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A Level Accounting
3 and 6 markers
| Question | Answer |
|---|---|
| Explain why it is important to apply the going concern concept (3) | Helps reassure shareholders +stakeholders as it implies the ability to trade as normal for the foreseeable future/business can apply accruals concept so income&expenditure are matched to periods they belong to thus profit figures are accurately reported. |
| Peter believes that if the trial balance balances, the financial records are accurate. Assess whether Peter’s view is correct (6) | A trial balance will pick up some errors e.g. partial omission. However not all errors affect the trial balance e.g. errors of omission and principle e.g. an invoice posted to Motor Vehicles rather than motor expenses |
| Describe one disadvantage of a standard costing system(3) | It will take time to collect the data to set up the standard cost. These will need to be regularly reviewed so there will be an ongoing cost/if the standard set is incorrect or out of date then comparing this with the actual cost will be misleading. |
| Explain, using an example, one benefit of preparing a labour budget (3) | It can be used for wage negotiations/bonuses. If staff can produce the units in less hours than budgeted for in the labour budget then they could be paid bonuses |
| Assess the usefulness of break-even analysis (6) | Measures potential profitability/What-if analysis can be used to assess different variations/Assumes all output is sold/Assumes linear behaviour by all costs/Only considers quantitative factors/External factors limit usefulness of break-even |
| Explain why a business might choose to employ book-keepers and ledger clerks as well as use the services of a professional accountant (6) | Employing bookkeepers/ledger clerks allows some of the more straightforward work to be done (more cost effective). The accountant can oversee the work and check the accuracy. Accountant just completes final financial statements (saves money) |
| Explain two reasons why a business would prepare a bank reconciliation statement (6) | (1) Enables missing entries in cash book to be accounted for (2) Enables errors in cash book to be identified and corrected, preventing errors in the financial statements (3) Enables out-of-date cheques to be identified and cancelled in the cash book |
| Advise whether the business should use another supplier to overcome the shortage of material (6) | Cost may be higher if supplier knows that business requires the materials urgently/Loss of a trade discount - no trading history with supplier./Loss of a bulk buying discount/Quality could be inferior - could impact on the quality of the goods. |
| Many businesses sell goods on credit to their customers. Explain one reason why it is important for these businesses to make a provision for doubtful debts (3) | Prudence concept -anticipating the loss due to some trade receivables not meeting their future obligations Prudence concept - Prevents overstating profit Prudence concept - prevent overstating the value of their assets. |
| Assess whether a business should purchase the new computerised system (6) | Improves efficiency of business: Reduce costs – wage, inventory wastage Reduce pricing errors. Improve inventory control Staff issues – possible resistance to change; training. Security of data – possible hacking – but could be password protected |
| Describe two main differences between management accounting and financial accounting (6) | Management Accounting - Focuses on planning (Budgets), control (Standard Costing) and decision making (Marginal Costing). Financial Accounting - Focuses on preparation of financial statements based on historical information e.g. Income Statements |
| Explain two benefits of preparing a production budget (6) | (1) It should mean that production is planned which will help avoid having excess stock (2)Will help to ensure sales targets can be met (3)Allows purchasing to be planned in advance which could lead to reduced prices& better relationships with suppliers. |
| Explain, using examples, the differences between the role of the accountant and the role of the bookkeeper in the preparation of the financial statements (6) | Book keepers - maintain accounting records/enter transactions in day books and ledgers/assist in the preparation of the financial statements by preparing the trial balance Accountants - responsible for the actual preparation of the financial statements |
| Explain two benefits of preparing a purchases ledger control account (6) | (1) Gives a total for trade payables - Useful when preparing balance sheet (2) Checks (arithmetical) accuracy - Compares total balance on control account with total on individual balances on personal accounts (3) Prevents fraud |
| Explain to Zeeshan why his bank manager may have an interest in his financial statements (6) | (1) Does business have adequate cash flow/liquidity to cover day to day operating expenses and debt repayments (2)Does business have sufficient assets as security for a loan in the event of default (3) See if business is stable (Gearing) |
| State three advantages of operating a system of activity based costing(6) | Improved accuracy - more objective leading to more accurate costs and more accurate selling prices Improved decision-making - provides managers with better idea of what causes changes in costs Greater relevance - does not use irrelevant costs |
| Explain to Peter Austin why it is important to adjust the trial balance figures for accruals and prepayments when preparing the financial statements (6) | Income Statement - Correct treatment of prepayments reduce expenses/Correct treatment of accruals increases expenses/For taxation purposes Balance Sheet - To ensure a true and fair view of the accounts/To ensure correct net current asset calculation |
| State and explain three types of error that will affect the balancing of a trial balance (6) | (1) Transposition error – one entry posted as £67, the reverse entry posted as £76 (2)Arithmetical error – trial balance or ledger account/overstating or understating figures in one account (3) partial omission – one side of a transaction not posted |
| Describe one benefit and one limitation of extracting a trial balance (3) | (1) Acts as a stepping stone (provides a summary of information required for)(helps)to preparing the financial statements (2)Checks the arithmetical accuracy of the bookkeeping/double-entry/accounts |
| Identify two uses of the general journal (3) | (1) Processing entry for purchase or sale of non-current asset (2) Processing non-routine transactions (3) Correction of errors |
| Explain two limitations of using ratios to assess business performance (6) | (1) Ratios focus only on numbers which do not show the full picture of the business eg motivation/quality of the staff health and safety record (2) The financial statements which provide the basis of the ratios are based on the historical cost concept |
| Explain the purpose and importance of complying with International Accounting Standards when financial statements are being prepared (6) | (1) Understandable by different interested stakeholders (2) Reliable by not containing any errors /bias/fraud/avoidance of window dressing/creative accounting (3) Comparable between years within a business and across different businesses |
| Explain two disadvantages of using absorption costing as opposed to marginal costing (6) | (1) The apportionment of overheads may be inaccurate due to the nature of the basis used e.g. floor area (2) Absorption costing relies on future estimated figures for activity/Overhead cost to calculate (OAR). These figures may be inaccurate |
| Explain why an error of commission would not affect the balancing of a purchases ledger control account (3) | Transaction would have been entered in the wrong account in the purchase ledger but of the right type so individual balances would be incorrect but the total of all balances would be correct |
| Explain two reasons why the statement of cash flows would be useful to a debenture holder (6) | (1) Debenture holders would be able to assess how their loans are being used in the business (2) Debenture holder would be interested in determining the ability of the company to repay their loan (3) It shows the business’s ability to manage liquidity |
| Explain two limitations of using absorption costing (6) | (1) Calculations based on budgeted figures which can be inaccurate (2)New technology has led to a reduction in the use of labour hours as a valid basis for absorption costing, yet is still used |
| Explain the meaning of accrued expenses (3) | A liability for services that have already been ‘used but have not yet been paid’ by the business at the end of the accounting period will increase expenses in the income statement and increase current liabilities in the balance sheet |
| Explain the meaning of prepaid expenses (3) | An expense that has been paid in advance which relates to the next accounting period . Reduces expenses in the income statement and increases current assets in the balance sheet |
| Explain two benefits of using Activity Based Costing to calculate the selling price (6) | (1) ABC avoids apportioning overheads using a basis which may not be relevant eg machine hours for staff costs (2) Batch sizes influence costs which is ignored by absorption costing eg set-up costs are more expensive for small production runs. |
| Explain three reasons why it is important to keep accurate accounting records (6) | (1) To enable HM Revenue and Customs to collect the correct amount of income tax and value added tax (2) To provide evidence to support application for finance (3) To enable fraud to be detected by checking against external records e.g. bank statement |
| Explain how a sales ledger control account should be used to verify the balances in the sales ledger (3) | The balance on the control account should agree with the totals of the individual accounts in the sales ledger . If these do not agree it indicates an error in either the sales ledger or the control account or both. |
| Explain two ways in which the sales ledger control account can act as an aid to managing a business (6) | (1) Assists in the preparation of final accounts saving time by identifying total receivables (debtors) to be recorded as a current asset on the balance sheet (2) Acts as a check on staff so makes it more difficult for fraud to be committed |
| State and explain three types of error that will not affect the balancing of the trial balance (6) | (1) Error of principle - an amount is posted to an incorrect class of account (2) Error of reversal - the account that should have been debited is credited & vice versa (3) Error of omission - where a transaction is completely omitted from the books |
| Explain two types of error that could cause the computerised inventory (stock) value to be lower than the physical valuation (6) | (1) Items missed out completely, eg error of omission. A purchase of goods has not been entered on to the computer system (2) Items processed twice. A transaction affecting inventory could have been entered twice on to the computer system. |
| Explain the concept Business Entity (3) | Only transactions that relate to the business can be shown in its accounts. Private transactions must be excluded. |
| Explain the concept Going Concern (3) | The accounts are produced on the basis that the business will continue to trade for the foreseeable future. This affects the valuation of fixed assets which are assumed to have a useful life of several years and hence are depreciated annually. |
| Explain the term Discount Received (3) | Discounts received are cash discounts given by suppliers of goods on credit to the business to encourage prompt payment. |
| Explain the term Discount Allowed (3) | Discounts allowed are also cash discounts but are given by the business to customers who buy sales on credit to induce them to pay their debts to the business promptly, reducing the business’s debtors and improving its cashflow. |
| Discuss how an inaccurate rate of overhead absorption can adversely affect the profits of a business (6) | Over absorption - too much overhead charged to production, can lead to the cost being overpriced and uncompetitive. Fall in demand and subsequent loss of revenue/reduction in profit. |
| State three applications of marginal costing in decision-making for a business (6) | Make or buy /Acceptance of special order/Price setting/Optimum use of scarce resources /Break-even |
| Discuss three problems involved in accounting for depreciation (6) | (1) Estimating the life of the asset. (2) Deciding what percentage rate to apply (3) Estimating the residual value of the asset. |
| With reference to one accounting concept, analyse the effect of creating a provision for doubtful debts on the final accounts (6) | Prudence concept states that profits should be understated, rather than overstated. Creating a provision for doubtful debts increases the expenses and reduces the profit . |
| Explain the usefulness of the bookkeeping system to a business (6) | (1) Enables the user to check the status of debtors (1) and creditors (2)Useful as a basis for producing a trial balance, Profit and Loss account and Balance Sheet . (3) Good accounting records could help a business when applying for a loan |
| State and explain three errors which do not affect the agreement of a trial balance (6) | (1) Omission - transaction is completely omitted from books, there is neither a debit or credit entry. (2) Commission - correct amount entered, but in the wrong person's account . (3) Principle - item is entered in the wrong class of account |
| Identify and explain two uses of control accounts (6) | (1) They are used to calculate sales and purchases when a business has incomplete records (2)The balance on the control account & the total of the balances from the sales/purchases ledger have to be equal . This acts as a deterrent against fraud. |
| Discuss one reasons why a business makes adjustments for accruals in the final accounts (6) | The accruals concept states that a business must match expenses & revenues to the time period in which those expenses/ revenues were incurred . Adding accruals & subtracting prepayments in the SOCI Account generates a correct figure for net profit |
| Discuss two benefits to a business of preparing budgets (6) | (1) Planning – A budget requires management to anticipate future problems and take remedial action. (2)Controlling – Actual data can be compared with budgeted data. Differences can be investigated and corrective action taken . |
| Discuss one possible impacts of budgets on the managers in a business (6) | Variance analysis enables comparison of actual and predetermined standards. Management can be held responsible for those variances under its control. |
| Explain two purposes of the journal. (6) | (1) The journal is a book of prime entry. It is used to record non-routine transactions errors and opening entries. (2) This acts as a diary of events and is useful as a means of tracing and checking transactions, which makes fraud more difficult. |
| Explain two advantages of using ICT in accounting (6) | (1) Fast processing of accounting data which allows users to access up to date information for monitoring purposes . (2) Large volumes of data can be easily kept, minimising storage costs allowing easy & rapid access to information . |
| Explain two advantages of using a bank overdraft as a source of finance for a business (6) | (1) Flexibility – can change the amount borrowed at any time as long as the business are within the overdraft limit set by bank. (2) Cost – interest is only paid on amounts borrowed so it is cost effective /not normally a charge for early payment. |
| Explain one limitation of using ratios to analyse business performance (3) | Ratios may be based on out of date data which may not reflect the current position eg trade receivables days calculated on data at the date of the statement of financial position. |
Created by:
durquhart1
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