N-Level Principles of Accounts 2

Question 1

What is an 'income statement' (profit and loss account)?

Accepted Answer

A financial statement showing a business's revenue, expenses, and resulting profit or loss over a specific period

Answer

The income statement summarises all revenue earned and expenses incurred over a period (usually one year). The difference between total revenue and total expenses gives the net profit or loss.

Question 2

What is a 'trade receivable' (debtor)?

Accepted Answer

Money owed to the business by customers who purchased goods or services on credit

Answer

Trade receivables are amounts owed by customers who have purchased goods or services on credit terms. They are current assets on the balance sheet as they are expected to be collected within a year.

Question 3

What is the purpose of a 'bank reconciliation statement'?

Accepted Answer

To explain the difference between the cash book balance and the bank statement balance, identifying items like unpresented cheques and uncredited deposits

Answer

A bank reconciliation identifies why the cash book and bank statement show different balances. Common differences include timing (unpresented cheques, uncredited deposits), bank charges, and direct payments.

Question 4

What is 'accrued expense' in accounting?

Accepted Answer

An expense that has been incurred in the current period but not yet paid

Answer

Accrued expenses are costs incurred in the current accounting period but not yet paid. For example, electricity used in December but billed in January. They are recorded as current liabilities.

Question 5

What is the 'prudence concept' in accounting?

Accepted Answer

Exercise caution: anticipate and record losses as soon as they are probable, but only record gains when they are realised

Answer

The prudence concept requires accountants to be cautious: record potential losses and liabilities as soon as they are anticipated, but only recognise revenue and gains when they are certain.

GCE N-Level Practice Test

GCE N-Level Practice Test

N-Level Principles of Accounts 2