1.3 Accounting Level 1 Ncea [refreshment Quiz]

Explanation
Advertising is classified as an expense because it represents a cost incurred by a company to promote its products or services. It is not considered an asset because it does not have a future economic benefit that can be controlled by the company. It is also not a liability because it does not represent an obligation or debt owed by the company. While advertising may generate income for the company in the form of increased sales, the expense itself is separate from the income it generates. Therefore, the correct classification for advertising is as an expense.

Explanation
Negative equity refers to a situation where the value of an asset is less than the outstanding balance on the related loan or liability. It means that the asset is worth less than what is owed on it. In the context of the given options, drawings refer to the amount of money or assets that an owner withdraws from a business for personal use. Drawings are not considered as an asset, liability, expense, or income. Instead, they are considered as a reduction in the owner's equity or an increase in negative equity.

Explanation
A bank is considered an asset because it holds various types of assets such as cash, loans, investments, and physical property. These assets generate income for the bank through interest earned on loans and investments. Additionally, the bank can use its assets as collateral to borrow funds or attract deposits from customers. Therefore, the bank's assets contribute to its overall value and financial stability.

Explanation
Interest on a loan is classified as an expense because it represents the cost of borrowing money. When a company or individual takes out a loan, they are required to pay interest on the loan amount. This interest payment is considered an expense because it reduces the company's or individual's profit or income. It is recorded on the income statement as an expense and is deducted from the revenue to calculate the net income. Therefore, interest on a loan is correctly categorized as an expense.

Explanation
Sales Returns is considered as Negative Income because it represents the amount of revenue that is being reversed or deducted from the total sales due to returned goods or cancelled orders. It is a reduction in the overall revenue earned by the company, resulting in a decrease in net income. Therefore, it is categorized as a negative value in the income statement, indicating a decrease in the company's profitability.

Explanation
Shop fittings are considered an asset because they are physical items that have value and can be used in the business to generate income. They are typically long-term investments that contribute to the overall value of the business and can be depreciated over time. Shop fittings can include items such as shelving, display cases, lighting fixtures, and signage, which are essential for the functioning and success of a retail business.

Explanation
The statement is true because accounting records have indeed been found among the ruins of ancient civilizations such as Babylon, Assyria, and Sumeria, which date back more than 7,000 years. This discovery provides evidence that accounting practices have been in existence for a significant period of time and have played a crucial role in the development of civilizations.

Explanation
Interest received is classified as other income because it is income earned from investments or loans and is not directly related to the primary operations of the business. Other income includes any income that is not derived from the sale of goods or services. Therefore, interest received falls under the category of other income on the income statement.

Explanation
A non-current liability refers to a debt or obligation that is not expected to be settled within the next year. In this case, the loan is due in 2035, which is more than a year from now, making it a non-current liability. The interest rate of 8.9% is not relevant to determining whether it is a current or non-current liability.

Explanation
Capital is classified as equity because it represents the ownership interest in a company. Equity capital is raised by issuing shares of stock to investors, who then become partial owners of the company. This capital is used to finance the company's operations and investments. It is different from debt capital, which is borrowed money that must be repaid with interest. Equity capital represents the residual interest in the company's assets after deducting liabilities. Therefore, capital is classified as equity.

Explanation
Invoices sent to customers are classified as Accounts Receivable because they represent the amount of money that customers owe to the company for goods or services that have been provided on credit. This is an asset account that shows the company's right to receive payment from its customers. Accounts Payable, on the other hand, refers to the amount of money that a company owes to its suppliers or vendors for goods or services that have been received but not yet paid for.

Explanation
Invoices on hand for purchases are classified as accounts payable. This is because accounts payable represents the amount owed by a company to its suppliers or vendors for goods or services that have been received but not yet paid for. Invoices on hand for purchases indicate that the company has received the goods or services but has not yet made the payment, hence it falls under the category of accounts payable.

Explanation
When interest is owed on a loan, it is recorded as an expense for the borrower. In this case, the interest of $100 is debited to the "Interest on Loan" account, indicating an increase in the expense. At the same time, the "Accrued Expense" account is credited for the same amount, showing that the expense has been accrued but not yet paid. Therefore, the given statement is true.

Explanation
When a term deposit earns interest, the interest received is credited to the account. In this case, the interest of $100 is credited to the account as Interest Received. Additionally, since the interest has been earned but not yet received, the Accrued Income account is debited by the same amount. This ensures that the income is properly recorded and accounted for. Therefore, the statement is true.

Explanation
The Cash Budget includes all the cash inflows and outflows related to the business operations. Cash Received for Sales represents the cash inflow from the sales made by the company. Cash Paid for Purchases represents the cash outflow for purchasing goods or services. Sales Salaries Paid represents the cash outflow for paying salaries to the sales staff. Other Expenses Paid represents the cash outflow for various operating expenses. Drawings of Cash represents the cash outflow when the owner withdraws cash from the business. Lastly, Interest Received represents the cash inflow from any interest earned on investments or loans.