Double Entry Accounting Quiz
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Questions and Answers

What does the 'Dr' entry signify in the double entry accounting system?

  • Increase in assets (correct)
  • Increase in income
  • Decrease in expenses
  • Increase in liabilities

    • Which of the following is NOT a step in recording journal entries?

  • Classify the accounts according to AEDLIC
  • Apply AEDLIC for the Dr and Cr entry
  • Determine the type of business transaction (correct)
  • Identify the accounts affected

    • How are expenses classified in the double entry rules?

  • Expenses increase with a Dr and decrease with a Cr (correct)
  • Income decreases with a Dr and increases with a Cr
  • Expenses increase with a Cr and decrease with a Dr
  • Liabilities increase with a Dr and decrease with a Cr

    • In the context of the AEDLIC rule, how is Drawings treated?

    <p>Increase with a Debit</p> Signup and view all the answers

    What is the primary purpose of a ledger account?

    <p>To consolidate all transactions relating to a specific asset, liability, equity, income, or expense item</p> Signup and view all the answers

    What is the main purpose of a trade discount?

    <p>To encourage customers to buy in bulk and foster loyalty</p> Signup and view all the answers

    How is the amount paid calculated after applying a cash discount?

    <p>Amount paid = Invoiced price - Cash discount</p> Signup and view all the answers

    In which scenario is a cash discount recorded in the ledger?

    <p>When customers pay early on credit transactions</p> Signup and view all the answers

    Which of the following journal entries represents a payment to credit suppliers?

    <p>Dr trade payable, Cr cash at bank</p> Signup and view all the answers

    What effect does a trade payable have on liabilities when an inventory purchase is made on credit?

    <p>Liabilities increase when inventory is purchased on credit</p> Signup and view all the answers

    What is a characteristic of a sole proprietorship regarding capital contributions?

    <p>Only one person contributes capital.</p> Signup and view all the answers

    In which type of business structure is it less likely for banks to lend money?

    <p>Sole Proprietorship (SP)</p> Signup and view all the answers

    Which statement is true regarding the liability of partners in an LLP?

    <p>Partners have limited personal liability for the debts of the LLP.</p> Signup and view all the answers

    How can a company raise funds compared to an SP?

    <p>By issuing shares to more people.</p> Signup and view all the answers

    What is a benefit of an LLP over an SP in terms of collateral availability?

    <p>LLPs can leverage personal assets from multiple partners.</p> Signup and view all the answers

    In general, what differentiates the extent of liability in a company compared to an SP?

    <p>The sole owner of an SP risks personal assets for debts.</p> Signup and view all the answers

    What is the primary factor that enables LLPs to secure more funding than SPs?

    <p>The presence of multiple partners provides collateral.</p> Signup and view all the answers

    What is an implication of having limited personal assets in a sole proprietorship?

    <p>It increases the risk for banks and lenders.</p> Signup and view all the answers

    What does integrity in professional ethics specifically require?

    <p>Straightforward and honest relationships</p> Signup and view all the answers

    Which accounting theory dictates that only transactions measurable in monetary terms are recorded?

    <p>Monetary theory</p> Signup and view all the answers

    What is required according to the objectivity theory in accounting?

    <p>Support from reliable evidence</p> Signup and view all the answers

    According to the historical cost theory, how should transactions be recorded?

    <p>At their original cost</p> Signup and view all the answers

    What does the accounting entity theory state about business transactions?

    <p>They are separate from the owner's actions</p> Signup and view all the answers

    What assumption does the going concern theory make about the life of a business?

    <p>It has an indefinite economic life</p> Signup and view all the answers

    Under the accounting period theory, how often are financial statements prepared?

    <p>Every 12 months</p> Signup and view all the answers

    When is revenue recognized according to accounting principles?

    <p>When goods are delivered</p> Signup and view all the answers

    What is included in the service fee revenue for a service business?

    <p>Income generated from providing services</p> Signup and view all the answers

    Which of the following items is NOT subtracted in calculating profit for the year?

    <p>Service fee revenue</p> Signup and view all the answers

    How should a loss for the year be presented in the financial statements?

    <p>As a loss in brackets</p> Signup and view all the answers

    What is the purpose of the statement of financial position?

    <p>To list the assets, liabilities, and equity of a business</p> Signup and view all the answers

    In a service business, what distinguishes the statement of financial performance from a trading business?

    <p>It has no trading portion</p> Signup and view all the answers

    What does the net claim by the owner on the net assets of the business represent?

    <p>Owner's equity</p> Signup and view all the answers

    Which of the following is considered other income in the statement of financial performance?

    <p>Commission income</p> Signup and view all the answers

    What is the sequence of calculations used to determine the profit for the year?

    <p>Total service fee revenue + total other income - total other expenses</p> Signup and view all the answers

    What is the primary reason for a business to recognize impairment loss on trade receivables?

    <p>To ensure profits are not overstated</p> Signup and view all the answers

    What is the impact of the allowance for impairment of trade receivables on financial statements?

    <p>It serves as a deduction from trade receivables</p> Signup and view all the answers

    If a business estimates that 5% of its trade receivables are uncollectible, how is this amount calculated for the year ended 31 December 2020?

    <p>5% of the trade receivables amount</p> Signup and view all the answers

    What should Jerabelle Ltd do when ZhenHong Textile repays only a partial amount of its debt?

    <p>Write off the remaining unpaid amount as an impairment loss</p> Signup and view all the answers

    What specific accounting entry is made when a trade receivable is written off due to bankruptcy?

    <p>Debit Impairment Loss and Credit Trade Receivables</p> Signup and view all the answers

    What journal entry would be appropriate for recording the write-off of Erica Crafts' outstanding amount?

    <p>Debit Impairment Loss and Credit Trade Receivables</p> Signup and view all the answers

    What would be reflected in the statement of financial performance for Jerabelle Ltd due to impairment loss?

    <p>Decrease in total profit</p> Signup and view all the answers

    Which of the following reflects the proper treatment of trade receivables at year-end regarding uncollectible amounts?

    <p>Trade receivables are listed with an allowance for uncollectibles</p> Signup and view all the answers

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    Description

    Test your knowledge on the double entry accounting system with this quiz. It covers essential concepts such as journal entries, ledger accounts, and different types of discounts. Perfect for students or professionals looking to strengthen their accounting skills.

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