Tutorial 04

Introduction to Financial Accounting & Basic Accounting Equation

Activity 01

Select the correct answer

1. The financial information provided by an accounting system is needed by,

a. Owners
b. Management
c. Government
d. All of the above

2. Select the correct order of the accounting process

a. Identification, Measurement, Recording, Interpreting, Analyzing & Communicating

b. Identification, Recording, Summarizing, Reporting & Communication.
c. Recording, Summarizing, Identification, Interpreting & Communication
d. Identification, Interpreting, Recording, Classification & Analyzing

3. In the accounting process, transactions are identified using,

a. Financial Statements
b. Debit note
c. Journal vouchers
d. Source Documents

4. What is Book Keeping in Accounting?

 a. The booking keeping is system of recording transactions in terms of double entry
process in the books of accounts.
b. Bookkeeping is a process of review, examination, verification, evaluation or
inspection of historical data, records or events belonging to an entity.
c. Bookkeeping is system of preparing financial statements and communicating useful
financial information to end users
d. Identifying, measuring, analyzing, interpreting, and communicating financial
information to in achieving organization's goals is called as bookkeeping.

5. The statement which shows the financial position of a business at a particular date is
termed as,

a. Cash Flow Statement

b. Balance Sheet
c. Income Statement
d. Financial Statement

6. The branch of accounting that generates reports and information for the use of internal
management is known as,

a. Tax accounting
b. Management accounting
c. Auditing
d. International accounting

7. Which of the following task is not performed by an accountant?

a. Compiling and presenting reports, budgets and financial statements.

b. Formulating operations strategy, procuring material and resources.
c. Prepare tax returns and interpret tax laws.
 d. Deciding the cost of manufactured product.

8. Which of the following is explaining about how an independent auditors’ involved in the
Accounting Communication Process?

a. Independent auditors are analyzing, advising and providing consultation services to

users.
b. Independent auditors are responsible in preparing financial statements for the users to
make financial decisions.
c. Independent auditors are involving in verifying the information in the financial
statement in order to give true and fair view of the financial statements.
d. Independent auditors are involving with preparing and issuance of financial statements
to the stakeholders

9. What is an accounting professional body which responsible for establishing accounting

and financial reporting standards for companies following generally accepted rules?

a. Financial Accounting Standard Board

b. International Accounting Standard Board
c. Security and exchanged commission
d. Institute of Chartered Accountants of Sri Lanka

10. A financial statement that indicates the business performance of a business over a period
of time is called,

a. Income Statement
b. Statement of Changes in Equity
c. Balance Sheet
d. Cash flow statement
11. What is the qualitative characteristic of financial information described by the following
sentence?

The transactions and events should be accounted for in a manner that represent their true
economic substance rather than the mere legal form.

a. Relevance
b. Materiality
c. Faithfull representation
d. Timeliness

12. The enhancing qualitative characteristics of financial information include,

a. Relevance and faithful representation

b. Comparability and understandability
c. Relevance and timeliness
d. Understandability and faithful representation

13. What is the qualitative characteristic that financial statements must achieve in order to
compare financial information with other different businesses and with the same business
in different accounting periods?

a. Verifiability
b. Comparability
c. Reliability
d. Completeness

14. What is the statement that describes the materiality of financial statement information?

a. Information is material if omitting it or misstating it could influence decisions that

users make on the basis of financial information about reporting entity.
 b. Materiality reflected when preparing financial statement use the same industrial
practice followed by the other companies.
c. If a particular financial information is material for a party, such all information should
not be disclosed in your financial statement
d. If financial statement free from error it reflects by the materiality.

15. Which of the following is NOT a contributory factor in order to achieve the faithful
representation?

a. Completeness
b. Free from errors
c. Consistency
d. Neutrality

16. Which of the following information is NOT included in a business annual report?

a. A letter from corporate management

b. Footnotes that explain many elements of the financial statements in more detail
c. Confidential production strategies
d. The report of the independent auditors

17. Which of the following statement is correct in relation to the neutrality under the faith
full representation?

a. The information must contain all the necessary description and explanations in order to
clearly understand
b. There should be no mistake in accounting information process as it’s a very
transparency process
c. Information presented in the financial statement should not be favorable to any other
party. Information should
d. Information represent in the financial statement should be reliable
18. Keeping information available for decision makers on time describe by                  
enhancing qualitative characteristic. 

a. Equality
b. Consistency
c. Timeliness
d. Understandability

19. The full disclosure principle requires,

a. An incomplete set of ledger accounts, and Notes to the financial statements

b. A complete set of financial statements and policies which followed by accountant in
preparing financial
c. Partially completed set of financial statement and notes to the financial statements
d. A complete set of financial statements and Notes and policies to the financial
statements

20. Within the context of the qualitative characteristics of accounting information, which of
the following is a fundamental qualitative characteristic?

a. Comparability
b. Understandability
c. Verifiability
d. Relevance

Activity 02

Following transactions are relevant to Mayura Ltd for the month of July 2020. Enter the
following transactions in the basic accounting equation.
1. Owner invested Rs. 500,000 cash and Rs. 600,000 land to the business

2. Obtained a bank loan Rs. 60,000

3. Bought goods on cash basis from Damith Rs. 20,000

4. Goods worth of Rs. 12,000 was sold for Rs. 25,000 in cash

5. Sold goods on credit basis to Narmada Rs. 15,000 (Cost: Rs. 8,000)

6. Bought goods on credit from Anjana Rs. 15,000

7. Goods worth Rs. 10,000 was sold for Rs. 20,000 on credit

8. Cash received from Narmada Rs. 12,000

9. Cash paid to Anjana Rs. 8,500

10. Owner withdrew stocks for his personal use Rs. 2,000

11. Owner withdraw cash for his personal use Rs. 3,000

12. Paying salaries Rs. 6,000

13. Deposited Rs. 10,000 in bank

14. Purchased goods worth Rs. 50,000 on credit basis from Nimal

15. Return 20,000 worth goods to Nimal due to damage.

16. Sold goods on credit basis to Amila Rs. 30,000 (Cost: Rs. 20,000)

17. Paid Nimal by cheque worth Rs. 2,000

18. Amila gave an equipment to settle his account worth Rs. 25,000

19. Paid electricity expenses Rs. 800

20. Interest Received Rs. 8,000

21. Received a cheque from a Amila worth Rs. 1,000

22. Bought a machine worth Rs. 5,000

23. Bad debts return off Rs. 4,000 (Amila)

 24. Accrued electricity Rs. 3200

25. The value of the land has appreciated by Rs. 15,000 at the end of the year 2019.

26. Paid rent by cash Rs. 21,000

27. Commission income received Rs. 5,000

Activity 03

Describe the following transactions.

Transaction Assets Liability Capital

No. Machinery Furniture Inventory Debtors Bank
01. +200 -200
02. +180 +180
03. +180 -180
04. -40 +50 +10
05. -38 -40 +2
06. -60 +100 +40
07. -60 +57 -3
08. -8 -8
09. -50 -50