Feb/March 2024

Which of the following statements about book-keeping and accounting are correct?

Accounting principles

A trader has received her bank statement. What must she enter when updating her cash book?

Bank reconciliation

In Colin’s cash book, the bank column recorded a debit balance of $2134. After comparing the cash book with the bank statement, Colin found these items: a standing order paid by the bank in error $80, unpresented cheques $563, and uncredited deposits $376. What closing balance was shown on his bank statement?

Bank reconciliation

What is not a purpose of preparing a monthly sales ledger control account?

Control accounts

The sales ledger control account showed a debit balance of $10 000. A $2000 contra entry that should have been posted to the purchases ledger control account was entered on the wrong side of the sales ledger control account. What is the correct debit balance in the sales ledger control account?

Control accounts

On 1 January 2022, a business purchased two assets, X and Y, at a cost of $2000 each. Asset X is depreciated at 10% per annum by the straight-line method, while asset Y is depreciated at 10% per annum by the reducing balance method. Which statements are correct?

Accounting for depreciation and disposal of non-current assets

Once his financial statements had been prepared, a trader found these mistakes: 1. A revenue receipt of $1000 was entered as a capital receipt. 2. Capital expenditure of $800 was entered as revenue expenditure. 3. A capital receipt of $900 was entered as a revenue receipt. What was the net impact of these errors on the profit for the year?

Capital and revenue expenditure and receipts

The ledger account below was shown in a trader’s books. What does the $300 balance on 31 December indicate?

The trial balance

A business keeps a provision for doubtful debts equal to 5% of trade receivables. On 31 December 2018, the balance in the provision for doubtful debts account was $2700. By 31 December 2019, trade receivables had reached $50 000. How will the necessary adjustment to the provision for doubtful debts be recorded?

Irrecoverable debts and provision for doubtful debts

Which asset is measured at the lower of cost and net realisable value?

Valuation of inventory

While preparing his draft financial statements, Vikram made two mistakes. As a result, his gross profit was overstated by $600 and his profit for the year was understated by $250. What two mistakes did he make?

Correction of errors

In Amarjit’s books, the year-end closing balances were as follows: non-current assets $25\,000$, trade receivables $11\,000$, bank overdraft $3\,000$, other payables $600$. What was the value of Amarjit’s capital at the end of the year?

Sole traders

Which type of business is not a service business?

Sole traders

Simon acquired a new non-current asset. Why did he choose to depreciate it using the reducing balance method?

Accounting for depreciation and disposal of non-current assets

Which of the following statements about a statement of financial position is correct?

Limited companies

The owner of a business withdrew goods for personal use but did not record this in the accounts. What effect did this error have?

Sole traders

What benefits could a sole trader gain by setting up a partnership?

Partnerships

X, Y and Z are partners who divide profits and losses in the ratio $5 : 3 : 2$. For the year, their business earned a profit of $\$8000$. The information below was given. What was Z’s share of the residual profit?

Partnerships

What can lead to an increase in a company’s total equity?

Limited companies

What does the term called-up share capital mean?

Limited companies

For the year ending 31 December 2020, a tennis club supplied the information below. What amount of subscriptions was included in the income and expenditure account for the year ending 31 December 2020?

Clubs and societies

Which costs in a manufacturing business count as indirect costs?

Manufacturing accounts

At 31 December, Manjit was due commission. In Manjit’s statement of financial position at 31 December, in what way would this commission be recorded?

Other payables and other receivables

At the close of his financial year, a manufacturer gave the information below. What was the cost of production for the year?

Manufacturing accounts

A trader does not keep a complete set of accounting records. He supplied the following information for the year ended 31 December. Over the year, he took drawings of $\$3500$. What was his profit for the year?

Incomplete records

A trader supplied the information below. What was the inventory turnover rate?

Calculation and understanding of accounting ratios

A limited company has asked possible investors to buy shares in the business. Which details would interest a possible investor?

Interested parties

Why might a bakery business not show a value for stationery inventory in the statement of financial position?

Valuation of inventory

A trader chooses to write off the amount still owed by a credit customer as an irrecoverable debt. A credit entry is recorded in the credit customer’s account and a debit entry is recorded in the irrecoverable debts account. Which accounting principles are being applied?

Irrecoverable debts and provision for doubtful debts

Sami keeps a complete set of accounting records. Why does Sami find it helpful to fill in the cheque counterfoil when he pays a credit supplier with a cheque?

Business documents

Paul is leasing premises from John and settles the rent by credit transfer. In John’s records, how should this be entered?

Books of prime entry

A business offered goods at a list price of $50$ each. The trading terms were as follows: a trade discount for purchases of more than $20$ items: $10\%$; a cash discount if the customer pays within $30$ days: $4\%$. How much was received in full settlement from a customer who bought $25$ items and paid after $35$ days?

Business documents

What name is given to a list of ledger balances on a specific date?

The trial balance

A trader added further capital of $4000$. In error, this was entered as a debit in the capital account and a credit in the bank account. What effect will correcting this error have on the statement of financial position?

Correction of errors

The trial balance totals did not match, so a suspense account was opened. It was then discovered that purchases returns, $560$, had been posted to the sales returns account on the debit side. Which journal entry was needed to rectify this error?

Correction of errors

Gurjit operates as a trader. In January 2024, these transactions occurred. January 4 Cash sales, $640, were banked straight into the bank account 7 Paid Sandy $551 by credit transfer after deducting 5% cash discount 13 Paid wages in cash, $120 19 Received $415 by cheque from Uma 21 Paid Viraj $194 by telephone transfer, settling an invoice of $200 in full 25 Withdrew $100 cash from the bank for business use

Bank reconciliation

Samir trades on credit as a seller and a buyer. He has given the information below. 2023 1 January Total trade receivables $10 115 31 December Totals for the year: Cash sales $136 900 Credit sales $124 670 Returns from credit customers $5 234 Bank transfers received from credit customers $98 620 Cash received from credit customers $11 470 Interest charged on overdue sales ledger accounts $139 Contra entries $1 833 Discount allowed to credit customers $3 125 In addition, one of Samir’s trade receivables, Ria, has gone bankrupt and Samir will not collect the $178 that she owes him. Samir believes that he will recover most of the remaining amounts owed to him by his trade receivables.

Control accounts

The Sporting Excellence Club offers sports facilities for its members, and it also operates a shop where members may purchase sportswear. The club’s assets and liabilities included the following. 31 December 2022 / 31 December 2023 Subscriptions received in advance $610 / $570 Subscriptions received in arrears $480 / $465 Insurance paid in advance $240 / $250 Shop inventory $2 500 / $2 750 Trade payables for shop supplies $2 140 / $2 470 The totals below were extracted from the club’s receipts and payments account for the year ended 31 December 2023. Receipts: Subscriptions received $11 950 Shop sales $31 890 Payments: Trade payables for shop supplies $23 290 Shop wages $3 268 Club rent and insurance $7 390 Other club expenses $1 122

Clubs and societies

Sara operates as a trader. She has drawn up her income statement for the year ended 31 December 2023, which shows a profit for the year of $20 180. She has closed the ledger accounts for income and expenses and has moved the closing inventory into the income statement. The balances below are still in Sara’s ledger at 31 December 2023: Premises (cost) $100 000 Fixtures and fittings (cost) $40 000 Accumulated depreciation on fixtures and fittings $15 000 Inventory (at 31 December 2023) $6 275 Trade receivables $8 540 Provision for doubtful debts $427 Trade payables $5 125 Bank overdraft $4 900 Cash $350 Long-term loan $12 000 Wages (accrued) $1 000 Capital (at 1 January 2023) $115 793 Drawings $19 260

Sole traders

Sunita has drawn up a trial balance at 31 December 2023 and a draft income statement for the year ended 31 December 2023. Sunita then found the following errors. 1 The total of the sales returns journal for November 2023, $3 524, had been entered on the credit side of the purchases account. 2 The purchases journal for July 2023 had been understated by $90. 3 The total of the sales journal for May 2023, $19 415, had not been transferred to the sales account. 4 A receipt from P. Mattel, $129, had been debited to the account for M. Patel. 5 Capital introduced by Sunita, $5 000, had been entered in the bank account on the debit side but no further entry had been made. 6 A rent payment of $500 had been posted to the rent expense account as $50. Sunita’s gross margin is 40%.

Correction of errors