Question

Question 1
State whether each of the following statements is TRUE or FALSE.
a. The accrual concept states that expenses are accounted for in the period they are
actually paid.
b. An increase in sales is credited in the sales account.
c. Assets – Capital = Liabilities
d. A business can be profitable but still fail to pay its financial obligations.
e. Prepayments of expenses are treated as current liabilities in the Statement of
Financial Position.
f. Net salary = Gross Salary – Pay as You Earn only.
g. A corporation has limited liability.
h. Annual depreciation decreases every year when using the straight-line method.
I. Accounting ratios can be used to compare the performance of different companies
in the same industry.
J. LIFO is the inventory management method where the first inventory to be bought
are the last ones to be sold.

Answer 1

Question 1
State whether each of the following statements is TRUE or FALSE.

a. False : The accrual concept states that expenses are accounted for in the period they are
actually paid.

Under accural concept the expenses are accounted in the year it was incurred and not in the year it was actually paid.

b. True : An increase in sales is credited in the sales account.

sales is credited in the sales account and debited to cash or account receivable account.

c. True : Assets – Capital = Liabilities

Accounting Equation Capital + Liabilities = Assets , so the above stateed equation is also true.

d. True : A business can be profitable but still fail to pay its financial obligations.

It may be possible when to pay the fiancial obligations then their might be shortage of cash in the organisation.

e. False : Prepayments of expenses are treated as current liabilities in the Statement of
Financial Position.

Prepayments are the expenses which is paid in advance it is prepaid expenses and it was shown under current assets in the statement of finacial position.

f. False : Net salary = Gross Salary – Pay as You Earn only.

Net salary = Gross salary - deduction , so the above mentioned is false.

g. True  : A corporation has limited liability.

corporation had limited liablity because the business is considered a seperate legal entity.

h. False :Annual depreciation decreases every year when using the straight-line method.

under the stragh line method the depreciation remains equal in each year

I. True : Accounting ratios can be used to compare the performance of different companies
in the same industry.

Ratios analysis is done to compnare the performance of differnce companies in the same industry by the ratio analysis the comparison of profitability, solvency and the liquidity of compnay is calculated

J. True : LIFO is the inventory management method where the first inventory to be bought
are the last ones to be sold.

under the LIFO inventroy method the the first the inventory sold is the one that one purchased the last one.