W2 Homework (corrected)

Chapter 1: Introduction to financial

accounting
Preparation Questions
DQ 1.1 The basic purpose of financial accounting is to provide reliable, relevant
and unbiased information that can be used for financial analysis, investment and
management decisions. Information is given in the form of financial statements
which relate to the financial performance and position of all sorts of enterprises.

DQ 1.2 Financial performance relates to the generation of new resources in

daily operations over a period of time whereas financial position refers to the
enterprises set of financial resources and obligations at a point in time.

DQ 1.3 Financial accounting involves periodic financial statements and related

disclosures which are aimed at external decision makers such as investors,
creditors, suppliers and so forth. On the other hand, managerial accounting
focuses on detailed plans and continuous performance reports that allow wellinformed internal business decisions to be made.

DQ 1.7 No, not all users of financial accounting have the same information
needs because the financial statements may be used in a number of ways:
evaluation of the CEOs performance, review of a companys credibility to borrow
and recommendations of a financial analyst of what to do with shares.

P 1.6
1.
2.
3.
4.

Bankers
Company management
Shareholders
Shareholders

5. Suppliers
6. Australian Taxation Office
(ATO)
7. Trade Unions

8. P 1.14
1. Trade and other receivables
[A]
2. Income payable tax [L]
3. Provisions [L]
4. Finance costs [E]
5. Cost of sales [E]
6. Investment Properties [A]

7. Other reserves [SE]

8. Interest-bearing loans and
borrowings [L]
9. Investments [A]
10.Cash and cash equivalents [A]
11.Occupancy expenses [E]
12.Sales revenue [R]

13.
14.
15.
16.
17.Tutorial Questions
18.DQ 1.12 Accrual accounting is a system which recognises transactions in
the time period during which revenues and expenses occur. On the other
hand, cash accounting is a system were transactions are recorded when
cash is received or paid.
19.DQ1.16
a) Accounting entity is the name of the business
b) Accounting period refers to the point or passage of time the statement is
referring to
c) Monetary refers to the common denominator of measuring value ($AUD)
d) Historical cost is the original cost of an asset when purchased
e) Going concern refers to the preparation of financial statements under the
assumption of continued operation
f) Materiality considers whether stating or omitting a particular information
would affect decisions of users of the reports.
20.P 1.7 - Accrual Profit = 640 000 + 490 000 590 000 380 000 = $160
000
21.P1.18 - Accounting Equation: Assets = Liabilities + Shareholders Equity
1) L = A - SE
Opening balance - L = 60 000 40 000 = $20 000
Closing balance = 20 000/2 = $10 000
2) SE = A L
SE = (75 000 + 40 000) 45 000 = $70 000
3) A = L + SE
Aend of year = 76 000 + 32 000 = $98 000
Abeginning of year = 98 000/3 = $32 666
22.P1.24 A = L + SE
23.
25.Property, plant and equipment [A]
27.Accounts receivable [A]
29.Cash [A]
31.Inventory [A]
33.Bank Loan [L]
35.Wages payable [L]
37.
38.

24.$
SE = A L
26.1
800
000 000
SE = (1 800 000 + 350
000
+ 120
28.350
000
+ 480 000) (300 000 88 000)
30.120
000
= $2 363 000
32.480 000
34.300 000
36.88 000