Final Accounts Preparation Flashcards
6 cards from real AAT L3 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Final Accounts Preparation flashcards as text
Which financial statement shows the assets and liabilities of a business at a specific point in time?
Answer: Statement of financial position
The statement of financial position (balance sheet) is a snapshot at a specific date, showing assets, liabilities, and equity. It is a position statement, not a period statement.
For a limited company, retained earnings brought forward plus profit for the year minus dividends paid equals:
Answer: Retained earnings carried forward
Retained earnings c/f = retained earnings b/f + profit for the year − dividends paid. This movement in retained earnings is part of the statement of changes in equity.
The going concern concept means financial statements are prepared on the assumption that:
Answer: The business will continue trading for the foreseeable future
The going concern basis assumes the entity will continue in operation for the foreseeable future, so assets are valued at cost less depreciation rather than liquidation values.
Depreciation for the year is treated in the final accounts as:
Answer: An expense in the income statement
Annual depreciation is an expense charged to the income statement (profit or loss), reducing net profit; the accumulated depreciation reduces the carrying amount of the non-current asset in the balance sheet.
Interest on partners' capitals is credited to partners because:
Answer: It compensates partners for the use of their capital investment in the business
Interest on capital recognises that partners' capital is tied up in the business; it compensates partners with different capital balances for the relative size of their investment before the remaining profit is shared.
When inventory is damaged and written down to net realisable value, the journal entry is:
Answer: Debit Inventory Write-Down Expense, Credit Inventory
Inventory written down: debit the inventory write-down expense (or cost of sales) to recognise the loss, and credit inventory to reduce the asset to its net realisable value.