AAT L3 Final Accounts Preparation

Question 1

The statement of profit or loss for a sole trader begins with:

Accepted Answer

Revenue (sales)

Answer

The income statement (profit or loss) starts with Revenue (sales/turnover) at the top, then deducts cost of sales to arrive at gross profit, before deducting expenses to reach net profit.

Question 2

Gross profit is calculated as:

Accepted Answer

Revenue minus cost of sales

Answer

Gross profit = Revenue − Cost of Sales. Cost of sales includes opening inventory plus purchases minus closing inventory (and any returns or carriage inwards).

Question 3

In a partnership, the appropriation account shows:

Accepted Answer

How the net profit is divided between the partners

Answer

The appropriation account follows the income statement for a partnership; it distributes the net profit between partners by showing interest on capital, salaries (if agreed), and the profit share.

Question 4

Partners' current accounts record:

Accepted Answer

The day-to-day transactions — drawings, salary, interest on capital, and profit share

Answer

Partners' current accounts track the fluctuating element of each partner's stake: credits for salary allowance, interest on capital, and profit share; debits for drawings and interest on drawings.

Question 5

For a limited company, dividends are shown in the financial statements as:

Accepted Answer

A deduction from retained earnings in the statement of changes in equity

Answer

Dividends paid are distributions of profit to shareholders; they are shown as a deduction from retained earnings in the statement of changes in equity, not as an expense in the income statement.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Final Accounts Preparation