Financial Statements – I

Topics in this chapter

• Financial Statement Concepts
• Trading Account And Gross Profit
• Profit And Loss Account
• Final Accounts Adjustments
• Balance Sheet And Financial Position
• Trial Balance To Final Accounts

Cheat sheet

Practice questions

1. Question 1Q-7AA8D0

   Which of the following is the primary objective of preparing financial statements according to the accounting principles?

   1. A.To calculate the exact market value of the business enterprise
   2. B.To provide information about the financial performance and financial position of an enterprise to users
   3. C.To determine the exact tax liability payable to the government
   4. D.To assess the personal wealth of the business owners
   See the answer and solution
2. Question 2Q-6711EA

   Gross Profit is best defined as:

   1. A.Excess of net sales over total operating expenses
   2. B.Excess of operating revenue over cost of goods sold
   3. C.Excess of revenue from operations over cost of revenue from operations (Cost of Goods Sold)
   4. D.Net income available to equity shareholders before tax
   See the answer and solution
3. Question 3Q-D642B5

   While preparing the Trading and Profit and Loss Account, Closing Stock is valued at:

   1. A.Cost price only
   2. B.Net realisable value only
   3. C.Cost price or net realisable value (market value), whichever is higher
   4. D.Cost price or net realisable value (market value), whichever is lower
   See the answer and solution
4. Question 4Q-C5E801

   Which of the following items is treated as an operating expense in the Profit and Loss Account?

   1. A.Loss on sale of machinery
   2. B.Interest paid on long-term loan
   3. C.Office rent and salaries
   4. D.Preliminary expenses written off
   See the answer and solution
5. Question 5Q-3E31EC

   Which of the following errors will be disclosed by the preparation of a Trial Balance, but NOT by the preparation of Trading and Profit and Loss Account?

   1. A.Error of complete omission
   2. B.Error of partial omission (posting to only one account)
   3. C.Error of principle
   4. D.Error of recording wrong amount in both accounts
   See the answer and solution