Accounting TNM

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ACCOUNTING ICAEW CFAB

CHAPTER 1: INTRODUCTION TO ACCOUNTING
1. Which of the following statements about accounting concepts and the characteristics
of financial information is correct?
A. Financial statements are required to give a true and fair view. These terms have
clear definitions which are included in IAS 01
B. The historical cost concept means that only items capable of being measured in
monetary terms can be recognized in financial statements
C. It may sometimes be necessary to exclude information that is relevant and
reliable from financial
D. A specific disclosure requirement of an IAS need not be satisfied if the
information is immaterial
2. Which of the following items should be treated as capital expenditure in the financial
statements of a sole trader?
A. £500 taken by the proprietor to buy himself a hi-fi system

B. £400 spent on purchasing a new PC to replace his secretary’s old one
C. £2,000 on purchasing a machine for re-sale
D. £150 paid to a painter for redecorating his office
3. Listed below are two comments on accounting conventions.
i. According to the Conceptual Framework, financial information must be either

relevant or faithfully represented if it is to be useful.
ii. Materiality means that only items having a physical existence may be recognized as
assets.
Which, if either, of these comments is correct?
A. (i) only
B. (ii) only
C. Both of them
D. Neither of them
4. According to IAS 01 Presentation of Financial Statements, which TWO of the

following are objectives of financial statements?
A. To show the results of management’s stewardship of the resources entrusted to it

B. To provide a basis for valuing the entity
C. To provide information about the financial position, financial performance and
cash flows of an entity that is useful to a wide range of users in making economic
decisions
D. To facilitate comparison of financial performance between entities operating in
different industries
E. To assist management and those charged with governance in making timely
economic decisions about deployment of the entity’s resources
5. Capital expenditure is expenditure:
A. On non-current assets, including repairs and maintenance

B. On expensive items over £10,000
C. On the acquisition of non-current assets, or improvement in their earning
capacity
D. On items relating to owners’ capital
6. The directors of Lagon plc wish to omit an item from the company’s financial
statement on the grounds that it is commercially sensitive. Information on the item
would influence the user of the information when making economic decisions.
According to IAS 01 Presentation of Financial Statement the item is said to be:
A. Neutral
B. Prudent
C. Material
D. Understandable
7. Which of the following definitions for the “going concern” concept in accounting is
the most accurate in the light of IAS 01 Presentation of Financial Statements?
A. The directors do not intend to liquidate the entity or to cease trading in the
foreseeable future
B. The entity is able to pay its debts as and when they fall due
C. The directors expected the entity’s assets to yield future economic benefits
D. Financial statements have been prepared on the assumption that the entity is
solvent and would be able to pay all creditors in full in the event of being wound
up
8. Which of the following should be accounted for as capital expenditure?
A. The annual cost of painting a factory floor

B. The repair of a window in a building
C. The purchase of a vehicle by a garage for re-sale
D. Legal fees incurred on the purchase of a building
9. According to IAS 01 Presentation of Financial Statements, compliance with

international accounting standards and international financial reporting standards will
normally ensure that:
A. The entity’s inventory is valued at net realizable value

B. The entity’s asset are valued at their break-up value
C. The entity’s financial statement are prepared on the assumption that it is a going
concern
D. The entity’s financial position, financial performance and cash flows are
presented fairly
10. Information about an entity’s financial position is primarily provided in
A. The statement of profit or loss

B. The statement of financial position
C. Retained earnings
D. The statement of cash flows
11. According to the Conceptual Framework, information on which TWO of the

following areas can help users identify the reporting entity’s strengths and weaknesses.
A. The economic resources it controls

B. Its financial performance in the past

C. The demographic structure of the local economy
D. The entity’s claims (the entity’s liabilities)
E. Its management structure
12. Which TWO of the following information needs apply to the government and its
agencies in relation to the business as a sole trader? The government and its agencies
need information to:
A. Establish levels of tax revenue

B. Assess whether the business will continue in existence
C. National statistics
D. Assess the owner’s stewardship
E. Take decisions about the investment
13. According to the Conceptual Framework, which qualitative characteristics enhance

the usefulness of information that is relevant and faithfully represented?
A. Comparability, Understandability, Timeliness, Verifiability

B. Consistency, Prudence, Measurability, Verifiability
C. Consistency, Reliability, Measurability, Timeliness
D. Materiality, Understandability, Measurability, Reliability
14. A rules-based code requires a professional accountant to identify, evaluate and

address threats to compliance with fundamental ethical principle.
A. True
B. False
15. The ICAEW uses a rules-based approach
A. True
B. False
16. Which THREE of the following are fundamental principles of the IFAC Code of
Ethics for Professional Accountants
A. Integrity
B. Objectivity
C. Independence
D. Confidentiality
E. Courtesy
17. Information is relevant if it is capable of making a difference in the decisions made

by users. According to the Conceptual Framework, financial information is capable of
making a difference in decisions if it has which of the following?
i. Predictive value
ii. Comparative value
iii. Historic value
iv. Confirmatory value
A. (i) and (iii) only

B. (ii) and (iv) only
C. (i) and (iv) only
D. (ii) and (iii) only
18. A code based upon a set of principles requires a professional accountant to comply
with a set of specific rules
A. True
B. False
19. Which of the following statement is correct?
A. The ICAEW Code of Ethics applies to its members only

B. The ICAEW Code of Ethics applies to its members and employees of member
firms only
C. The ICAEW Code of Ethics applies to its members, employees of member firms
and ICAEW students
D. The ICAEW Code of Ethics applies to its members, employees of member firms,
llllllllllCAEW students and all other members of UK accountancy bodies
20. Which of the following is an aspect of relevance, according to the Conceptual

Framework?
A. Neutrality
B. Free from error
C. Completeness
D. Materiality
21. The accounting principle which, in times of rising prices, tends to understate asset
values and overstate profit, is
A. Going concern
B. Accruals
C. Consistency
D. Historical cost
22. Which of the following statements best describes ethical guidance in the UK?
A. Ethical guidance provides a set of rules which must be followed in all

circumstances
B. Ethical guidance is a framework containing a combination of rules and
principles, the application of which is dependent on the professional judgment of
the accountant based on the specific circumstances.
C. Ethical guidance provides a set of principle which can be applied at the
discretion of the accountant
D. Ethical guidance is a series of legal requirements
23. Which of the following is the best description of fair presentation in accordance
with IAS 1, Presentation of Financial Statements?
A. The financial statements are accurate.

B. The financial statements are as accurate as possible given the accounting systems
of the organisation.
C. The directors of the company have stated that the financial statements are
accurate and correctly prepared.
D. The financial statements are reliable in that they reflect the effects of
transactions, other events and conditions.
24. Which of the following is classified as revenue expenditure?
A. Purchase of inventories for resale.

B. Purchase of a motor vehicle to deliver goods to customers
C. Purchase of machinery for use in production
D. Purchase of a warehouse to store inventory
25. Liability for the debts of the business does not fall on:
A. A sole trader
B. Partners in a general partnership
C. A limited liability company
D. Owners of a limited liability company
26. According to IAS 1 which of the following does not represent an objective of
financial statements?
A. To provide information to investors in making economic decisions

B. To provide information to managers in making business decisions
C. To show the results of management's stewardship of the resources entrusted to it
D. To help users predict the entity's future cash flows
27. Which one of the following issues in an entity's financial statements is likely to be of
most interest to an entity's lender?
A. Whether the entity has paid a dividend

B. Whether the entity will repay a loan when it falls due
C. Whether the entity will continue to be able to employ people
D. Whether the entity patronises local suppliers
28. A statement of financial position is best described as:
A. A snapshot of the entity's financial position at a particular point in time

B. A record of an entity's financial performance over a period of time

C. A list of all the income and expenses of the entity at a particular point in time
D. A list of all the assets and liabilities of the entity over a period of time
29. In applying fundamental accounting concepts the preparers of financial information

are also using:
A. Legislation
B. Accounting standards
C. Judgement
D. Financial reporting standards
30. Match the fundamental ethical principle to the characteristic.
A - Integrity
B - Objectivity
(1) Members should be straightforward and honest in all professional and business
relationships.
(2) Members should not allow bias, conflict or interest or undue influence of others to
override professional or business judgements.
(1) – A (2) - B
31. Which of the following would not be a suitable question to ask yourself when
resolving an ethical dilemma?
A. Would my colleagues think my solution is reasonable?

B. Have I thought about all the possible consequences of my solution?
C. Could I defend my solution under public scrutiny?
D. Does my solution benefit my career?
32. The ICAEW Code only applies to the paid activities of the professional accountant.
A. True
B. False
33. Which of the following is not a source of the accounting rules embodied in UK
GAAP?
A. The Companies Act 2006

B. UK accounting standards
C. Listing requirements of the London Stock Exchange
D. Accounting requirements of an entity's US parent company
34. Which of the following factors have not influenced financial reporting?
A. National legislation
B. Economic factors
C. Accounting standards
D. GAAP
35. Materiality is an entity-specific aspect of which qualitative characteristic?
A. Relevance
B. Understandability
C. Faithful representation
D. Comparability
36. Which of the following is an item of capital expenditure?
A. Cost of goods sold

B. Purchase of a machine
C. Repairs to a machine
D. Wages cost
37. Sales revenue should be recognised when goods and services have been supplied;
costs are incurred when goods and services have been received. The accounting concept
which governs the above is
A. Materiality concept
B. Business entity concept
C. Accruals concept
D. Historical cost concept
38. The accounting concept which requires assets to be valued at their net book value,
rather than their 'break-up' value is
A. Materiality concept
B. Going concern concept
C. Prudence concept
D. Business entity concept
39. Who issues International Accounting Standards?
A. The auditing practices board

B. The stock exchanges
C. The IASB
D. The government
Note:
1. Revenue expenditure:
• For trade purposes: Purchases of raw materials or items for resale, expenditure
on wages and salaries, selling and distribution expenses, administrative expenses
and finance costs, or to maintain the existing earning capacity of non-current
assets.
• Repair, maintenance and staff costs in relation to non-current assets,
depreciation
2. Capital expenditure:
• The acquisition of non-current asset or an improvement or enhance of earning

capacity
• Legal fees, duties and carriage costs borne by the asset's purchaser, plus
installation costs.
3. Capital income: Sale of non-current assets.
4. Revenue income:
• The sale of trading assets, such as goods held in inventory

• The provision of services
• Interest and dividends received from business investments
5. Capital transactions
The categorisation of capital and revenue items given above does not mention raising
additional funds from the owners) of the business, or raising and repaying loans.
CHAPTER 2: THE ACCOUNTING EQUATION
1. The accounting equation can be written as:
A. Assets + profits - drawings- liabilities = closing capital

B. Assets - liabilities - drawings = opening capital + profit
C. Assets - liabilities - opening capital + drawings = profit
D. Opening capital + profit - drawings - liabilities = assets
2. The capital of a sole trader would change as a result of
A. a credit customer paying by bank transfer

B. raw materials being purchased on credit
C. non-current assets being purchased on credit
D. personal petrol being paid for out of the business's petty cash
3. A business can make a profit and yet have a decreased bank balance. Which of the
following might cause this to happen?
A. The sale of non-current assets at a loss

B. The charging of depreciation in the statement of profit or loss
C. The lengthening of the period of credit given to customers
D. The lengthening of the period of credit taken from suppliers
4. The purpose of the financial statement that lists an entity's total assets and total
capital/ liabilities is to show:
A. the financial performance of the entity over a period of time

B. the amount the entity could be sold for in liquidation
C. the amount the entity could be sold for as a going concern
D. the financial position of the entity at a particular moment in time
5. A sole trader is £5,000 overdrawn at her bank and receives £1,000 from a credit
customer in respect of its account.
Which element(s) of the accounting equation will change due to this transaction?
A. Assets and liabilities

B. Liabilities only
C. Assets only
D. Assets, liabilities and capital
6. A sole trader purchases goods on credit.

B. Assets and capital
C. Capital and liabilities
D. Assets only
7. A sole trader borrows £10,000 from a bank.

D. Assets only
8. A sole trader sells goods for cash for £500 which had cost £300.

D. Assets only
9. A sole trader increases the business's number of motor vehicles by adding his own car
to the business's fleet.
A. Assets only
B. Capital only
C. Assets and capital
D. Assets and liabilities
10. Which three of the following are elements of financial statements as identified by
the lASB's Conceptual Framework?
A. Income
B. Expenses
C. Profits
D. Losses
E. Obligations
F. Resources
G. Equity
11. Which of the following is an asset?
A. A trade payable
B. A loan
C. Drawings
D. A prepayment
12. Which of the following is a liability?
A. Depreciation
B. An accrual
C. Cash at bank
D. Plant and machinery
13. Capital is the amount:
A. The entity's owners owe to it

B. The entity's customers owe to it
C. The entity owes to its creditors
D. The entity 'owes' to its owners
14. Which of the following are assets of an entity?
A. Trade payables
B. Trade receivables
C. Bank overdraft
D. Cash in hand
E. Funds introduced by the owner
15. Which of the following best describes the accruals concept?
A. Assets are matched with liabilities

B. Income is matched with expenses
C. Expenses are matched with assets
D. Income is matched with liabilities
16. Which of the following is a non-current liability?
A. A bank overdraft
B. A bank loan repayable within a year
C. A mortgage repayable in five years' time
D. A trade payable
17. The statement of financial position sets out the entity's:
A. Financial position over a period of time

B. Financial performance over a period of time

C. Financial position at one point in time
D. Financial performance at one point in time
18. Which of the following expenses is included in cost of sales?
A. Sales people's salaries

B. Management salaries
C. Overdraft interest
D. Cost of raw material
19. A business has sales of £100,000, cost of sales of £60,000 and expenses of £20,000.
The gross profit margin is:
A. 60%
B. 40%
C. 20%
D. 80%
20. Which figure from a sole trader's statement of profit or loss would appear in its
statement of financial position?
A. Gross profit
B. Drawings
C. Revenue
D. Net profit
21. The owner's drawings are shown on the trial balance.
A. True
B. False
Note:
1. Detailed accounting equation
Non-current asset + current asset = capital + profit – losses – drawings + non-current

liabilities + current liabilities
Capital: Opening capital + capital introduced + profits - losses - drawings of capital

profits taken by the owner
2. Current asset: cash, receivables, short-term investment, prepayments
Non-current liability: loan (>1y), loan stock, debentures
Current liability: loan (<1y), overdraft, trade payables, taxation payables, accruals (trích
trước)
3. Gross profit = revenue from sales – cost of sales
Profit for the period = gross profit – expenses + non-trading income

𝑮𝒓𝒐𝒔𝒔 𝒑𝒓𝒐𝒇𝒊𝒕
Gross profit margin = 𝒙 𝟏𝟎𝟎
𝑹𝒆𝒗𝒆𝒏𝒖𝒆
4.
Statement of financial position
State of profit or loss
Non-current assets X
Revenue X
Current assets X
Cost of sales (X)
Total assets X
Gross profit X
Opening capital X
Expenses (X)
Capital introduced X
Other income X
Profit for the period X
Profit for the period X
Drawings X
Closing capital X
Non-current liabilities X
Current liabilities X
Total capital and liabilities X
CHAPTER 3: RECORDING FINANCIAL TRANSACTIONS
1. A business paid out £12,450 in net wages to its employees. In respect of these wages,
the following amounts were shown in the statement of financial position.
PAYE payable 2,480

National Insurance payable - employees' 1,350
- employer's 1,500
No other deductions were made.
Employees' gross wages, before deductions, were:
A. £12,450
B. £27,450
C. £16,280
D. £17,780
2. Which of the following is a source document that would be entered into the
accounting system?
A. Debit note
B. Credit note
C. Sales order
D. Purchase order
3. Which of the following best explains the imprest system of petty cash?
A. Each month an equal amount of cash is transferred into petty cash.

B. The exact amount of petty cash expenditure is reimbursed at intervals to
maintain a fixed float.
C. Petty cash must be kept under lock and key.
D. The petty cash total must never fall below the imprest amount.
4. On 1 April Amara had a balance of £100 (the imprest amount) in petty cash. At the
end of April she has vouchers totalling £38, a receipt for a refund for stationery of £4
and a note to say that an employee was reimbursed £12 in respect of postage costs but
no voucher was issued.
How much does Amara need to reinstate her imprest balance at 30 April?
A. £34
B. £46
C. £54
D. £66
5. The following data has been extracted from the payroll records of Kleen Ltd for the
month of February 20X1.
£
PAYE 17,000
Employer's NIC 7,500
Employees' NIC 6,000
Cash paid to employees 50,000
The wage expense for the month is:
A. £50,000
B. £56,000
C. £74,500
D. £ 80,500
6. When a purchase invoice is received from a supplier which two of the following
documents would the invoice be checked to?
A. Sales order
B. Purchase order
C. Remittance advice
D. Goods received note
E. Credit note
7. George purchases goods on credit from Hardeep for £1,000. £100 of these goods are
defective and George returns them to Hardeep. What document would Hardeep issue to
George in respect of the returned goods?
A. Invoice
B. Remittance advice
C. Credit note
D. Delivery note
8. Oscar downloads his bank transaction report for the day. The report shows a cash
payment of £412 which the computerised accounting system has not been able to match
to a transaction.
The unmatched payment is most likely the result of:
A. the purchase of a new laptop for £412

B. payment to a regular credit supplier for an invoice totalling £412
C. a receipt from a credit customer in respect of an invoice for £450 on which a
prompt payment discount of £38 was taken
D. the payment of net wages of £412 which is consistent with the payroll ledger
9. A business has the following payroll costs for a month:
£
Gross pay 112,450
Income tax deducted 15,800
Employees' national insurance 9,810
Employer's national insurance 11,200
What is the net amount paid to employees for the month?
A. £75,640
B. £91,440
C. £102,640
D. £86,840
10. The petty cash float in a business has an imprest amount of £200. At the end of
March vouchers in the petty cash box totalled £136 and the amount of cash remaining in
the box was £54.
Which of the following explains the difference?
A. A petty cash voucher for £10 is missing.

B. An employee was given £10 too little when making a petty cash claim.
C. An employee reimbursed petty cash with £10 in respect of postage stamps used,
but no voucher was prepared.
D. A voucher for £10 was put in the box but no payment was made to the employee.
11. A business has the following payroll costs for a month:
£
Gross pay 38,600
Income tax 5,400
Employees' national insurance 3,100
Employer's national insurance 3,500
What is the wages cost to the business for the month?
A. £38,600
B. £42,100
C. £47,100
D. £50,600
12. Which two of the following are source documents that contain information that will
be entered into a business's accounting system?
A. Goods received note

B. Invoice to a customer
C. Purchase order to a supplier
D. Cheque to a supplier
E. Delivery note to a customer
13. “Transactions are processed in the computerised accounting system at the point at
which they occur” is a description of “batch processing” in a computerised accounting
system.
A. True
B. False
14. Sales orders are source documents that are recorded in the accounting system.
C. True
D. False
15. When an entity returns goods to a supplier it will expect to receive from the
supplier:
A. An invoice
B. A credit note
C. A purchase order
D. A goods received note
16. Which of the following are source documents for credit purchases?
A. Suppliers' invoices and credit notes

B. Invoices and credit notes to customer
C. Delivery notes
D. Goods received notes
17. Which of the following documents would be issued by a supplier if it was discovered
it had overcharged its customer by £400?
A. A remittance advice
B. A debit note
C. A credit note
D. A supplier invoice
18. Sepi downloads a report of her bank transactions for the day. The report shows a
deposit of £150 which the computerised accounting system has not been able to match
to a transaction. Which of the following transactions may have resulted in the cash
receipt?
A. A direct debit payment in respect of telephone expenses

B. A receipt from a customer who had purchased goods on credit
C. The purchase of a new office chair
D. The payment of a supplier invoice
19. Expenditure that has been incurred via petty cash does not need to be recorded in
the accounting system.
A. True
B. False
20. Petty cash is controlled under an imprest system. The imprest amount is £100.
During a period, payments totalling £53 have been made. How much needs to be
reimbursed at the end of the period to restore petty cash to the imprest account?
A. £100
B. £53
C. £47
D. £50
21. The cost of employer's NI contributions is part of a company's:
A. Net pay
B. Gross pay
C. Gross wages and salaries cost
D. Income tax charge
22. The debit note is a source document for goods return transactions.
A. True
B. False
23. A Quotation has been made ………… the sales order placed
A. Before
B. After
24. Which of the following is one of a main propose to keep an inventory card?
A. To determine the quantity of inventory

B. Recording the quantity of sold item only
C. To calculate cost of sales
D. It’s just an administrative procedure
25. An entity's transactions are recorded first in
A. Books of original entry

B. Ledger accounts
C. The statement of profit or loss
D. The statement of financial position
Note:
1. Sales system
Customer order • a sales order is created

• not source documents
Dispatch goods • a delivery note prepared by the seller: goods/services
delivered, the quantities delivered, the date of delivery
and the delivery address.
• not a source document.
• Once the delivery is complete, the sales invoice creates
Raise invoice • Send an invoice to the customer
• Invoices are source documents
Receive payment Settle the invoice either by bank transfer or by cheque or cash
2. Purchases system
Purchase order • purchase order sent to the supplier

• not a source document
Receive goods • Once the goods are received, a goods received note
(GRN) is raised by the business
• A GRN is not a source document
Receive invoice • receive an invoice from the supplier to request payment
• Invoices are source documents
Make payment Settle the invoice by transfer to the supplier's bank account or
by cheque or cash
3. Credit note
− A document issued to a customer relating to returned goods, or refunds when

customer has been overcharged for whatever reason. It can be regarded as a
negative invoice
− It is a source document for credit transactions.
4. A debit note
− Might be issued to a supplier as a means of formally requesting a credit note

from that supplier. A debit note is not a source document.
5. Petty cash book: The source document for petty cash
6. The payroll: The record of wages and salaries costs. It is a source document.
− Gross pay:
• PAYE income tax
• Employee’s NI contributions
• Employee’s pension contributions
• Net pay (cash paid to employees)
=> Deductions + Net pay = Gross pay
− Additional costs for the employer

• Employer’s NI contributions
• Employer’s pension contributions
=> Gross pay + Employer’s NI + Employer pension = Total payroll cost
− HMRC = Total payroll cost – Pension plan – Net pay
CHAPTER 4: LEDGER ACCOUNTING AND DOUBLE ENTRY
1. Richard is a VAT registered trader whose sales and purchases carry VAT at the
standard rate of 20%. Richard sells a customer goods on credit for £4,800 exclusive of
VAT
What is the double entry to record this?
A. Debit Sales £4,800, Debit VAT £960, Credit Receivables €5,760

B. Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800
C. Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
D. Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800
2. What transaction is represented by the entries: Debit rent, Credit landlord?
A. The receipt of rental income by the business

B. The issue of an invoice for rent to a tenant
C. The receipt of an invoice for rent payable by the business
D. The payment of rent by the business
3. In double-entry bookkeeping, which of the following statements is true?
A. Credit entries decrease liabilities and increase income.

B. Debit entries decrease income and increase assets.
C. Credit entries decrease expenses and increase assets.
D. Debit entries decrease expenses and increase assets.
4. A debit balance of £3,000 brought down on A Ltd's account in B Ltd's books means
that B Ltd owes A Ltd £3,000.
A. True
B. False
5. Crimson ple paid an invoice from a credit supplier and took advantage of the early
settlement discount offered. When the invoice was received and recorded, Crimson pl
did not expect to take the discount.
The journal entry to record the payment of the invoice is:
A. Debit Payables, Credit Purchases, Credit Cash at bank account

B. Debit Payables, Credit Cash at bank account
C. Debit Cash at bank account, Debit Purchases, Credit Payables
D. Debit Cash at bank account, Credit Purchases, Credit Payables
6. Winn Ltd has opening trade payables of £24,183 and closing trade payables of £34,655.
Purchases for the period totalled €254,192 (£31,590 relating to cash purchases). Total
payments recorded in the payables ledger for the period were:
A. £212,130
B. £233,074
C. £243,720
D. £264,664
TRADE PAYABLES
£ £
Payments (bal fig) 212,130 Bal b/d 24,183

Bal c/d 34,655 Purchases (254,192 - 31,590) 222.602
246,785 246.785
Bal b/d 34.655
7. What is the correct double entry to record an invoice raised to a credit customer who
is not expected to take advantage of an early settlement discount?
A. Debit Revenue, Credit Receivables

B. Debit Payables, Credit Revenue
C. Debit Receivables, Credit Revenue
D. Debit Revenue, Credit Payables
8. Which of the following could be a debit entry in the payables account?
A. Output VAT
B. Cash purchases total
C. Payments made to suppliers
D. Early settlement discounts given to customers
9. A payment has been received from a credit customer in settlement of an invoice. The
customer was expected to take advantage of an early settlement discount offered,
however, payment was not made within the required timeframe and the discount was
not taken.
The correct double entry to record the receipt of funds from the customer in full
settlement of the invoice is:
A. Debit Cash at bank, Credit Receivables, Credit Revenue

B. Debit Cash at bank, Debit Revenue, Credit Payables
C. Debit Receivables, Debit Revenue, Credit Cash at bank
D. Debit Receivables, Credit Revenue, Credit Cash at bank
10. A business which is registered for VAT received the following invoice from one of
its VAT registered suppliers:
Invoice: 7035
Date: 20 December 20X0

£
Goods: 100 @ €10 1,000
Less trade discount (50)
950
A further discount of £50 will be allowed if payment is received within 14 days.
Assume the business is not expected to make the payment within 14 days and the VAT
rate is 20%.
What amount of VAT should have been charged on the invoice?
A. £180
B. £190
C. £200
D. £210
11. The credit side of a journal entry may:
A. Increase sales
B. Increase expenses
C. Decrease trade payables
D. Increase trade receivables
12. The nominal ledger:
A. Is the record of all transactions not directly recorded by the computerised

accounting system
B. Is used to record only transactions relating to receivables
C. Is used to record only transactions relating to payables
D. Is the record of all of an entity's financial transactions
13. In a T account a debit entry would be made in the:
A. Left hand side

B. Right hand side
14. A debit entry in a T account will:

A. Decrease an asset
B. Decrease an expense
C. Increase a liability
D. Decrease capital
15. A credit entry in a T account will:
A. Decrease an asset
B. Increase an expense
C. Decrease a liability
D. Decrease capital
16. When a credit customer pays an invoice for £120 including VAT at 20%, the credit
entry in the VAT ledger account will be:
A. £120
B. £100
C. £20
D. Nil
17. Early settlement discounts received from suppliers will:
A. Decrease purchases
B. Decrease sales
C. Increase trade payables
D. Increase trade receivables
18. A journal entry does not need to contain:
A. The name of the ledger account to be debited

B. The name of the ledger account to be credited
C. Narrative
D. The name of the source document from which the information was obtained
19. When petty cash is topped up to the imprest amount the credit entry is made to:
A. The petty cash book

C. Cash at bank account

D. Trade payables
20. Individual credit customer accounts are kept in which ledger?
A. Payables ledger
C. Receivables ledger
D. Nominal ledger
21. The nominal ledger is a book of original entry.
A. True
B. False
22. Paid upfront but not yet performed would be a contract _______
A. Liability
B. Asset
23. State the effect of closing inventory in Financial Statements.
A. It increases sales revenue

B. It increases cost of sales
C. It decreases cost of sales
D. None of the above.
24. Lira sells goods worth £18,700 and buys goods for £14,500. Both transactions include
Sales tax at 17.5% on the listed price. Calculate how much does Lira has to pay the tax
authorities in respect of these two transactions?
A. £626
B. £2,159
C. £2,785
D. £4944
𝟏𝟕.𝟓
Pay the tax authorities = 𝟏𝟏𝟕.𝟓 𝒙 (𝟏𝟖, 𝟕𝟎𝟎 − 𝟏𝟒, 𝟓𝟎𝟎) ≈ 𝟔𝟐𝟔
25. The receivables ledger at 1 May had balances of £32,750 debit and £1,275 credit.
During May, sales of £125,000 were made on credit. Receipts from receivables amounted
to £122,500 and discounts of £550 were allowed. Refunds of £1,300 were made to
customers. The net closing debit balance at 31 May on the receivables control account
was:
A. £34,725
B. £33,225
C. £32,125 (may be nếu 1,300 bên Cr)
D. £35,825
Sales ledger account

Bal b/d 32,750 Bal b/d 1,275
Sales 125,000 Bank 122,500
Discounts allowed 550
Refunds 1,300
Bal c/d 32,125
159,050 159,050
Bal b/d 34,725
26. Which of the following is a source document for petty cash?
A. Purchase invoice
B. Quotation
C. Sales invoice
D. Receipt and claim form
27. W is registered for sales tax. The managing director has asked four staff in the
accounts department why the output tax for the last quarter does not equal 17.5% of
sales (17.5% is the rate of tax). Which one of the following four replies she received was
not correct?
A. The company had some exports that were not liable to sales tax
B. The company made some sales of zero-rated products
C. The company made some sales of exempt products
D. The company sold some products to businesses not registered for sales tax
CHAPTER 5: PREPARING BASIC FINANCIAL STATEMENTS

1. Anchor Ltd is preparing its financial statements. After transferring the balances on
all the income and expense ledger accounts to the profit and loss ledger account, the
total credits in the profit and loss ledger account exceed the total debits by £4,000.
Which two of the following statements about Anchor Ltd are correct?
A. Anchor Ltd has made a loss for the year of £4,000.
B. Anchor Ltd has made a profit for the year of £4,000.
C. To begin to calculate the closing capital account balance, Anchor Ltd should
credit the capital account and debit the profit and loss ledger account with
£4,000.
D. The opening balance on the profit and loss ledger account for the next reporting
period is £4,000 credit
E. The closing balance on the profit and loss ledger account of £4,000 should be
deducted from the capital account to give the profit for the year.
2. Which of the following would be classified as a non-current asset?
A. Cash
B. Prepayments
C. Land
D. Receivables
3. Gerard Ltd is registered for VAT. In the month of April, it sells goods to customers
for a total of £89,436 excluding VAT and purchases goods from suppliers for a total of
£86,790 including VAT.
What is the net amount shown in Gerard Ltd's VAT account at the end of April?
A. £3,422 debit
B. £2,452 debit
C. £3,422 credit
D. £2,452 credit
4. Which of the following statements concerning preparation of financial statements is
true?
A. The balances on income and expense accounts are brought down at the end of
the accounting period to be carried forward to the next accounting period.
B. The balances on asset and liability accounts are summarised in an additional

ledger account known as the statement of financial position ledger account.
C. The statement of profit or loss ledger account is a list of all the balances
extracted from the business's accounts.
D. Loss for the year is a credit entry in the statement of profit or loss ledger account.
5. A sole trader had trade receivables of £2,700 at 1 May and during May made cash
sales of £7,200, credit sales of £16,500 and received £15,300 from his credit customers.
The balance on his trade receivables account at the end of May was:
A. £1,500
B. £3,900
C. £8,700
D. £11,100
6. Which of the following would be a credit balance in the trial balance?
A. Bank overdraft
B. Drawings
C. Purchases
D. Delivery outwards
7. Plym plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%.
For the year to 30 June 20X7, Plym pl made purchases of £69,600 including VAT and
made sales of £89,400 excluding VAT. There was no change in the figures for opening
and closing inventory in the statements of financial position as at 30 June 20X6 and
20X7.
What was Plym plc's gross profit for the year ended 30 June 20X7?
A. £19,800
B. £4,900
C. £31,400
D. £16.500
£
Revenue 89,400
Purchases (69,600 x 5/6) (58,000)
Gross profit 31,400
8. Violet had an opening trade payables balance of £3,450 on 1 December. During the
month of December, she sold goods totalling £6,780 to customers on credit, purchased
goods totalling £5,100 from suppliers on credit and made cash purchases of £400. She
also received £3,900 from credit customers and made payments to credit suppliers of
£4,200.
What was the balance on Violet's trade payables account at the end of December?
A. £4,350
B. £6,330
C. £4,750
D. £2,550
9. The following are balances on the accounts of Luigi, a sole trader, as at the end of the
current financial year and after all entries have been processed and the profit for the
year has been calculated.
£
Non-current assets 85.000
Trade receivables 7.000
Trade payables 3,000
Bank loan 15,000
Accumulated depreciation, non-current assets 15,000
Inventory 4,000
Accruals 1,000
Prepayments 2,000
Bank overdraft 2,000
What is the balance on Luigi's capital account?

A. £59,000
B. £66,000
C. £62,000
D. £64,000
10. In a period, sales are £140,000, purchases £75,000 and other expenses £25,000. What
is the figure for profit for the period to be transferred to the capital account?
A. £40.000
B. £65,000
C. £75,000
D. £140,000
11. During March, Chan had the following items in his cash at bank account:
£
Balance at 1 March (overdrawn) 500
Receipts from credit customers 12.000
Payments to credit suppliers 7,000
Payments for expenses 3,000
Cash drawn for own use 1,200
What is the balance on Chan's cash at bank account on 31 March?

A. Debit £300
B. Credit £300
C. Debit £1,300
D. Credit £1.300
12. Which two of the following items will be listed as a credit balance on a trial balance?
A. Trade payables
B. Purchases
C. Sundry expenses
D. Capital
E. Drawings
13. Select whether the following balances will be in the debit or the credit columns of
the trial balance.
Debit Credit
Machinery ☒ ☐
Trade payables ☐ ☒
Drawings ☒ ☐
Sales ☐ ☒
Bank overdraft ☐ ☒
Rental income ☐ ☒
14. When an error in a debit entry is cancelled out by an error in a credit entry, this is
called
A. A commission error
B. A compensating error
C. An omission error
D. An error of principle
15. An error has led to Erica omitting bank charges of E50 from her accounting records.
This could have been caused by an error of commission.
A. True
B. False
16. Tim is a sole trader. He has just realised that drawings of £100 were entered into the
accounting records as a debit to expenses and a credit to the cash at bank account. What
is the journal entry required to correct this error?
A. Dr Cash at bank account 100 Cr Drawings 100
B. Dr Drawings 100 Cr Cash at bank account 100
C. Dr Expenses 100 Cr Drawings 100
D Dr Drawings 100 Cr Expenses 100
17. Manny has a net loss of £400. This should be:
A. Credited to the profit and loss ledger account and debited to the capital account
B. Debited to the profit and loss ledger account and credited to the capital account
C. Credited to the profit and loss ledger account and debited to the drawings account
D. Debited to the profit and loss ledger account and credited to the drawings account
18. At 31 December 20X6 Richard's total assets are £20,376 and his non-current
liabilities are £10,000. If his current liabilities are £6,290 then his capital balance at 31
December 20X6 must be:
A. £4,086
B. £16,666
C. £24,086
D. £36,666
10. Jude's profit and loss ledger account shows total entries on the debit side of £57,390
and total entries on the credit side of £84,928. What entry would Jude make in the profit
and loss ledger account to transfer the profit or loss for the period to capital?
A. Credit the profit and loss ledger account by £27,538 and credit the capital account
by the same amount
B. Credit the profit and loss ledger account by €27,538 and debit the capital account
by the same amount
C. Debit the profit and loss ledger account by £27,538 and debit the capital account
by the same amount
D. Debit the profit and loss ledger account by £27,538 and credit the capital account
by the same amount
1. Errors in a trial balance

− Transposition errors: two digits in an amount are accidently recorded the wrong
way round.
− Omission errors: a transaction is completely omitted, either in the nominal
ledger, or the trial balance itself, so neither a debit nor a credit is made.
− Commission errors: a debit or credit is posted to the correct side of the nominal
ledger, but to a wrong account, eg, wages paid are debited to the rent account
instead of the wages account.
− Compensating errors: one error is exactly cancelled by another error elsewhere.
− Errors of principle: such as cash paid in respect of machinery maintenance (an
expense) being debited to machinery cost (an asset).
CHAPTER 6: ERRORS AND CORRECTIONS TO ACCOUNTING RECORDS AND

FINANCIAL STATEMENTS
1. Which three of the following situations are likely to result in a suspense account
being used to record a transaction?
A. A receipt of £135 from a customer who unexpectedly, but correctly, has taken a
3% prompt payment discount.
B. A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at
20%.
C. A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.
D. A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55
in which the bookkeeper was unsure where to record the credit entry.
E. A payment made to a supplier for £90.25 in respect of an invoice for £95 on which
a prompt payment discount of 5% was expected to be taken.
2. Indicate whether the following statements are true or false.
The owner's drawings are shown on the initial trial balance.
A. True
B. False
The closing inventory balance is included in the final trial balance.
A. True
B. False
3. When performing a reconciliation between the bank transaction report and the cash
at bank account, which two of the following would require an entry in the cash at bank
account?
A. Deposits credited after date
B. Direct debit on bank transaction report only
C. Bank charges
D. Bank error
E. Cheque presented after date
4. Epsilon's cash at bank account at 31 December 20X3 shows a balance of £565
overdrawn. On comparing this with the transaction report downloaded from the
electronic banking system, the accountant discovers the following:
1. A cheque for £57 drawn by Epsilon on 29 December 20X3 has not yet been
presented for payment.
2. A cheque for £92 from a customer, which was paid into the bank on 24 December
20X3, has been dishonoured on 31 December 20X3.
The correct balance in Epsilon's cash at bank account as at 31 December 20X3 is:
A. £473 debit
B. £714 credit
C. £657 credit
D. £473 credit
5. Smyths's draft profit for the year is £324,700. After the draft profit was calculated, the
following issues were discovered.
1. Debts of £6,800 should have been written off as irrecoverable at the year end, but
the journal entry was not posted.
2. The accounting system had automatically calculated and recorded depreciation,
but the standing data was found to be incorrect. The depreciation rate for cars
should have been updated to 20% straight-line at the start of the year, but was left
as 25% straight- line in error. The balance on the car cost account at the year end
was £24,000. There were no additions or disposals of cars in the year.
What is Smyths's corrected profit for the year after accounting for the above issues?
A. £323,500
B. £319,100
C. £313,100
D. £316,700
£
Draft profit 324,700
Less irrecoverable debts (6,800)
Add back depreciation charged in error 1,200
(24,000 x 25%) .
(24,000 × 20%) 319,100
6. A company's initial trial balance includes a balance of £25,000 in a suspense account.

On reviewing the exception report, the bookkeeper identified the amount as a purchase
of machinery for £25,000. The amount had been correctly recorded in cash at bank but
the other side of the transaction had not been matched by the accounting system.
Which of the following journal entries would remove the suspense account and
correctly record the purchase of machinery?
A. DEBIT Plant and machinery £25,000

CREDIT Cash at bank account £25,000
B. DEBIT Suspense account £25,000

CREDIT Plant and machinery £25,000
C. DEBIT Plant and machinery £25,000

CREDIT Suspense account £25,000
D. DEBIT Cash at bank account £25,000

CREDIT Suspense account £25,000
7. The following information relates to a bank reconciliation. The balance in the cash at
bank account before taking the items below into account was £8,970 overdrawn.
1. Bank charges of £550 on the bank statement have not been entered in the cash at
bank account.
2. The bank has credited the account in error with £425 which belongs to another
customer.
3. Cheque payments totalling £3,275 have been entered in the cash at bank account
but have not been presented for payment.
4. Cheques totalling £5,380 have been correctly entered on the debit side of the cash
at bank account but have not been paid in at the bank.
What was the overdrawn balance as shown by the bank statement?

A. £6,990
B. £10,650
C. £11,200
D. £11,625
£
Cash at bank account balance b/f (8,970)
Bank charges (550)
Correct cash at bank account (9,520)
Error 425
Unpresented cheques 3.275
Uncredited lodgements (5,380)
Bank statement balance (11,200)
8. Which two of the following statements about bank reconciliations are correct?
A. In preparing a bank reconciliation, unpresented cheques must be deducted from

the balance shown in the bank statement.
B. A cheque from a customer paid into the bank but dishonoured must be corrected
by making a debit entry in the cash at bank account.
C. An error by the bank must be corrected by an entry in the cash at bank account.
D. An overdraft is a debit balance in the bank statement.
E. Bank charges that only appear on the bank statement must be debited to the cash
at bank account.
9. Alpha received a statement from its credit supplier Beta, showing a balance to be paid
of £8,950. Alpha's payables ledger for Beta shows a balance due to Beta of £4,140.
Investigation reveals the following:
1. A bank transfer made to Beta of £4,080 has not been recorded by Beta.
2. Alpha has not adjusted the payables ledger for a £40 cash discount taken by
Alpha but not allowed by Beta as payment was not made on time.
3. Goods costing £380 returned by Alpha have not been recorded by Beta.
What discrepancy remains between Alpha's and Beta's records after accounting for
these items?
A. £9.310
B. £390
C. £310
D. £1,070
10. Peri's customer unexpectedly took advantage of an early settlement discount for
£300, paying £3,700 on an invoice which totalled £4,000. Peri's bookkeeper was not sure
where to record the discount taken and so posted the following journal entry:
DEBIT Cash at bank 3,700

DEBIT Suspense account 300
CREDIT Receivables 4,000
Which of the following journal entries will remove the suspense account and correctly
record the discount?
A. Debit Receivables £300, Credit Suspense account £300

B. Debit Revenue £300, Credit Suspense account £300
C. Debit Cash at bank £300, Credit Suspense account £300
D. Debit Payables £300, Credit Suspense account £300
11. Which three of the following differences between a company's cash at bank account
and its bank transaction report balance as at 30 November 20X3 would feature in the
bank reconciliation?
A. Cheques recorded and sent to suppliers before 30 November 20X3 but not yet
presented for payment
B. Omission by the bank of a cash lodgement made by the company on 26
November 20X3
C. Bank charges
D. Cheques paid in before 30 November 20X3 but not credited by the bank until 3
December 20X3
E. A customer's cheque recorded and paid in before 30 November 20X3 but
dishonoured by the bank
12. In performing a bank reconciliation exercise, which two of the following require an
entry in the cash at bank account?
A. Cheque paid in, subsequently dishonoured on the bank transaction report
B. Error by bank
C. Bank charges
D. Lodgements credited after date
E. Outstanding cheques not yet presented
13 An error of principle would occur if plant and machinery purchased:

A. was omitted from the accounting records
B. was debited to the purchases account
C. was debited to the equipment account
D. was debited to the correct account but with the wrong amount
14. Olivia's exception report showed £265 received in the business bank account, and
correctly recorded in cash at bank, could not be matched by the accounting system and
so had been posted to a suspense account. Olivia discovered that the receipt was in
respect of a sales invoice for £295 on which the customer had unexpectedly taken a
prompt payment discount of £30. The customer had paid within the required timeframe
and so was entitled to take the discount.
Which of the following journal entries should Olivia now post to correctly record the
receipt and clear the suspense account?
A. Debit Trade receivables £265, Credit Suspense account £265

B. Debit Revenue £30, Debit Suspense account £265, Credit Trade receivables £295
C. Debit Suspense account £265, Credit Trade receivables £265
D. Debit Trade receivables £295, Credit Revenue £30, Credit Suspense account £265
15. Which of the following statements about bank reconciliations are correct?
1. All differences between the cash at bank account and the bank statement must
be corrected by means of a journal entry.
2. In preparing a bank reconciliation, cheques received from credit customers
before the period end but credited by the bank after the period end should reduce
an overdrawn balance in the bank statement.
3. Bank charges not yet entered in the cash at bank account should be dealt with by
an adjustment to the balance per the bank statement.
4. If a cheque received from a credit customer is dishonoured after date, a credit
entry in the cash at bank account is required.
A. 2 and 4
B. 1 and 4
C. 2 and 3
D. 1 and 3
16. The following trade payables account contains some errors. All goods are purchased
on credit.
TRADE PAYABLES
£ £
Purchases 945,800 Opening balance 384,600
Cash at bank account 988,400
Purchases (Discounts 12,600
received from suppliers)
Trade receivables (contra) 4,200
Closing balance 410,400
1,373,000 1,373,000
What would be the closing trade payables balance when the errors have been corrected?
A. £325,200
B. £350,400
C. £333,600
D. £410,400
TRADE PAYABLES
£ £
Cash at bank account 988,400 Opening balance 384,600
Purchases 945,800
Purchases (Discounts 12,600
received from suppliers)
Trade receivables (contra) 4,200
Closing balance 325,200
1,330,400 1,330,400
17. An error of commission is one where:

A. a transaction has not been recorded
B. one side of a transaction has been recorded in the wrong account, and that
account is of a different class to the correct account
C. one side of a transaction has been recorded in the wrong account, and that
account is of the same class as the correct account
D. a transaction has been recorded using the wrong amount
18. Owais's trial balance included a suspense account which had been automatically
opened by the computerised accounting system. Using the exception report, the
bookkeeper identified that the balance in the suspense account was due to the following
unmatched transactions:
1. A payment to a credit supplier for £135 related to an invoice for £120. The
business missed the deadline to take the early settlement discount it had
expected to take.
2. A receipt of £90 from a credit customer who had unexpectedly (but appropriately)
taken an early settlement discount of £10.
3. Interest received in the business bank account of £70.
What is the balance on the suspense account?

A. Debit £25
B. Credit £25
C. Debit £65
D. Credit £65
SUSPENSE ACCOUNT
£ £
Cash at bank account 135 Cash at bank account 90
Bal c/d 25 Cash at bank account 70
160 160
Bal b/d 25
19. All Elmo's sales and purchases attract VAT at 20%. A customer has just returned
goods sold for £230 excluding VAT. The double entry for this transaction is:
A. Debit Trade receivables £276, Credit VAT £46, Credit Revenue £230
B. Debit Revenue £276, Credit Trade receivables £276
C. Debit Revenue £230, Debit VAT £46, Credit Trade receivables £276
D. Debit Trade receivables £230, Debit VAT £46, Credit Revenue £276
20. Recording the purchase of stationery by debiting the computer equipment account
would result in:
A. an overstatement of profit and an overstatement of non-current assets
B. an understatement of profit and an overstatement of non-current assets
C. an overstatement of profit and an understatement of non-current assets
D. an understatement of profit and an understatement of non-current assets
21. In the trade payables of Magma plc, an invoice of £807 from Ferdinand has been
recorded as a credit note. After correcting this error, the trade payables balance will be:
A. reduced by £807
B. reduced by £1,614
C. increased by £807
D. increased by £1,614
22. Beta Ltd has calculated a draft gross profit of £150,000 and a draft net profit of
£83,000 for the year ended 31 December 20X3.
Two issues were then discovered:
1. Inventory costing £5,000, with a resale value of £7,500, was received into the
warehouse on 2 January 20X4 but had been included in the closing inventory
amount at 31 December 20X3.
2. £10,000 relating to staff training costs was incorrectly capitalised as part of the
purchase cost of a new machine which had been purchased on 1 July 20X3. Beta
Ltd depreciates machinery on a straight-line basis at a rate of 20% per annum.
Depreciation should be included as an administrative expense in the year.
After correcting these issues, what amounts should Beta Ltd report for gross profit and
net profit?
Gross profit Net profit
A. £142.500 £66.500
B. £145,000 £69,000
C. £145.000 £74.000
D. £142,500 £65.500
£
Gross profit 150,000
Closing inventory included in error (5,000)
Adjusted gross profit 145, 000
Net profit 83,000

Closing inventory included in error (5,000)
Staff training costs capitalised in error (10,000)
Add back depreciation on capitalised staff
training costs (10,000 x 20% × 6/12 months) 1,000
Adjusted net profit 69, 000
23. Ewan, a sole trader, has taken goods valued at £1,800 for his own use. This has not
been recorded in arriving at his draft profit figure. To record the drawings he:
Must adjust cost of sales by:

A. Debit £1,800
B. Credit £1,800
So his reported profit will:
C. Increase
D. Decrease
24. The debit balance in Omar plc's cash at bank account at the year end is £42,510. The
following items appear in the bank reconciliation at the year end.
£
Unpresented cheques 2,990
Uncleared lodgements 10,270
A cheque received from a customer for £2,470 was returned unpaid by the bank before
the year end, but this has not been recorded in the cash at bank account.
What was the bank balance shown by the bank statement?
A. £37,700
B. £47,320
C. £35,230
D. £32,760 = 42,510 – 2,470 + 2,990 – 10,270
25. Rochelle has a debit balance of £26 in Staint plc's payables ledger. Which of the
following would, alone, explain this balance?
A. Staint plc paid an invoice for £26 even though it had recorded a credit note that
Rochelle had issued in respect of this amount.
B. Staint plc bought and paid for some goods for £26 which it then returned, but
Rochelle has not yet issued a credit note.
C. Staint plc received a credit note for £26 from Rochelle but posted it to the
account of Nashalle.
D. Staint plc paid a cheque to Rochelle for £53 in respect of an invoice for £79.
26. Catt plc has prepared a draft statement of profit or loss at 31 May 20X1 which shows
a gross profit of £99,500. Catt plc has now discovered that at both the beginning and the
end of the period, one line of inventory, the Sungsa, has been included at selling price:
£1,240 at 31 May 20X1 and £3,720 at 1 April 20X0. The Sungsa is always sold at a mark-
up of 25% by Catt plc.
After correcting this error Catt plc's gross profit for the year to 31 May 20X1 is:
A. £99,996
B. £99,004
C. £98,880
D. £100,120
27. Mayo plc has prepared a draft statement of profit or loss that shows a net profit of
£75,000 for the year ended 30 April 20X5. Subsequently, the following matters have been
discovered.
1. A subscription notice for £1,000 was received in April 20X5 for the year to 30
April 20X6. Mayo plc pays the subscription in two equal instalments. The first
installment was paid on 28 April 20X5 and posted to the cash at bank account
and to administrative expenses. No other entries have been made.
2. Goods that cost £400 and sold at a gross margin of 75% were returned by Dandy
Ltdon 30 April 20X5, after the inventory count had taken place. No credit note
was issued.
Once these matters have been dealt with Mayo ple's net profit for the year ended 30
April 20X5 will be:
A. £75,400
B. £74,300
C. £75,100
D. £75,700
£
Draft net profit 75.000
Add back: Prepaid subscription instalment(£1,000/2) 500
Deduct: profit on returned goods £400x 75/25* (1,200)
74.300
* Gross profit percentages:

%
Revenue 100
Cost (25)
Gross profit 75
28. Hood plc has a draft net profit of £540,000. It discovered the following errors:
1. Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and
fittings. Hood plc depreciates fixtures and fittings at 25% per annum.
2. An early settlement discount of £1,785 taken unexpectedly, but appropriately, by
a customer was debited to trade receivables and credited to sales.
On correction of these errors Hood ple's net profit will be:
A. £535,050
B. £531,480
C. £533,265
D. £536,430
30. On reviewing its cash at bank account and the transaction report downloaded from
its electronic banking system, Probla plc discovers the following errors:
1. A cheque from a credit customer for £1,095 was recorded in trade receivables and
cash at bank account as £1,509.
2. A cheque to a credit supplier for £89 was entered incorrectly in trade payables
and the cash at bank account as £98.
What is the journal entry to correct these errors?
A. Debit Receivables £414, Credit Payables £9, Credit Cash £405

B. Debit Cash £405, Debit Payables £9, Credit Receivables £414
C. Debit Receivables £414, Debit Payables £9, Credit Cash £423
D. Debit Cash £423, Credit Receivables £414, Credit Payables €9
31. In relation to trade payables at the year end of 30 April 20X1, Jitka plc has
discovered that:
1. a contra of £85 with trade receivables is required; and

2. an early settlement discount of £2,220, which was taken appropriately by a credit

customer, was credited to revenue and debited to trade payables. Jitka plc had not
expected the customer to take the discount.
Before these discoveries, the balance on trade payables was £72,560. In its statement of
financial position as at 30 April 20X1 Jitka plc will have a figure for trade payables of:
A. £70,255
B. £74,695 = 72,560 + 2,220 - 85
C. £74,865
D. £76,915
32. Topping plc's initial trial balance for the year ended 31 October 20X9 has been
prepared. It shows draft profit for the period of £58,147 and a credit balance on a
suspense account of £738 in respect of accrued expenses. The bookkeeper was unsure of
how to record the accrual and incorrectly debited £738 to prepayments and credited the
suspense account.
What is Topping ple's profit after tax when this error is corrected?
A. £59,623
B. £57,409
C. £58,885
D. £56,671
33. A Co's trade receivables ledger account comprises: sales £125,000, cash received
£50,000, and early settlement discounts taken unexpectedly by customers totalling
£2,000. The balance carried down is £95,000. What was the opening balance at the
beginning of the period?
A. £22,000 debit
B. £22,000 credit
C. £18,000 debit
D. £20,000 debit
34. A bank statement shows a balance of £1,200 in credit. An examination of the

accounting records shows a £500 cheque paid in per the cash at bank account but not
yet on the bank statement and a £1,250 cheque paid out but not yet on the statement. In
addition, the cash at bank account shows the owner's correct calculation of savings
interest of £50 which should have been received, but which is not on the statement.
What is the balance per the cash at bank account?
A. £1,900 overdrawn
B. £500 overdrawn
C. £1,900 in hand
D. £500 in hand
35. A payment in respect of rent has been correctly recorded in the cash at bank account
but the expense has been recorded as a distribution cost rather than administrative
expense. What type of error is this?
A. An error of commission
B. A transposition error
C. An error of principle
D. A compensating error
36. Adam incorrectly recorded a purchase of tyres for his personal use as purchases of
the business. What type of error is this?
37. Charlie purchased office chairs at a cost of £745. He incorrectly recorded this
transaction as £475. What type of error is this?
38. Hatty has a cash at bank account balance of £380 credit on 23 July 20X7. She extracts
a transaction report from her electronic banking system that day which shows bank
interest of £34 was credited to her account, a direct debit for £240 in respect of
telephone expenses was withdrawn and a cheque for £50, which has already been
recorded in the nominal ledger accounts, was presented. What is the adjusted cash at
bank account balance after taking account of these transactions?
A. £174 credit
B. £586 credit
C. £636 credit
D. £124 credit
39. On 31 January 20X8, Randall's cash at bank account balance for its current account
showed a credit balance of £150 which did not agree with the bank statement balance.
In performing the reconciliation the following points come to light.
£
Not recorded in the cash at bank account
Bank charges 36
Transfer from savings account to current account 500
Not recorded on the bank statement
Unpresented cheques 116
Uncleared lodgements 630
It was also discovered that the bank had debited Randal's account with a cheque for
£400 in error. This should have been debited to Hopkirk's account.
What was the original balance on the bank statement?
A. £200 DR
B. £428 DR
C. £600 CR
D. £1,600 CR
40. A bank reconciliation statement for Worth Ltd at 31 December 20Y1 is in course of
preparation. In the light of the information given below, compute the final balance
shown by the cash at bank account.
1. Overdrawn balance per bank statement is £1,019.

2. An amount of £250 credited in the bank statement under a standing order
arrangement has not been entered in the cash at bank account.
3. Cheques drawn and entered but not presented total £2,467.
4. Bank charges of £1,875 debited by the bank have not been entered in the cash at
bank account.
5. Cash and cheques received and entered but not credited in the bank statement
total £4,986.
6. An uncorrected bank error has resulted in a cheque for €397 debited to Worth's
account in error.
The final balance shown by the cash at bank account, after making all necessary
corrections, should be:
A. £6,831 DR
B. £3,141 DR
C. £1,897 DR
D. £228 DR
CHAPTER 7: COST OF SALES AND INVENTORIES

1. A business has opening inventory of £7,200 and closing inventory of £8,100. Purchases
for the year were £76,500, delivery inwards was £50 and delivery outwards was £180.
What is the correct amount for cost of sales?
A. £75,550
B. £75,650
C. £75,830
D. £77,45
2. Platoon plc is preparing its financial statements for the year ended 30 April 20X1,
having extracted an initial trial balance.
It had no opening inventory, its purchases in the period were £686,880 and closing
inventories were valued as £18,647 on 30 April 20X1.
Which two of the following journal entries are required to record cost of sales and
closing inventories at 30 April 20X1?
A. Dr Cost of sales £686,880; Cr Inventories £686,880

B. Dr Purchases £686,880; Cr Cost of sales £686,880
C. Dr Cost of sales £686,880; Cr Purchases £686,880
D. Dr Inventories £18,647; Cr Cost of sales £18,647
E. Dr Cost of sales £18,647; Cr Inventories £18,647
F. Dr Inventories £18,647; Cr Purchases £18,647
3. Muse plc began trading on 1 January 20X8 and had zero inventories at that date.
During 20X8 it made purchases of £455,000, incurred delivery inwards of £24,000, and
delivery outwards of £29,000. Closing inventories at 31 December 20X8 were £52,000.
What is the correct amount for cost of sales for the year ended 31 December 20X8?
A. £456,000
B. £427,000
C. £432,000
D. £531,000
4. Boomerang Co had 200 units in inventory at 30 November 20X1 valued at £800.
During December it made the following purchases and sales.
2/12 Purchased 1,000 @ £5.00 each
5/12 Sold 700 @ £7.50 each
12/12 Purchased 800 @ £6.20 each
15/12 Purchased 300 @ £6.60 each
21/12 Sold 400 @ £8.00 each
28/12 Sold 500 @ £8.20 each
Which of the following is the closing inventory amount using FIFO?
A. £4,460
B. £4,340
C. £4,620
D. £3,500
5. The following information relates to Camberwell plc's year-end inventory of finished

goods.
At what amount should finished goods inventory be stated in the company's statement
of financial position?
A. £13,280
B. £18,960
C. £18,760
D. £19,580
6. At its year end Crocodile plc has 6,000 items of product A, and 2,000 items of product
B, costing £10 and £5 respectively. The following information is available:
Product A – 500 are defective and can only be sold at £8 each.
Product B – 100 are to be sold for £4.50 each with selling expenses of £1.50 each.
What figure should be shown in Crocodile plc's statement of financial position for
inventory?
A. £57,000
B. £68,950
C. £68,800
D. £70,000
In a period of rising prices, applying the FIFO method to determine the cost of
inventories will give a lower gross profit figure than the AVCO method.
A. True
B. False
Closing inventory is a debit in the statement of profit or loss.
C. True
D. False
8. Mickey Ltd has calculated the cost of inventory using AVCO. At 1 June 20X8 there
were 60 units in inventory at a cost of £12 each. On 8 June, 40 units were purchased for
£15 each, and a further 50 units were purchased for £18 each on 14 June. On 21 June, 75
units were sold for £20.00 each.
What is the cost of closing inventory at 30 June 20X8?
A. £1,110
B. £1,010
C. £900
D. £1,125
9. Morgan plc's direct production cost of each unit of inventory is £46. Production
overheads are £15 per unit. Currently the goods can only be sold if they are modified at
a cost of £17 per unit. The selling price of each modified unit is £80 and selling costs are
estimated at 10% of selling price. At what amount should each unmodified unit of
inventory be included in the statement of financial position?
A. £48
B. £55
C. £64
D. £61
A van for sale by a dealer is shown as a non-current asset in its statement of financial
position.
A. True
B. False
Import duties are included in the cost of inventory.
C. True
D. False
11. Which two of the following may be included when arriving at the cost of finished
goods inventory for inclusion in the financial statements of a manufacturing company?
A. Delivery inwards
B. Delivery outwards
C. Depreciation of delivery vehicles
D. Finished goods storage costs

E. Production line wages
12. Which of the following statements about inventory for the purposes of the
statement of financial position is correct?
A. AVCO and LIFO are both acceptable methods, under IAS 2, Inventories, of arriving
at the cost of inventories.
B. The cost of inventories of finished goods may include labour and materials cost only,
without including overheads.
C. Inventories should be included at the lowest of cost, net realisable value and
replacement cost.
D. It may be acceptable for the cost of inventories to be based on selling price less
estimated profit margin.
13. A company's closing inventory at 31 January 20X3 amounted to £284,700.
The following items were included, at cost, in the total:
1. 400 coats, which had cost £80 each and normally sold for £150 each. Owing to a
defect in manufacture, they were all sold after 31 January 20X3 at 50% of their normal
price. Selling expenses amounted to 5% of the proceeds.
2. 800 skirts, which had cost £20 each. These too were found to be defective. Remedial
work in February 20X3 cost £5 per skirt, and selling expenses were £1 per skirt. They
were sold for £28 each.
What should be the inventory value after considering the above items?
A. £281,200
B. £282,800
C. £329,200
D. £284,700
14.
A £3,600
B £4,700
C £5,100
D £6,150
15. A company uses the FIFO method to arrive at its inventory cost. At 1 May 20X2 the
company had 700 engines in inventory, valued at £190 each. During the year ended 30
April 20X3 the following transactions took place:
What is the cost of the company's closing inventory of engines at 30 April 20X3?
A £188,500
B £195,500
C £161,500
D £167,500
16. An inventory record card shows the following details.
What is the cost of inventory at 28 February using the FIFO method?

A £2,450
B £2,500
C £2,700
D £2,950
17. For the year ended 31 October 20X3 a company did a physical count of inventory on
4 November 20X3, leading to an inventory cost at this date of £483,700.
Between 1 November 20X3 and 4 November 20X3 the following transactions took place:
1. Goods costing £38,400 were received from suppliers.
2. Goods that had cost £14,800 were sold for £20,000.
3. A customer returned, in good condition, some goods which had been sold to him
in October for £600 and which had cost £400.
4. The company returned goods that had cost £1,800 in October to the supplier, and
received a credit note for them.
What figure should be shown in the company's financial statements at 31 October 20X3
for closing inventory, based on this information?
A £458,700
B £505,900
C £508,700
D £461,500
18. In preparing its financial statements for the current year, in a company's closing
inventory was understated by £300,000.
What will be the effect of this error if it remains uncorrected?
A. The current year's profit will be overstated and next year's profit will be understated.
B. The current year's profit will be understated but there will be no effect on next year's
profit.
C. The current year's profit will be understated and next year's profit will be overstated.
D. The current year's profit will be overstated but there will be no effect on next year's
profit.
19. At 30 September 20X3 the closing inventory of a company amounted to £386,400.
The following items were included in this total at cost:
1. 1,000 items which had cost £18 each. These items were all sold in October 20X3 for
£15 each, with selling expenses of £800.
2. Five items which had been in inventory for many years and which had been
purchased for £100 each, sold in October 20X3 for £1,000 each, net of selling expenses.
What figure should appear in the company's statement of financial position at 30
September 20X3 for inventory?
A £382,600
B £390,200
C £368,400
D £400,600
20. The cost of inventory in the financial statements of Quebec Ltd for the year ended 31
December 20X4 of £836,200 was based on an inventory count on 4 January 20X5.
Between 31 December 20X4 and 4 January 20X5, the following transactions took place:
What adjusted figure should be included in the financial statements for inventories at
31 December 20X4?
A. £838,100 = 836,200 – 8,600 + 14,000 x 70% + 700
B. £842,300
C. £818,500
D. £834,300
21. The closing inventory of Epsilon amounted to £284,000 at cost at the year end of 30
September 20X1. This total includes the following two inventory lines.
1. 500 items which had cost £15 each and which were included at £7,500. These
items were found to have been defective at the date of the statement of financial
position. Remedial work after that date cost £1,800 and they were then sold
shortly afterwards for £20 each. Selling expenses were £400.
2. 100 items which had cost £10 each. After the date of the statement of financial
position they were sold for £8 each, with selling expenses of £150.
What amount should be shown in Epsilon's statement of financial position for
inventory?
A. £283,650
B. £284,350
C. £284,650
D. £291,725
22. Lamp makes the following purchases in the year ending 31 December 20X9.
What is the correct figure for inventories at 31 December 20X9?

A. £2,450
B. £2,525
C. £2,594
D. £2,700
23. Bouncy Balls plc has 40 units of its special spongy balls in inventory as at 30
November 20X7. The product costs £5 per unit to manufacture and can be sold for £15
per unit. Half of the units in inventory at the year end have been damaged and will
require rectification work costing £10 per unit before they can be sold. Selling costs are
£1 per unit.
What is the value of inventory at 30 November 20X7?
A. £160
B. £180 = 20 x 5 + 20 x (15-10-1)
C. £200
D. £600
24. The closing inventory of Stacks plc amounted to £58,200 excluding the following
two inventory lines:
1. 200 items which had cost £15 each. These items were found to be defective at the
year-end date. Rectification work after that date amounted to £1,200 for the
batch, after which they were sold for £17.50 each, with selling expenses totalling
£300 for the batch.
2. 400 items which had cost £2 each. All were sold after the year-end date for £1.50
each, with selling expenses of £200 for the batch.
What amount for inventory should be shown in the statement of financial position of
Stacks plc?
A. £62,000
B. £61,600
C. £60,600
D. £61,000
25. Fenton plc is a manufacturer of PCs. The company makes two different models, the
M1 and M2, and has 100 of each in inventory at the year end. Costs and related data for
a unit of each model are as follows:
What figure for inventory should be shown in the statement of financial position at the
year end?
A £57,500
B £58,000
C £65,000
D £65,500
26. When calculating the cost of inventory, which of the following shows the correct
method of arriving at cost?
Include inward delivery costs Include production overheads
A. Yes No
B. No Yes
C. Yes Yes
D. No No
27. A trader who sets her selling prices by adding 50% to cost actually achieved a mark-
up of 45%. Which of the following factors could account for the shortfall?
A. Sales were lower than expected.
B. The value of the opening inventories had been overstated.

C. The closing inventories of the business were higher than the opening inventories.
D. Goods taken from inventories by the proprietor were recorded by debiting
drawings and crediting purchases with the cost of the goods.
28. The gross profit margin is 20% where:
A. cost of sales is £100,000 and sales are £120,000
B. cost of sales is £100,000 and sales are £125,000
C. cost of sales is £80,000 and gross profit is £16,000
D. cost of sales is £80,000 and sales are £96,000
29. Which of the following factors could cause a company's gross profit margin to fall
below the expected level?
A Overstatement of closing inventories
B The incorrect inclusion in purchases of invoices relating to goods supplied in the
following period
C The inclusion in sales of the proceeds of sale of non-current assets
D Increased cost of delivery borne by the company on goods sent to customers
30. An extract from a business's statement of profit or loss is as follows:
What mark-up has the business applied?
A. 14.8%
B. 16.7%
C. 20.0%
D. 83.3%
31. Franz pl is a manufacturer. Its 12-month reporting period ends on 31 July and it
adopts the average cost (AVCO) method of inventory usage and valuation. At 1 August
20X4 it held inventory of 2,400 units of the material Zobdo, valued at £10 each. In the
year to 31 July 20X5 there were the following inventory movements of Zobdo:
14 November 20X4 Sales 900 units

28 January 20X5 Purchase 1,200 units for £20,100
7 May 20X5 Sales 1,800 units
What was the cost of Franz plc's closing inventory of Zobdo at 31 July 20X5?
A. £11,700
B. £9,000
C. £15,075
D. £35,100
32. For many years Wrigley plc has experienced rising prices for raw material X, and has
kept constant inventory levels. It has always used the AVCO method to arrive at the cost
of inventory.
What would the result be if Wrigley pl had always used the FIFO method in each
successive year's financial statements?
A. Lower cost of sales and higher closing inventory

B. Lower cost of sales and lower closing inventory
C. Higher cost of sales and lower closing inventory
D. Higher cost of sales and higher closing inventory
33. During the year ended 31 March 20X4 Boogie plc suffered a major fire at its factory,
in which inventory that had cost £36.000 was destroyed. An insurance payment of 80%
of the cost has been agreed but not received at the year end.
Which of the following correctly completes the journal entry too take account of these
matters?
Debit trade and other receivables with £28,800 and:
A. Debit Administrative expenses £36,000, Credit Purchases £28,800, Credit

Revenue £36,000
B. Debit Administrative expenses £7,200, Credit Purchases £36,000

C. Debit Administrative expenses £36,000, Credit Purchases £36,000, Credit Other
income £28,800
D. Debit Administrative expenses £7,200, Credit Inventory £36,000
34. Percy plc started trading on 1 April 20X4. The cost of inventory shown in Percy plc's
statement of financial position at 31 March 20X5, using the AVCO basis, was £6,420.
Had the FIFO basis been used, the cost would have been £8,080.
What is the effect of adopting the FIFO basis on Percy plc's financial statements for the
year ended 31 March 20X5?
A. increase profits and decrease current assets by £1,660

B. increase current assets and decrease losses by £1,660
C. increase capital and decrease current assets by £1,660
D. increase current assets and increase losses by £1,660
35. Kane Ltd has completed its inventory count for the period ended 30 June 20X8. The
inventory count concluded that there were inventories costing £32,340 of which £1,280
were found to be damaged and so had a net realisable value of nil.
What is the journal entry to record closing inventories at 30 June 20X8?
A. Dr Cost of sales £32,340, Cr Inventories £32,340

B. Dr Inventories £32,340, Cr Cost of sales £32,340
C. Dr Cost of sales £31,060, Cr Inventories £31,060
D. Dr Inventories £31,060, Cr Costs of sale £31,060
36. Which of the following is the correct calculation for cost of sales?
A. Sales - purchases
B. Opening inventory + purchases + closing inventory + delivery inwards
C. Opening inventory + purchases - closing inventory + delivery inwards
D. Sales - opening inventory - purchases + closing inventory - delivery inwards
37. Distinguish between delivery inwards and delivery outwards.

- Delivery inwards is paid on goods coming into the business and is added to the cost of
purchases.
- Delivery outwards is paid on goods going out of the business to customers and is
deducted in arriving at net profit.
38. Cost of sales is £14.000. Purchases for the period are £14,000, delivery inwards is
£1,000, delivery outwards is £1,500 and closing inventory is £13,000. What was the
opening inventory figure?
A. £10,500
B. £11,500
C. £12,000
D. £13,000
39. Give three reasons why inventory might have to be written off.
- Goods are stolen or lost
- Goods are damaged
- Goods are obsolete
40. Carlisle has the following inventory movements during May.
Units £ per unit

Opening inventory 40 9
2 May Goods in 60 10
10 May Goods out 50
18 May Goods out 45
Assuming that the business values inventory on FIFO basis, what will be the value of
closing inventory at the end of the month?
A. £1,615
B. £1,655
C. £1.700
D. £1.705
41. A trader used the LIFO method to value inventory at the end of July at £3,110. Sales
and purchases in July were as follows:
Date Purchases (units) Sales (units)
3 July 100 at £20/unit
6 July 80
10 July 40
22 July 20
The opening inventory at 1 July was 50 units valued at £15 per unit. The trader needs to
adopt the FIFO method
What is the effect of this change on the trader's profit?
A. £190 decrease
B. £420 decrease
C. £420 increase
D. £190 increase
42. The inventory records for Simmons last month were as follows:
Date Purchases (units) Sales (units)

2 February 500
13 February 800
21 February 400
29 February 200
Opening inventory was 600 units valued at £12,000. Purchases in February were at
£31.25 per unit.
The total cost of sales in February, using the AVCO method, is (to the nearest £):
A. £37,000
B. £28,000
C. £17,625
D. £22,000
43. What would be the effect on a business's profit of discovering that inventory with a
cost of £1,250 and a net realisable value of £1,000 had been omitted from the inventory
count at the end of the reporting period?
A. An increase of £1,250
B. An increase of £1.000
C. A decrease of £250
D. No effect
44. June Ltd has three lines of inventory at the end of its reporting period.
X Y Z
Original purchase price (per unit) £1.50 £6.50 £5.00
Estimated future selling price (per unit) £4.25 £8.00 £3.50
Selling and distribution costs (per unit) £0.75 £2.00 £0.50
Units in inventory 100 200 250
At what value should inventory appear in the financial statements at the end of the
reporting period?
A. £2,700
B. £2,325
C. £2,300
D. £2,100
45. Brecon manufactures cosmetics and toiletries. It has decided to repackage its body
lotion product in new covers, and discount the selling price.
The details of body lotion are as follows.
Per item
Cost of manufacture £2.50
Repackaging cost to be incurred £0.75
Selling price £3.00
Discount on selling price 10%
At what amount should each item of body lotion be included in inventory?
A. £3.00
B. £2.70
C. £2.25
D. £1.95
46. During the reporting period Malcolm took items with a selling price of £280 for his
own use. He trades at a 40% mark-up and had a draft profit of £15,800 before making any
adjustments for this matter. His final profit is:
A. £15,520
B. £15,800
C. £15,600
D. £16,000
47. Percy Pilbeam is a book wholesaler. Commission of 4% on selling price is payable by

Percy for each sale.
The following information is available in respect of total inventory of three of his most
popular titles at the end.of his reporting period.
Cost Selling price
£ £
Henry VIll - Shakespeare 2,280 2,900
Dissuasion - Jane Armstrong-Siddeley 4,080 4,000
Pilgrim's Painful Progress - John Bunion 1,280 1,300
What is the total value of these inventories in Percy's statement of financial position?
A. £7,368
B. £7,400
C. £7,560
D. £7,640
48. Roberta Wickham decides to discount some of the slower-selling items in her music
shop. These items at 31 March 20X0 are as follows.
Item Cost Current price Discount to be
applied (% of
current price)
£ £ %
Liszt - To Port 50 70 20
Delius - Myth 70 55 10
Offenbach - Up the Wrong Tree 150 225 10
Bax - To the Wall 30 35 50
What is the total inventory value of the above items at 31 March 20X0?
A. £267.00
B. £274.00
C. £300.00
D. £325.50
CHAPTER 8: IRRECOVERABLE DEBTS AND ALLOWANCE FOR RECEIVABLES
1. At 30 September 20X4, Mathieson plo's allowance for receivables was £19,500. At 30

September 20X5 it was decided to write off irrecoverable debts totalling £6,000 and to
decrease the allowance for the remaining receivables to £15,000.
What is the charge or credit to the statement of profit or loss in respect of irrecoverable
debts for the year ended 30 September 20X5?
A. £1,500 credit
B. £1,500 debit
C. £21,000 debit
D. £21,000 credit
2. At 30 June 20X1 Cameron pl has decided to write off two debts of £1,300 and £2,150
respectively and to make an allowance of £6,631 against the remaining trade receivables
balance. The balance on this allowance at 1 July 20X0 was £8,540.
What is Cameron ple's irrecoverable debts expense for the year to 30 June 20X1?
A. £1,541
B. £1,909
C. £3,450
D. £5,359
3. Enigma pl has reduced its allowance for receivables by £600. Indicate whether the
following statements are true or false.
This will increase gross profit by £600.
A. True
B. False
This will increase net profit by £600.
C. True
D. False
4. Disaster ple's trial balance shows trade receivables of £50,000. However, no
adjustment has been made for the following items.
1. £3,250 from & Crisis & Sons who have gone into liquidation. The amount is
considered irrecoverable.
2. An increase in the allowance for receivables of £2,000. (to allowance)
3. Cash received from P Chaos of £2.500 which had previously been written off. (to
irrecoverable debts)
What is the revised trade receivables account balance after posting the above
adjustments?
A. £50.500
B. £50,200
C. £46.750 = 50,000 - 3250
D. £49 250
5. At 28 February 20X4, a company's allowance for receivables was £38,000. At 28
February 20X5 it was decided to write off £28,500 of receivables and to increase the
allowance for the remaining receivables to £42,000.
What is the irrecoverable debts expense in the statement of profit or loss for the year
ended 28 February 20X5?
A. £42,000
B. £28,500
C. £70,500
D. £32,500
6. Arrow plc had a receivables balance of £7,050 at 31 December 20X0. During the year
£500 was received in respect of a debt previously written off, and an allowance for
receivables of £495 was considered necessary. The allowance brought down as at 1
January 20X0 was £1,000.
What is the correct action for Arrow pl to take respect of irrecoverable debts for the
year ended 31 December 20X0?
A. charge £5
B. charge £1,005
C. write back £5
D. write back £1,005
7. During 20X5 Bow pl received £500 from a customer in respect of a balance that had
previously been written off, and reduced its allowance for receivables to £100. The
allowance brought down as at 1 January 20X5 was £1,000. At the year end the dishonour
of a cheque received for £280 needs to be accounted for, and the debt related to it needs
to be written off.
What is the irrecoverable debts debit or credit in the statement of profit or loss for the
year ended 31 December 20X5?
A. £880 debit
B. £780 debit
C. £1,120 credit
D. £1,300 credit
IRRECOVERABLE DEBTS EXPENSE
Write off 280 Received 500
Decrease allowance (1000 – 100) 900
State of profit or loss 1120
1400 1400
8. At 31 December 20X2 a company's receivables totalled £400,000 and an allowance for

receivables of £50,000 had been brought forward from the year ended 31 December
20X1.
It was decided to write off debts totalling £38,000 and to adjust the allowance for
receivables to £36,200.
What is the irrecoverable debts expense that should appear in the company's statement
of profit or loss for the year ended 31 December 20X2?
A. £36,200
B. £51,800
C. £38,000
D. £24,200
9. At 1 July 20X2 the receivables allowance of Quaint pl was £18,000.
During the year ended 30 June 20X3 debts totalling £14,600 were written off. It was T
decided that the receivables allowance should be £16,000 as at 30 June 20X3.
What amount should appear in Quaint ple's statement of profit or loss for irrecoverable
debts expense for the year ended 30 June 20X3?
A. £12,600
B. £14,600
C. £16,600
D. £30.600
10. At 1 May trade receivables were £31,475. During May, sales of £125,000 were made
on credit. Receipts from credit customers amounted to £122,500 and settlement
discounts of £550 that were not expected to be taken at the date of invoice were taken by
credit customers. Credit notes of £1,300 were issued to customers.
What is the closing balance on trade receivables at 31 May?
A. £34,725
B. £33,225
C. £32,125
D. £35,825
11. Panther plc had an allowance for receivables at 1 July 20X1 of £450. Panther plc
wants to write off a receivables balance of £800 as irrecoverable and increase the
allowance for receivables to £2,965.
As well as crediting trade receivables with £800, what other entries must be made to
record the required adjustments in Panther ple's accounting records?
Debit Credit
A Irrecoverable debts expense £3,315 Allowance for receivables £2,515
B Allowance for receivables £2,515 Irrecoverable debts expense £3,315
C Irrecoverable debts expense £3,765 Allowance for receivables £2,965
D Allowance for receivables £2,965 Irrecoverable debts expense £3,765
12. The following trade receivables account has been prepared by an inexperienced
bookkeeper and may contain errors of principle.
TRADE RECEIVABLES
20X3 £ 20X3 £
1 Jan Balance 284,680 31 Dec Cash at bank 179,790
31 Dec Sales 194,040
Sales (discounts Contras with

given to customers) 3,660 trade payables 800
Irrecoverable debts Balance 303,590
expense 1,800
484,180 484,180
An outstanding debt of £4,920 at 31 December 20X3 is to be written off.

What is the correct figure for receivables that should appear on the statement of
financial position at 31 December 20X3?
A. £289.350
B. £291.350
C. £287,750
D. £297,590
13. At 30 June 20X4 a company's allowance for receivables was £39,000. At 30 June 20X5
trade receivables totalled £517,000. It was decided to write off debts totalling £37,000
and to adjust the allowance for receivables to £24.000.
What figure should appear in the statement of profit or loss for irrecoverable debts
expense for the year ended 30 June 20X5?
A. £52.000
B. £22,000
C. £37,000
D. £23,850
14. At 1 January 20X5 a company had an allowance for receivables of £18,000.
At 31 December 20X5 the company's trade receivables were £458 000. iOsvisse
It was decided:
(a) to write off debts totalling £28,000 as irrecoverable; and
(b) to adjust the allowance for receivables to £21,500.
What amount for irrecoverable debts should be charged in the company's statement of
profit or loss for the year ended 31 December 20X5?
A. £49,500
B. £31,500
C. £32,900
D. £50,900
16. The following issues arose while Atkins Ltd was preparing its financial statements
for the year to 31 December 20X2.
1. £350 was received in December 20X2 in respect of a debt which had been written
off in the previous year. The receipt was correctly included in the cash at bank
account, but the computerised accounting system was unable to match this
transaction and posted the other side of the entry to a suspense account.
2. The directors determined that that the allowance for receivables should be
reduced from £900 to £800 at the year end.
What journal entries should Atkins Ltd make to account for the above issues?
A. Debit Irrecoverable debts expense £450, Credit Suspense £350, Credit Allowance
for receivables £100
B. Debit Allowance for receivables £800, Credit Suspense £350, Credit Irrecoverable
debts expense £450
C. Debit Irrecoverable debts expense £450, Debit Suspense £350, Credit Allowance
for receivables £800
D. Debit Allowance for receivables £100, Debit Suspense £350, Credit Irrecoverable
debts expense £450
17. If Poppy plc reduces its allowance for receivables by £300, which of the following
statements is correct?
A. Current assets decrease by £300
B. Current liabilities decrease by £300
C. Gross profit increases by £300
D. Net profit increases by £300
18. At 31 December 20X4 a company's trade receivables totalled €864,000 and the
allowance for receivables was £48,000.
It was decided that debts totalling £13,000 were to be written off, and the allowance for
receivables adjusted to £42,550.
Which of the following journal entries would correctly record these adjustments?
A DEBIT Irrecoverable debts expense £18,450
CREDIT Allowance for receivables £18,450
B DEBIT Irrecoverable debts expense £7,550
DEBIT Allowance for receivables £5,450
CREDIT Trade receivables £13,000
C DEBIT Irrecoverable debts expense £7,550

D DEBIT Irrecoverable debts expense £55,550
CREDIT Trade receivables £13,000
19. A business has extracted its initial trial balance as at 31 December 20X7 as follows:
Trial balance (extract)
Trial balance
£ £
Trade receivables 441,500
Allowance for receivables at 1 January 20X7 20,300
A balance of £2,400 is to be written off as irrecoverable and the allowance for

receivables is to be £21,955.
What is the net trade receivables balance to be presented in the statement of financial
position at 31 December 20X7?
A. £417.145
B. £396,845
C. £419,545
D. £421 945
20. At 1 January. 20X1 Urb plc received €3,000 in full settlement of a debt that had
previouslybeen written off.
At 31 December 20X1 Urb ple determined that a balance of £3,600 owed by a customer
was irrecoverable and should be written off.
Urb plc also decided to decrease its allowance for receivables from £2.200 to £1.500 on
31 December 20X1.
What amount should Urb ple charge or credit for irrecoverable debts in the statement of
profit or loss for the year ended 31 December 20X1?
A. £1,300 debit
B. £1,300 credit
C. £100 debit
D. £100 credit
21. At its year end of 28 February 20X6 Stope pl has in its accounting records a figure
for trade receivables of £47,533, and an allowance for receivables of f500 at 28 February
20X5.
One customer, Invincible pl, has experienced financial difficulties and has now gone
into administration. Its balance of £10,380 at 28 February 20X6 is deemed to be
irrecoverable and should be written off.
The directors of Stope ple also wish to increase the allowance for receivables to £850.
What will Stope pl record in its accounting records as at 28 February 20X6 in respect of
the above transactions?
A. Allowance for receivables of £850 and a charge in respect of irrecoverable debts
of £10,380
B. Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts
of £10,730
C. Allowance for receivables of €1,350 and a charge in respect of irrecoverable debts
of £10,380
D. Allowance for receivables of £850 and a charge in respect of irrecoverable debts
of £10,730
22. Moon plc's initial trial balance as at 31 October 20X1 has been extracted and shows
the following:
Trial balance (extract)
Trial balance
£ £
Trade receivables 6,546
Allowance for receivables at 1 November 20X0 251.760
As at 31 October 20X1 Grundle's balance to Moon ple of £1,860 is irrecoverable. It is
also decided that the allowance for receivables should be increased to £8.420.
What amount should Moon plc include as its net trade receivables figure in the
statement of financial position as at 31 October 20X1?
A. £235,024
B. £241,480
C. £243,340
D. £236,794
24. An irrecoverable debt arises in which of the following situations?
A. A customer pays part of the account

B. An invoice is in dispute
C. The customer goes bankrupt
D. A cheque received in settlement is dishonoured by the customer's bank
25. An allowance for receivables of £4,000 is required at the end of a reporting period.
The allowance for receivables brought forward from the previous period is £2,000. What
change is required this reporting period?
A. Increase by £4,000
B. Decrease by £4,000
C. Increase by £2,000
D. Decrease by £2,000
26. If an allowance for receivables is increased, what is the effect on the statement of
profit or loss?
The increase in the allowance is charged as an expense in the statement of profit or loss.
=> Reduce net profit (bcs increase expense)
27. What is the double entry to record the write off of an irrecoverable debt?
DEBIT Irrecoverable debts expenses
CREDIT Trade receivables
28. On 1 January 20X5 Plodd had an allowance for receivables of £1,000. During 20X5 he
wrote off debts of £600 and was paid £80 by the liquidator of a company whose debts
had been written off completely in 20X4. At the end of 20X5 it was decided to adiust the
allowance for receivables to £900.
What is the net expense for irrecoverable debts in the statement of profit or loss for
20X5?
A. £420
B. £580
C. £620
D. £780
IRRECOVERABLE DEBTS EXPENSE

Receivables 600 Cash at bank 80
Decrease allowance 100
Statement of profit or loss 420
600 600
29. Smith has receivables totalling £16,000 after writing off irrecoverable debts of £500,
and he has an allowance for receivables brought forward of £2,000. He wishes to carry
forward an allowance of £800.
What will be the effect on profit of adjusting the allowance?
A. £700 decrease
B. £700 increase
C. £1,200 decrease
D. £1,200 increase
30. At 31 December 20X9 Folland's receivables totalled £120,000. Folland wishes to have
an allowance for receivables of £3,600, which is 25% higher than it was before. During
the year irrecoverable debts of £3,200 were written off and irrecoverable debts (written
off three years previously) of £150 were recovered.
What is the net charge for irrecoverable debts for the 12-month reporting period ended
31 December 20X9?
A. £720
B. £900
C. £3,770
D. £3,950
CHAPTER 5 + 6 – REVISION
1. Opening inventory is brought forwarded from previous year’s statement of financial

position & remain as current asset in current year
A. True
B. False
2. Scott sold goods for £1250 on credit, excluding sales tax at 20%. State the correct
double entry
A. Dr Trade Receivables £1500 Cr Sales £1250 Cr Sales Tax £250
B. Dr Sales £1500 Dr Sales Tax £250 Cr Trade Receivables £1250
C. Dr Sales £1250 Cr Sales Tax £250 Cr Trade Receivables £1500
D. Dr Trade Receivables £1500 Dr Sales Tax £250 Cr Sales £1250
3. What should be done regarding inventory valuation, if expected selling price of an
item falls below its purchase price?
A. Should’ve been valued at purchase price
B. Should’ve been valued at expected selling price
4. The following information relates to Eva Co's sales tax for the month of March 20X9:
Sales (including sales tax) 109,250
Purchases (net of sales tax) 64,000
Sales tax is charged at a flat rate of 15%. Eva Co's sales tax account showed an opening
credit balance of £4,540 at the beginning of the month and a closing debit balance of
£2,720 at the end of the month.
What was the total sales tax paid to regulatory authorities during the month of March
20X9?
A. £6,470.00
B. £11,910.00
C. £14,047.50
D. £13,162.10
SALES TAX CONTROL ACCOUNT
b/d 4,540
Purchases ($64,000 x 15%) 9,600 Sales (109,250 x 15%/115%) 14,250
Cash 11,910 c/d 2,720
21,510 21,510
5. A van for sale by a car dealer is shown as a non-current asset in its statement of
financial position
A. True
B. False
6. At the year end, Jason discovered that he has some unsold goods in his warehouse
which was purchased at £15,000 in total & relevant selling price is £18,000. Due to
sudden economic to recession he felt that he may only recover £13,000 by selling them.
What should be the value of this closing inventory?
A. £15000
B. £13000
7. These are the year end balances for Josie's business.
Sales 54,000
Purchases 21,000
Inventory 9,500
Cash 27,250
Receivables ?
Motor vehicle 7,500
Payables 5,500
Capital 18,500
If the trial balance balances, what is the missing figure for receivables?
A. £12,750
B. £17,250
Dr Cr
Sales 54,000
Purchases 21,000
Inventory 9,500
Cash 27,250
Motor vehicle 7,500
Receivables 12,750
Payables 5,500
Capital . 18,500
78,000 78,000
8. Joe buys goods worth £3,500 from Eddie. On £2,000 worth, he gets trade discount of
20%, no trade discount is available on the rest. However Joe always makes sure that he
pays within 10 days in order to obtain Eddie's settlement discount of 5%. How much
will Joe pay Eddie?
A. £2,495
B. £2,945
C. £2,800
D. £3,025
9. During March, Chan had the following items in the cash at bank account:
Balance on 1st March (Overdrawn) 500
Receipts from receivables 12,000
Payments to payables 7,000
Payments for expenses 3,000
Cash drawn for own use 1,200
What is the balance on Chan’s cash at bank account as at 31st March?

A. Debit £300
B. Credit £300
C. Debit £1,300
D. Credit £ 1,300
10. The balance of the cash book need not be equal the balance in the nominal ledger
cash account
A. True
B. False
11. After checking a business cash book against the bank statement, which of the
following items could NOT require an entry in the cash book?
A. Cheque from a customer which was dishonoured
B. Cheque not presented
12. Trial balance is a method used to test the accuracy of the accounting records.
A. True
B. False
13. Which of the following items will appear in a entity's Cash Book?
1. Purchase Returns
2. Sales Invoices
3. Bank Charges
4. Cash Sales
A. 1,2&3
B. 4
C. 3&4
D. All of the above
14. Mabel's supplier has allowed her 5% discount for prompt payment of her account.
How should this be posted?
A. DR Payables ledger control account; CR Discounts allowed
B. DR Discounts allowed; CR Payables ledger control account
C. DR Payables ledger control account; CR Discounts received
D. DR Discounts received; CR Payables ledger control account
15. When performing a reconciliation between the bank statement and the cash book,
which of the following would require an entry in the cash book?
A. Deposits credited after date
B. Direct debit on bank statement only
16. Other errors will not be detected by extracting a trial balance, but may be spotted by
other controls (such as bank or control account reconciliations).
A. True
B. False
17. Discount received from suppliers that is recorded initially in the cash book is
debited to:
A. Trade receivables
B. Trade payables
C. Discount received
D. Purchases
18. Andrew buys goods with a list price of £7,200 on which he receives 20% trade
discount. His supplier offers 5% discount for payment within 10 days. Andrew pays half
of the invoiced amount within 10 days and the balance 3 weeks later. What is the total
amount of money that he will pay for this order?
A. £5,616
B. £5,580
C. £5,400
D. £6,300
19. When performing a reconciliation between the bank statement and the cash book,
which of the following would require an entry in the cash book?
A. Bank charges
B. Bank error
20. A control account is a total account in the nominal ledger
A. True
B. False
21. Trial balance will not disclose a compensating erorr
A. True
B. False
22. For the year ended 31 October 20X3 a company did a physical check of inventory on
4 November 20X3, leading to an inventory value at cost at this date of £483,700. Between
1 November 20X3 and 4 November 20X3 the following transactions took place:
1. Goods costing £38,400 were received from suppliers.
2. Goods that had cost £14,800 were sold for £20,000.
3. A customer returned, in good condition, some goods which had been sold to him in
October for £600 and which had cost £400.
4. The company returned goods that had cost £1,800 in October to the supplier, and
received a credit note for them.
What figure should appear in the company's financial statements at 31 October 20X3
for closing inventory, based on this information?
A. £458,700
B. £505,900
C. £508,700
D. £461,500 = 483700 – 38400 + 14800 – 400 + 1800
23. The main objective of accounting is to
A. provide useful information to users
B. calculate the taxation due to the government
C. record, categorise and summarise financial transactions
D. calculate the amount of dividend to pay to shareholders
24. A person started business with £2000 in bank & a car worth £3000. Now how much
will be treated as capital for his/her business?
A. £2000
B. £3000
C. £5000
D. £1000
25. As at 31 December 20X1 a company's bank statement shows an overdraft of £1,500.
The statement includes bank charges of £30 which have not yet been recorded in the
company's cash book. On 29 December 20X1 the company had paid a cheque of £500 to
a supplier and banked £200 received from a trade receivable; neither of these items
appear in the bank statement.
The overdraft on the company's statement of financial position at 31 December 20X1

should be:
A. £1,800 = -1500 – 500 + 200
B. £1,830
C. £1,200
D. £1,230
26. Closing inventory balance is always included in the initial trial balance.
A. True
B. False
27. An error has led to Erica’s trial balance falling to balance. This could have been
caused by an error of commission.
A. True
B. False
28. The trial balance of a company did not balance, and a suspense account was opened
for the difference. Which of the following errors would require an entry to the suspense
account in correcting them?
A. The total of the discounts allowed column in the cash book had been credited to
discounts received account
B. A cash refund to a customer had been recorded by debiting the cash book and
crediting the customer’s account
29. In a period of rising prices the FIFO method of charging inventory issues to
production will give a lower gross profit figure than the AVCO method
A. True
B. False
30. The cost of employer’s NI is part of a company’s …
A. Net pay
B. Gross pay
C. Gross wages and salaries cost
D. Corporation tax charge
31. Clanger plc has a reporting period for the year ended 31 December 20X1. At that
date the balance on the receivables control account was £65,000, but the total of the
individual accounts in the receivables ledger came to £63,620.
Upon investigation the following facts were discovered:

1. The sales day book total for week 49 had been overcast by £300.
2. A credit balance of £210 on Cabbage's account in the receivables ledger had been
incorrectly treated as a debit entry, when balancing off his account.
3. A payables ledger contra of £1,500 has been entered in Sprout's account in the
receivables ledger but no other entry had been made.
The correct balance on both the receivables ledger listing and the receivables control
account is:
A. £62,900
B. £63,200 = 65000 – 300 - 1500
C. £63,400
D. £66,800
32. Failing to record a transaction at all, or making a debit or credit entry, but not the
corresponding double entry is called_____
A. error of transposition
B. error of commission
C. errors of principle
D. errors of omission
33. The cash book is the book of original entry for…
A. Receipts of amounts into the entity’s bank account only
B. Payments from the entity’s bank account
C. Both receipts and payment for the entity’s bank account

D. All cash transactions for the entity
34. When errors are corrected they may affect the business' profit for the year figure.
A. True
B. False
35. In preparing its financial statements for the current year, a company's closing
inventory was understated by £300,000.
What will be the effect of this error if it remains uncorrected?
A. The current year's profit will be understated and next year's profit will be
overstated
B. The current year's profit will be overstated but there will be no effect on next
year's profit
CHAPTER 7 + 8 – REVISION
1. Listed below are some possible causes of difference between the cash book balance
and the bank statement balance when preparing a bank reconciliation.
Which THREE of these items require an entry in the bank statement?
A. Bank charges
B. Lodgements credited after date
C. Cheque paid in, subsequently dishonored
D. Cheques not yet presented
E. Error by bank
F. Direct debit/Standing orders
2. In a business that uses control accounts, which of the following errors could result in
a suspense account being required to balance the trial balance?
A. Cash received from receivables treated as a cash sale
B. A supplier's invoice for £32 recorded as £23 in the purchases account
C. Payments to suppliers of £647 recorded as £674 in the payables ledger
D. One page lost from the purchase day book
3. Commissions paid to sales representative need to be included in cost of purchase
A. True
B. False
4. At 30 September 20X8, Company X's allowance for receivables was $20,000. At 30

September 20X8 it was decided to write off irrecoverable debts totaling $7,000 and to
decrease the allowance for receivables to $15,000. The charge or credit to the statement
of profit or loss in respect of irrecoverable debts for the year ended 30 September 20X9
is:
A. $1,500 credit
B. $1,500 debit
C. $2,000 debit
D. $2,000 credit
5. Which of the following items could appear on the credit side of a receivables control
account?
A. Irrecoverable debts written off
B. Cash refunds to customers
6. Harry has been unable to calculate his business' profit or loss for the year ended 31
December 20X9 as fire destroyed most of his accounting records. He has, however, been
able to provide the following information.
1. Net assets at 31 December 20X8 were £23,000 and £32,500 at 31 December 20X9
2. He introduced capital during the year of £4,000 cash
3. He took cash drawings of £2,500 and goods with a selling price of £800, the cost of the
goods was £750.
What was Harry's profit or loss for the year ended 31 December 20X9?
A. £8,750 profit
B. £1,750 loss
C. £9,800 profit
D. £2,750 loss
7. In valuing work in progress, materials costs, labour costs and variable and fixed
production overheads must be included
A. True
B. False
8. A decrease in an allowance for receivables of $10,000 has been treated as an increase

in the allowance in the financial statements. Which of the following explains the
resulting effects?
A. Net profit is overstated by $20,000, receivables overstated by $10,000

B. Gross profit overstated by $20,000, receivables overstated by $20,000
C. Net profit overstated by $20,000, receivables overstated by $20,000
D. Net profit understated by $20,000, receivables understated by $20,000
9. At 30 September 20X0 a company has receivables totalling £350,000 and an allowance

for receivables of £22,000 brought forward from the previous year. It has been decided to
write off receivables totalling £27,500. An allowance of £22,575 is required at 30
September 20X0.
The total charge for irrecoverable debts in the company's statement of profit or loss for
the year ended 30 September 20X0 will be:
A. £22,575
B. £26,925
C. £28,075
D. £50,075
10. A business has opening inventory of £10,800 and closing inventory of £12,150.
Purchases for the year were £114,750, carriage inwards was £75 and carriage outwards
was £270.
The figure for cost of sales is:
A. £113,325
B. £113,475
C. £113,745
D. £116,175
11. It is difficult to count large amount of inventory with different types. So they should
be counted once in a year
A. True
B. False
12. Enigma plc has reduced its allowance for receivables by £600. This will increase
gross profit by £600
A. True
B. False
account?
A. Credits for goods returned by customers

B. Increase in the allowance for receivables
14. At 1 January 20X5 a company had an allowance for receivables of £18,000.
At 31 December 20X5 the company's trade receivables were £458,000.
It was decided:
(a) to write off debts totalling £28,000 as irrecoverable; and
(b) to adjust the allowance for receivables to £21,500.
What figure should appear in the company's statement of profit or loss for irrecoverable
debts expense for the year ended 31 December 20X5?
A. £49,500
B. £31,500
C. £32,900
D. £50,900
15. Which of the following errors would result in a trial balance imbalance?
A. The discounts allowed balance was listed as a credit on the trial balance
B. Drawings for the last month of the year had been posted to the sundry expenses
account
C. A contra settlement had been recorded only in the sales and purchases ledgers
D. Capital expenditure had been posted to repairs
16. At 28 February 20X4, a company's allowance for receivables was £19,000. At 28

February 20X5 it was decided to write £14,250 off receivables and to make a specific
allowance of £21,000.
The statement of profit or loss charge for the year ended 28 February 20X5 for
irrecoverable debts is:
A. £21,000
B. £16,250
C. £14,250
D. £35,250
17. When a debt written off as irrecoverable in one accounting period is subsequently
paid in a later accounting period, the original entry to write-off should simply be
reversed
A. True
B. False
18. At 1 July 20X2 the receivables allowance of Q plc was £18,000.
During the year ended 30 June 20X3 debts totaling £14,600 were written off. It was
decided that the receivables allowance should be £16,000 as at 30 June 20X3.
What amount should appear in Q pic's statement of profit or loss for irrecoverable debts
expense for the year ended 30 June 20X3?
A. £12,600
B. £14,600
C. £16,600
D. £30,600
account?
A. Irrecoverable debts written off

B. Cash refunds to customers
20. Reconciliation between the control account total and the receivables ledger will help
to detect errors, thus providing an important control
A. True
B. False
21. If the irrecoverable debt is paid in the same accounting period, the write-off journal
can simply be reversed
A. True
B. False
22. Arrow plc had a receivables balance of £7,050 at 31 December 20X0. During the year
£500 was received in respect of a debt previously written off, and a specific debt of £495
was allowed for. The allowance brought down as at 1 January 20X0 was £1,000.
In respect of irrecoverable debts for the year ended 31 December 20X0 Arrow plc will:
A. charge £5
B. charge £1,005
C. write back £5
D. write back £1,005
23. A decrease in an allowance for receivables of $20,000 has been treated as an increase
in the allowance in the financial statements. Which of the following explains the
resulting effects?
A. Net profit is overstated by $40,000, receivables overstated by $20,000

B. Net profit understated by $40,000, receivables understated by $40,000
C. Net profit overstated by $40,000, receivables overstated by $40,000
D. Gross profit overstated by $40,000, receivables overstated by $40,000
24. Most businesses operate control accounts for trade receivables and payables.
A. True
B. False
25. Mark-up is calculated on sale and margin is calculated on cost

C. True
D. False
26. If a supplier's credit note of £260 has been entered as an invoice in the purchases day
book, but has been correctly entered in the supplier's payables ledger account, the totals
of the debit column and the credit column on the subsequently extracted trial balance
would:
A. show £520 more on the debit than the credit side

B. agree
C. show £520 more on the credit than the debit side
D. be different by £260
27. As at 31 December 20X1 a company's bank statement shows an overdraft of £3,000.

The statement includes bank charges of £60 which have not yet been recorded in the
company's cash book. On 29 December 20X1 the company had paid a cheque of £1,000
to a supplier and banked £400 received from a trade receivable; neither of these items
appear in the bank statement.
The overdraft on the company's statement of financial position at 31 December 20X1

should be:
A. £3,600
B. £3,660
C. £2,400
D. £2,460
28. A company's trial balance failed to agree, the totals being:

Debit £815,602
Credit £808,420
Which of the following errors could fully account for the difference?
A. The omission from the trial balance of the prepayments asset account £7,182
B. Discounts allowed of £3,591 debited to the discounts received account, in error
C. No entries made in the records for cash purchases totalling £7,182
D. Bank overdraft of £3,591 was included in the trial balance as a debit

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AMOAMO – CHÚC BẠN THI TỐT

ACCOUNTING ICAEW CFAB

A. £500 taken by the proprietor to buy himself a hi-fi system

3. Listed below are two comments on accounting conventions.

i. According to the Conceptual Framework, financial information must be either

Which, if either, of these comments is correct?

4. According to IAS 01 Presentation of Financial Statements, which TWO of the

A. To show the results of management’s stewardship of the resources entrusted to it

5. Capital expenditure is expenditure:

A. On non-current assets, including repairs and maintenance

8. Which of the following should be accounted for as capital expenditure?

A. The annual cost of painting a factory floor

9. According to IAS 01 Presentation of Financial Statements, compliance with

A. The entity’s inventory is valued at net realizable value

10. Information about an entity’s financial position is primarily provided in

A. The statement of profit or loss

11. According to the Conceptual Framework, information on which TWO of the

A. The economic resources it controls

B. Its financial performance in the past

A. Establish levels of tax revenue

13. According to the Conceptual Framework, which qualitative characteristics enhance

A. Comparability, Understandability, Timeliness, Verifiability

14. A rules-based code requires a professional accountant to identify, evaluate and

15. The ICAEW uses a rules-based approach

17. Information is relevant if it is capable of making a difference in the decisions made

ii. Comparative value

iii. Historic value

iv. Confirmatory value

A. (i) and (iii) only

19. Which of the following statement is correct?

A. The ICAEW Code of Ethics applies to its members only

20. Which of the following is an aspect of relevance, according to the Conceptual

A. Ethical guidance provides a set of rules which must be followed in all

A. The financial statements are accurate.

24. Which of the following is classified as revenue expenditure?

A. Purchase of inventories for resale.

A. To provide information to investors in making economic decisions

A. Whether the entity has paid a dividend

28. A statement of financial position is best described as:

A. A snapshot of the entity's financial position at a particular point in time

B. A record of an entity's financial performance over a period of time

29. In applying fundamental accounting concepts the preparers of financial information

30. Match the fundamental ethical principle to the characteristic.

A. Would my colleagues think my solution is reasonable?

A. The Companies Act 2006

35. Materiality is an entity-specific aspect of which qualitative characteristic?

36. Which of the following is an item of capital expenditure?

A. Cost of goods sold

39. Who issues International Accounting Standards?

A. The auditing practices board

• The acquisition of non-current asset or an improvement or enhance of earning

3. Capital income: Sale of non-current assets.

• The sale of trading assets, such as goods held in inventory

• Interest and dividends received from business investments

CHAPTER 2: THE ACCOUNTING EQUATION

1. The accounting equation can be written as:

A. Assets + profits - drawings- liabilities = closing capital

2. The capital of a sole trader would change as a result of