follow simplified accounting principles rather than formal accounting standards like IFRS or GAAP.
Correct Answer:
D
— None of the above
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Q. Which accounting standard is primarily concerned with the preparation of financial statements?
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A.
IFRS
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B.
GAAP
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C.
IAS
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D.
All of the above
Solution
All of these accounting standards provide guidelines for the preparation of financial statements.
Correct Answer:
D
— All of the above
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Q. Which inventory valuation method is commonly used by sole traders?
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A.
FIFO
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B.
LIFO
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C.
Weighted Average
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D.
All of the above
Solution
All of the above methods can be used by sole traders for inventory valuation.
Correct Answer:
D
— All of the above
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Q. Which of the following is a key component of the balance sheet for a sole trader?
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A.
Drawings
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B.
Sales Revenue
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C.
Net Profit
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D.
Cost of Goods Sold
Solution
Drawings represent the amount taken out of the business by the owner and are a key component of the equity section of the balance sheet.
Correct Answer:
A
— Drawings
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Q. Which of the following is NOT included in the final accounts of a sole trader?
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A.
Profit and Loss Account
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B.
Balance Sheet
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C.
Cash Flow Statement
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D.
Trial Balance
Solution
A Cash Flow Statement is not typically included in the final accounts of a sole trader.
Correct Answer:
C
— Cash Flow Statement
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