Accounting - Test Your Knowledge

[Aqualim]

7) The manager of Pandora's Plant Hire believes that the profit and loss statement and the balance sheet have different purposes. THe manager stated: "The profit and loss statement shows profit which includes all cash and credit transactions, whereas the balance sheet shows the cash that would be gained if all assets were sold at a particular date.

Explain why the manager's statement relating to the profit and loss statement is incorrect. (4 Marks)

Firstly the statement about the balance sheet is wrong because assets within the balance sheet are not are market value, therefore if the assets were sold the price for say, Land and Buildings would be different to what it is reported in the balance sheet. Hence Historical Cost.

The statement regarding the profit and loss statement is also incorrect as the profit and loss doesn't include all credit transactions, as Debtors control, Receipts from Debtors, Creditors Control or Payments to creditors is listed in the profit and loss, as they are not classified as revenues or expenses. The profit and loss doesn't only show profit either, it also shows the average mark-up placed on stock as well and also takes into account any stock loss or gain.

[Aqualim]

Ok here's another question for you folks for some preparation for tomorrow. I intended it to be tricky but I'm sure someone will nail it.

Outline all the general ledger accounts that are effected through the omission of a credit purchase of stock, using the effect of Overstated/Understated/No Change to each account. (5 marks)

I'll post up solutions after a few guesses from people

[Albeno69]

Ok here's another question for you folks for some preparation for tomorrow. I intended it to be tricky but I'm sure someone will nail it.

Outline all the general ledger accounts that are effected through the omission of a credit purchase of stock, using the effect of Overstated/Understated/No Change to each account. (5 marks)

I'll post up solutions after a few guesses from people

Stock control-understated
creditors-understated
GST clearing-understated
Assets-understated
liabilities-understated
Owner equity-no effect

[Aqualim]

Ok here's another question for you folks for some preparation for tomorrow. I intended it to be tricky but I'm sure someone will nail it.

Outline all the general ledger accounts that are effected through the omission of a credit purchase of stock, using the effect of Overstated/Understated/No Change to each account. (5 marks)

I'll post up solutions after a few guesses from people

Stock control-understated
creditors-understated
GST clearing-understated
Assets-understated
liabilities-understated
Owner equity-no effect

Not quite, a little hint, I'm only looking for 4 general ledger accounts

[aposta28]

Stock Control- Understated
Stock Loss- Overstated
GST clearing Understated
Creditors Control- Understated

[Aqualim]

I had:
Stock Control - Understated
Creditors Control - Understated
GST Clearing - Overstated
Stock Gain - Overstated OR Stock Loss - Understated

[aposta28]

I think you are right..
I just realised Purchase so yeah it's Overstated..
However, the stock gain and loss, is a tricky one..
Are those the right anwers? like.. do you have the solutions for this answer?
or are these the right answers?

[Aqualim]

I actually made the question up based on one of the questions in last years VCAA exam where only 1% of the state got full marks, instead I said it was a credit purchase of stock instead of a credit sale of stock. You never know, this same question could be on tomorrows exam

But yeah the solutions I have are correct

[aposta28]

Hahaha I got that question right out of sheer FLUKE
in 09 exam
But mind you, i have no idea why i did it