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
In a partnership, if losses exceed the credit balance on a partner's current account, the deficit is:
Answer: Transferred to a debit balance on the current account or to the capital account
If a partner's current account is overdrawn (deficit), the debit balance either remains on the current account as a debt owed to the partnership or, by agreement, can be transferred to the capital account.
When preparing the final accounts of a sole trader, the net profit is transferred to:
Answer: The capital account in the balance sheet
At year end, net profit increases the owner's equity: it is transferred from the income statement to the capital account on the balance sheet, increasing the owner's stake in the business.
Carriage outwards is classified as:
Answer: A selling and distribution expense
Carriage outwards is the cost of delivering goods to customers; as it relates to selling, it is classified as a selling and distribution expense in the income statement, not as part of cost of sales.
A limited company's reserves shown on the balance sheet include:
Answer: Share premium, revaluation reserve, and retained earnings
Reserves form part of shareholders' equity and include: share premium (excess over nominal value on share issues), revaluation reserve (upward asset revaluations), and retained earnings (accumulated profits less dividends).
The materiality concept means that:
Answer: Insignificant items may be aggregated or omitted if they would not affect users' decisions
Materiality means information is material if its omission or misstatement could influence the economic decisions of users. Immaterial items can be aggregated or treated as expenses rather than capitalised.
Which section of the balance sheet shows the funding of a business's assets?
Answer: Equity and liabilities section
The equity and liabilities section of the balance sheet shows how the assets are financed: through equity (owner's capital/shareholders' funds) and through liabilities (long-term borrowings and current liabilities).