Question

1. Explain why adjusting journal entries are required at the end of the accounting period?
2. Explain how a firm’s net cash position in the Cashflow Statement can decrease during a year when the profit has increased. Give an example.   (2marks)
3. In accounting for inventories and cost of goods sold, why are cost flow assumptions such as FIFO and LIFO needed? Why not just use the specific identification method?
4. Explain the impact on the Income Statement of using the LIFO inventory valuation method during a period of rising prices.   (1 mark)
5. Explain the difference between a general ledger and a subsidiary ledger. Your answer should explain how the information contained in each is used.   
6. What is the main reason for using the allowance method for accounting for bad debts rather than the direct write-off method?   
7. Comment on the view, that when machinery is carefully maintained and the fact that all parts are replaceable, there is no requirement for a depreciation expense to be provided on the machinery.
8. One of the steps in the accounting cycle is referred to as “closing the account”. Explain this process. Why is this step necessary?   
9. An investigation of the accounting records of the new business found that it was not adhering to generally accepted accounting principles. Identify the accounting concept / principle or qualitative characteristic that is being violated in each of the following situations:

(i)     The business changes its accounting methods of depreciation each year.

(ii)    Felicity includes her personal car as one of the assets of the new partnership.

             (iii)   The business only records expenses when they are paid in cash not on the delivery of the inventory from the supplier.

(iv)   Non-current assets are recorded at market value

Answer 1