Accounting 9706 · AS & A Level · Preparation of financial statements

Preparation of financial statements — practice question

Adam runs a retail business. He knows that, when drawing up the financial statements for his business, he has to observe certain accounting concepts. He has finished the trading section of the income statement for the year ended 31 December 2020, but some mistakes were made.
(a(i))[2]

Explain how the accounting concept of consistency is used when preparing a business’s financial statements.

(a(ii))[2]

Explain how the accounting concept of realisation is used when preparing a business’s financial statements.

(a(iii))[2]

Explain how the accounting concept of materiality is applied when preparing a business’s financial statements.

(b)[7]

Calculate a revised gross profit figure for the year ended 31 December 2020.

(c)[10]

Prepare the income statement for the year ended 31 December 2020. Begin the statement using your gross profit figure from part (b).

(d)[7]

Advise Adam on which proposal he ought to choose. Support your answer by weighing up both proposals.

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