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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. Which of the following best describes the prudence concept in financial accounting?

    Answer: Assets and revenues should not be overstated, and liabilities and expenses should not be understated

    Prudence means exercising caution so that assets and income are not overstated and liabilities and expenses are not understated, avoiding overoptimism in financial reporting.

  2. A machine costing $30,000 with accumulated depreciation of $18,000 is sold for $14,000. The profit or loss on disposal is:

    Answer: Profit of $2,000

    Net book value = $30,000 − $18,000 = $12,000; Profit on disposal = $14,000 − $12,000 = $2,000.

  3. Under IAS 7, which of the following is classified as a financing activity in the statement of cash flows?

    Answer: Payment of dividends to shareholders

    IAS 7 classifies dividend payments as financing activities (under the allowed alternative) because they are transactions with the entity's financiers.

  4. If opening inventory is $20,000, purchases are $80,000, and closing inventory is $15,000, what is the cost of goods sold?

    Answer: $85,000

    COGS = Opening inventory + Purchases − Closing inventory = $20,000 + $80,000 − $15,000 = $85,000.

  5. Which of the following correctly describes the matching concept?

    Answer: Expenses should be recognized in the same period as the revenues they helped generate

    The matching concept (part of the accruals basis) requires that expenses be recognized in the accounting period in which the related revenue is earned.

  6. A company's gross profit margin is 40% and revenue is $250,000. What is the cost of goods sold?

    Answer: $150,000

    Gross profit = 40% × $250,000 = $100,000; COGS = Revenue − Gross profit = $250,000 − $100,000 = $150,000.

  7. Which of the following statements about the statement of changes in equity is correct?

    Answer: It summarizes all transactions with owners and total comprehensive income for the period

    The statement of changes in equity reconciles opening and closing equity by showing profit or loss, other comprehensive income, dividends, and share issuances during the period.