Accounting Paper 1 Multiple Choice

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Questions and Answers

How does a trader use the information provided by financial statements?

to calculate the amount that is owed by trade receivables

to check the balance shown on a bank statement

to compare the business performance over a number of years (correct)

to calculate the amount of cash drawings taken

The balances remaining on the books of a business after the preparation of the income statement included the following:

loan from XYY Finance wages due rent prepaid trade receivables trade payables motor vehicles provision for depreciation of motor vehicles

$10 000 $620 $240 $3 300 $4 650 $8 000 $2 000

What was the total of the liabilities?

$17 270

Jameel's financial year ends on 31 December. On 1 January 2021 he brought down a debit balance on his stationery account. What does this balance represent?

amount paid for stationery during 2020

inventory of stationery on 1 January 2021 (correct)

cost of stationery used during 2020

amount owing for stationery on 1 January 2021

Alex issued credit notes in August and entered them in the correct book of prime entry. How was the total of this book of prime entry recorded in the nominal ledger at the end of August?

debited to the purchases returns account (A) Signup and view all the answers

Which business documents are used as sources of information to make entries in the cash book?

bank statement, cheque counterfoil, paying-in slip, receipt (B) Signup and view all the answers

What is the double entry for recording a cheque payment to a credit supplier?

bank account = sales ledger account purchases ledger account = bank account sales ledger account = bank account Signup and view all the answers

A book-keeper made two errors which cancelled each other out. Which type of error did he make?

compensating (C) Signup and view all the answers

The totals of a trial balance did not agree and $200 was debited to a suspense account. The book-keeper then checked the books and found the following two errors.

A sales invoice for $700 had been recorded in the sales journal as $770.

The sales journal had been totalled incorrectly.

What error was made when the sales journal was totalled?

undercast by $130 (A) Signup and view all the answers

A trader took some goods from the business for his own use. He credited the purchases account with the cost price of the goods, $200, and credited the sales account with the selling price, $300.

Which entries did he make to correct the error?

drawings income statement = suspense drawings sales = suspense suspense income statement = drawings suspense sales = drawings Signup and view all the answers

What would result in the cash book balance being lower than the bank statement balance?

Payment of insurance by standing order was not recorded in the cash book. (A) Signup and view all the answers

The bank statement of a business showed a credit balance of $280 on 31 December. At that date there were unpresented cheques of $312. A standing order of $20 had been incorrectly entered as $22 on the bank statement.

What was the balance in the bank column of the cash book on 31 December?

$34 debit Signup and view all the answers

A business keeps a complete set of books of accounts. What is not used as a source of information for making entries in control accounts?

sales ledger (B) Signup and view all the answers

Which item would not appear in the purchases ledger control account?

returns inwards (D) Signup and view all the answers

The cost of repairs to machinery was debited to the machinery account. What was the effect of this error?

overstated = understated understated = understated Signup and view all the answers

Elzevir purchased a motor vehicle costing $8000 on 1 January 2018. It is depreciated at 40% on the reducing balance basis. Which journal entry records the depreciation for the year ended 31 December 2019?

debit $3200 provision for depreciation of motor vehicles credit $3200 motor vehicles Signup and view all the answers

A trader sold one of his vehicles.

What is the journal entry to remove the total depreciation on the vehicle sold?

disposal of motor vehicles = provision for depreciation of motor vehicles income statement = disposal of motor vehicles provision for depreciation of motor vehicles = disposal of motor vehicles Signup and view all the answers

Why is it important to match costs and revenues?

to enable a better comparison of profit from year to year (C) Signup and view all the answers

Devendra prepared the following journal entry.

dehit credit $ $ $irrecoverable debts $714$ $Tobias $714$

Which statement is correct?

Devendra has provided for a doubtful debt owed by Tobias. (A) Signup and view all the answers

Alex purchased goods costing $1000. She planned to resell the goods at a mark-up rate of 25%. These goods were unsold at the year end and were found to be damaged. Alex estimated that they could be sold for $600. What value should be shown for these goods in the year-end financial statements?

$600 (D) Signup and view all the answers

'Unlimited liability' is one of the disadvantages of operating as a sole trader. What is the correct explanation of unlimited liability?

A sole trader may lose both their business and personal funds. (C) Signup and view all the answers

Which item is a current asset?

prepaid income (C) Signup and view all the answers

Where is interest on drawings entered in the accounting records of a partnership business?

credit appropriation account, debit partner's capital account, no entry partner's current account (A) Signup and view all the answers

T Limited was formed on 1 April 2019. A total of 220 000 shares of $2 each were issued and shareholders were asked to pay 75% of the share value immediately and 25% on 1 April 2020.

By 1 June 2019 holders of 190 000 shares had paid the amount due.

What was the paid up capital on 1 June 2019?

$380 000 (A) Signup and view all the answers

Which items would appear in the statement of changes in equity of X Limited for the year ended 30 June 2020?

interim dividend paid on 31 March 2020

proposed dividend for the year ended 30 June 2020

proposed final dividend for the year ended 30 June 2019 paid on 31 October 2019

transfer to general reserve on 30 June 2020

2, 3 and 4 (D) Signup and view all the answers

On 31 March 2021 trade receivables were $45 000. On 31 March 2022 trade receivables were $41 000. An irrecoverable debt of $1000 is yet to be written off at 31 March 2022.

The provision for doubtful debts is to be maintained at 5%.

What is the effect of the irrecoverable debt and the adjustment to the provision for doubtful debts on the profit for the year ended 31 March 2022?

decrease $1200 (D) Signup and view all the answers

A club received subscriptions from members totalling $12 600 in the year ended 30 April 2019.

The following information was available

at 30 April 2018 at 30 April 2019 $ $ subscriptions paid in advance $1300

subscriptions in arrears $800 $1100

Which amount appeared in the income and expenditure account for subscriptions for the year ended 30 April 2019?

$11 000 (B) Signup and view all the answers

Which statements about the accumulated fund of a society are correct?

A surplus will increase the accumulated fund and a deficit will reduce it.

It includes all monies received and paid during the year.

Members cannot make drawings from the accumulated fund.

The accumulated fund is shown as an asset in the statement of financial position.

1, 2 and 4 (C) Signup and view all the answers

A manufacturing company provided the following information.

cost of raw materials $186 000 direct wages $75 000 machinery depreciation $45 000 factory supervisor's salary $32 000 factory rent $24 000 machinery repairs $18 000

What was the prime cost of manufacturing?

$261 000 Signup and view all the answers

Sam's work in progress was $6500 at the start of the year and $ 11 200 at the end of the year. When Sam prepared his manufacturing account, he forgot to make the adjustment for work in progress. How did this omission affect the cost of production and the gross profit?

overstated = understated understated = understated Signup and view all the answers

Roshan's sales for his first year of trading were $55 000. His gross profit margin was 20%. The closing inventory was $3200. What were the purchases for the year?

$44 450 Signup and view all the answers

Miriam does not maintain a full set of accounting records. Only the purchases for the year and asset and liability values at the year end are known.

Which financial statements can be prepared using this information?

x, statement of affairs (D) Signup and view all the answers

Abhinav provided the following information.

year ended year ended 31 December 2019 31 December 2020 $ $ $purchases $112 500 $124 000 $cost of sales $115 500 $120 000

inventory $ 1 January 2019 $7000 31 December 2019 $4000 31 December 2020 $8000

What was the rate of inventory turnover for the year ended 31 December 2020?

21 times (B) Signup and view all the answers

Miranda's gross margin fell from 25% in year 1 to 15% in year 2.

What may have caused this?

Miranda reduced her selling prices in year 2. (B) Signup and view all the answers

Ralph wants to compare the accounting ratios for his business with the accounting ratios of his brother’s business.

What would prevent Ralph from making a meaningful comparison?

The businesses use different accounting policies. (A) Signup and view all the answers

Which statement correctly describes the principle of realisation?

Profit is earned when the goods are supplied, and ownership passes to the customer. (A) Signup and view all the answers

Flashcards

Financial Statements Use

Traders use financial statements to compare business performance over years.

Total Liabilities Calculation

Total liabilities include loans, wages due, prepaid rents, trade payables, etc.