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Fundamentals of Financial Accounting Flashcards

7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Fundamentals of Financial Accounting flashcards as text

  1. A sole trader's drawings of $15,000 during the year would appear in the financial statements as:

    Answer: A deduction from capital in the balance sheet

    Drawings are not an expense; they represent the owner withdrawing capital, so they reduce the capital balance in the balance sheet.

  2. The double-entry for recording a bad debt written off is:

    Answer: Debit Bad Debt Expense, Credit Accounts Receivable

    Writing off a bad debt removes the receivable (credit) and recognizes the loss as an expense (debit Bad Debt Expense).

  3. Which inventory valuation method assigns the cost of the most recently purchased items to cost of goods sold first?

    Answer: LIFO

    LIFO (Last In, First Out) assumes that the most recently purchased inventory is sold first, resulting in higher COGS during inflationary periods.

  4. A prepayment of $3,600 rent paid on October 1 for 12 months would result in what balance sheet entry at December 31?

    Answer: Prepaid expense of $2,700

    Three months of rent ($900) has been expensed by December 31, leaving 9 months × $300 = $2,700 as a prepaid (current asset) on the balance sheet.

  5. The trial balance of a company shows total debits of $500,000 but total credits of $492,000. This most likely indicates:

    Answer: A transposition error or omission of a $8,000 credit entry

    An $8,000 difference in the trial balance suggests a missing credit entry or a transposition error (e.g., $80,000 entered as $72,000) causing an imbalance.

  6. Under the accruals basis, revenue from a service contract completed in December but invoiced in January should be recognized:

    Answer: In December when the service was completed

    The accruals concept requires revenue to be recognized when earned (service completed in December), regardless of when the invoice is issued or cash received.

  7. Goodwill arising on the acquisition of a subsidiary is classified as:

    Answer: An intangible non-current asset

    Goodwill is an intangible non-current asset representing the excess of the acquisition price over the fair value of net identifiable assets acquired.