ACC/ACF 1100

Introduction to Financial Accounting

Tutorial questions

TOPIC 3 – The elements of accounting

Please prepare answers to these questions before attending your tutorial in week 4.
Question 1
Explain the role of the ‘elements’ of accounting.

Question 2
Classify each of the following items related to an airline (such as Qantas Ltd) as one of the
five elements of accounting. Read the words carefully.
ITEM A,L,OE,I,E ITEM A,L,OE,I,E
Aircraft (A): This represents a valuable Accounts Payable (L): This refers to amounts
resource owned by the airline owed by the airline to suppliers
or creditors for goods or
services received but not yet
paid for.
Bank loan (L): This represents borrowed funds Accounts (A): These are amounts owed
that the airline is obligated to repay Receivable to the airline by customers or
in the future. other entities for services
provided or goods sold on
credit.
Computers and (A): These are tangible assets Air fares booked (I) income earned by the airline
check-in and paid in from customers
equipment advance
Rent of terminal (A): This represents a prepayment Money earned (I) income earned by the airline
paid in advance for rent on a terminal facility, which from delivering from cargo delivery services
will provide future economic benefits cargo provided to customers.
to the airline.
Is not considered an expense at the
time of payment. Instead, it is initially
recorded as a prepaid asset the
payment made in advance
represents a future economic benefit
(i.e., access to the terminal for a
specified period) that the company
has yet to receive.
Cost of in-flight (E) Fees earned from (I)
food passengers
Fuel supplies on (A) value of fuel inventory held by Wages owing to (L) wages owed to pilots for
hand the airline for use in operating its pilots services rendered but not yet
aircraft. (giá trị nguyên liệu tồn kho paid.
hãng hàng không giữ để khai thác
chuyến bay)
Fuel used during (E) Aircraft (E): the cost incurred by the
flight maintenance airline to maintain and repair its
 aircraft fleet.
Cash (A) funds available to the airline for Share capital (OE): the capital contributed by
immediate use shareholders to the airline,
reflecting their ownership
stake.
Cost of cleaning (E): cost incurred by the airline in Retained earnings (OE): profits that have not
the aircraft cleaning and maintaining aircraft (undistributed been distributed to
cleanliness. profits) shareholders (lợi nhuận cổ tức
chưa được phân chia cho cổ
đông)
Wages of flight (E): cost of labor incurred by the Interest earned on (I)income earned by the airline
attendants (tiếp airline for flight attendants' services. investments (lãi from interest-bearing
viên) thu được từ các investments or deposits.
khoản đầu tư)

Question 3
Why do ‘recognition criteria exist’? What are they, and what do they apply to?
is a tool for analysis the elements because the elements are recognised in the statement if
the information provided is useful (relevance and faithful representation)

Question 4
‘Quality PC Repairs’ operates from a rented shop in a busy Melbourne street. The
business pays its rent in advance on 1 January each year, for the whole year ahead. The
rent is $4,000 per month.
(a) How much rent expense would be recorded for the month of January under
CASH basis accounting? 48000
(b) How much rent expense would be recorded for each month between
February and December under CASH basis accounting? 0
 (c) How much rent expense would be recorded for the month of January
under ACCRUAL basis accounting? 4000
(d) How much rent expense would be recorded for each month between
February and December under ACCRUAL basis accounting? 4000
(e) Which approach provides more relevant information to users, internal and
external?
Accrual accounting because it shows when income and expenses occurred. So it allows
users of the financial information to make more informed decisions, ultimately providing
additional value to the company.

Question 5
‘General purpose financial statements only really need to include two reports – the income
statement and the balance sheet – since these two reports capture all of the elements of
accounting.’ Comment on this statement.
General purpose financial statements have to

Please also have a think about these and make some notes before attending class.
These questions will be discussed more in groups during the tutorial.

Question 6
Consider which of the financial statements would be affected by the following transactions
relating to Tony’s mowing and gardening business.

Income Statement of Balance sheet Statement of

statement changes in equity cash flows

Tony contributed $4,000 cash to be reflected in the increase in the increase in cash
start the business. statement of changes Asset: 4000 cash is from the owner's
in equity under the funds available to investment.
equity section the business for
Owner’s equity immediate use
increase as Tony
contributed $4,000
cash to start the
business.
Increase in the The payment of
The business purchased a
liabilities as the $16,000 for the
vehicle under bank finance for
business owed vehicle would be
$16,000.
16000 to the bank categorized as a
Increase in assets cash outflow from
as the purchasing financing activities,
of a vehicle reflecting the
borrowing to
finance the
purchase.
The business purchased lawn
Increase in the cash outflow from
equipment assets: equipment’s
mowing and gardening
which is lawn investing
equipment worth $3,500 using
cash. mowing and
 gardening
equipment
The business paid $100 cash for
Increase in Expense Increase in cash outflow from
for fuel property asset: fuel
fuel.
The business performed $250
Increase of 250 in Increase in cash cash inflow of $250
income assets under the operating
worth of gardening services for
a customer who paid in cash. activities section

Decrease in the Cash outflow of 500

The business paid $500 to the
assets as a liability was
bank towards the amount owing
Decrease in the paid.
for the vehicle purchased
liability that
earlier.
business owed to
the bank
Tony withdrew $500 cash from reduces the equity in Decrease in asset
the business for personal use. the business
Question 7
Is it possible to think of an accounting transaction or event that affects only:
(i) The income statement
(ii) The statement of changes in equity
(iii) The balance sheet
(iv) The statement of cash flows

Question 8
Why is it important that the recognition criteria are met (along with the definitions) in
relation to the elements? Explain with reference to a business who had a court hearing
suspended due to the holiday period. Prior to the court closing, the Judge found the
business guilty of negligence to a customer, but no amount of compensation has been
determined yet.
Relevance: liability exists
Faithful representation: uncertainty in estimating a liability (amount of compensation)