Final Accounts Preparation Flashcards
6 cards from real AAT L3 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Final Accounts Preparation flashcards as text
The prudence concept in accounting requires that:
Answer: Losses and liabilities are recognised as soon as they are probable; profits only when realised
Prudence means not overstating assets or income, and not understating liabilities or expenses. Anticipated losses are recognised immediately; profits are only recognised when realised.
The income statement of a limited company presents:
Answer: Revenue, gross profit, operating profit, profit before tax, and profit after tax
A limited company's income statement typically presents: revenue, cost of sales, gross profit, distribution and administrative expenses, operating profit, finance costs, profit before tax, tax, and profit after tax.
In partnership accounts, a 'salary' allowance for a partner is:
Answer: An appropriation from the net profit, NOT a business expense
Partners' salary allowances are appropriations of net profit (not business expenses); they are dealt with in the appropriation account. The partnership's net profit is calculated before partners' salaries.
An entity's current ratio is 1.5:1. This means:
Answer: The entity has £1.50 of current assets for every £1.00 of current liabilities
Current ratio = current assets / current liabilities. A ratio of 1.5:1 means there are £1.50 of current assets for every £1 of current liabilities, indicating the entity can meet short-term obligations.
If a business has a net profit margin of 15%, it means:
Answer: 15 pence of every £1 of revenue is retained as net profit
Net profit margin = net profit / revenue × 100%. A 15% margin means 15 pence of each pound of sales becomes net profit after all costs and expenses.
Share capital on a balance sheet represents:
Answer: The nominal value of all shares issued to shareholders
Share capital is recorded at the nominal (par) value of shares issued, not the issue price or market value. Any excess over nominal value is recorded separately as share premium.