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Chapter 2 - Muliple-choice questions

1. The main source of information about a limited liability entity is:
   1.   ?    the balance sheet
   2.   ?    the income statement
   3.   ?    profit and loss account
   4.   ?    the annual report and accounts
2. The financial statements of a business are usually prepared on the assumption that:
   1.   ?    it will close next year
   2.   ?    it will continue for the foreseeable future
   3.   ?    it is not known whether it will continue next year
   4.   ?    it will continue for only one month
3. In applying the prudence concept, the accountant ensures that:
   1.   ?    all possible profits and revenues are included
   2.   ?    all possible costs and losses are included
   3.   ?    all possible revenues and costs are included
   4.   ?    all possible profits and losses are included
4. The accruals concept requires that:
   1.   ?    all revenue is recognised when it is earned, regardless of when cash is received
   2.   ?    all costs are recognised as they are incurred, regardless of when cash is paid
   3.   ?    all revenue and costs are matched to the period to which they relate
   4.   ?    all of these
5. The business entity concept is based on the assumption that:
   1.   ?    the business exists separately from its owner(s)
   2.   ?    the information recorded in the accounting system relates to the activities of the business
   3.   ?    the business can enter into transactions with the owner(s)
   4.   ?    all of these
6. The three main elements of the regulatory framework for limited liability entities are:
   1.   ?    the profit and loss account, income statement and balance sheet
   2.   ?    the annual report, the directors report and the auditors report
   3.   ?    company law, accounting standards and stock exchange rules
   4.   ?    partnership law, accounting principles and stock exchange rules