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1 Which of the following in the Balance Sheet of a business shows the owner how well his business
is doing?

A debtors
B drawings
C net profit
D working capital

2 X receives a cheque from a customer and pays this into his business bank account.

How does this affect X’s current assets?

bank debtors

A decrease decrease
B decrease increase
C increase decrease
D increase increase

3 A business provides the following information for the year ended 30 September 2002.

sales 100 000

cost of goods sold 60 000
expenses 15 000

What is the net profit for the year ended 30 September 2002?

A $ 25 000 B $ 40 000 C $ 45 000 D $ 55 000

4 What is a Balance Sheet?

A a list of all the accounts in the books of a business

B an account showing the trading activities of a business
C an account showing the financial position of a business at a certain date
D a list of assets, liabilities and capital of a business at a certain date

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5 A business applies the money measurement concept.

Which would be recorded in its accounting records?

A the benefits of staff training

B the cost of property owned
C the effect of new laws
D the value of the skills of its managers

6 What is meant by the realisation concept?

A Revenue and profit should not be anticipated.

B Revenue is recognised as being earned when ownership of goods passes to the customer.
C Similar items should be accounted for in a similar way from one accounting period to the next.
D Transactions must be expressed in monetary terms.

7 A business bought a machine for $5000 and depreciated it by 20% a year. At the end of Year 2,
the total depreciation amounted to $2000.

Using the concept of consistency, how much is charged for depreciation in Year 3?

A $400 B $600 C $1000 D $2000

8 A trader has paid insurance in advance at the end of her financial year. She deducted this amount
from the insurance paid during the year to calculate the total insurance cost for the year.

Which accounting concept applies?

A business entity
B matching
C money measurement
D realisation

9 Which accounting concept requires provision to be made for foreseeable losses?

A consistency
B duality
C prudence
D realisation

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10 Which document from a supplier reduces the amount owed by a customer?

A credit note
B debit note
C invoice
D statement

11 An invoice for goods for $1200 has been wrongly entered as a credit note. The balance on the
purchases account is $17 000.

What is the correct balance?

A $14 600 B $15 800 C $18 200 D $19 400

12 A shop selling office furniture purchased a desk on credit. The desk was not sold, so the shop
decided to use it in its own office.

In which book of prime entry were the adjustments made?

A cash book
B journal
C purchases journal
D purchases returns journal

13 X returned faulty goods to Y, the supplier.

What are the entries in Y’s books?

debit credit

A purchases returns X
B X purchases returns
C sales returns X
D X sales returns

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14 Which ledger account entries are made to record the purchase on credit of a motor vehicle?

debit credit

A creditors motor vehicles

B motor vehicles cash
C motor vehicles creditors
D motor vehicle expenses creditors

15 Credit notes issued by X are listed in which book of prime entry?

A purchases journal
B purchases returns journal
C sales journal
D sales returns journal

16 $2000 paid for Machinery repairs is entered in the Machinery account.

What kind of error is this?

A commission
B compensating
C original entry
D principle

17 In which columns of a trial balance do discounts allowed and discounts received appear?

debit credit

A discounts allowed discounts received

B discounts allowed
discounts received
C discounts received discounts allowed
D discounts allowed
discounts received

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18 The totals of a trial balance are:

Debit $46 800 Credit $39 700

The following errors have been discovered:

1 Rent received, $3550, has been included as a debit balance.

2 Cash received from K Greener in settlement of a debt of $2000 has been credited to
B Greener.

What will be the corrected trial balance totals?

A $38 150 B $41 250 C $43 250 D $45 250

19 The balance of the Discount Allowed account, $200, is entered on the wrong side of the trial
balance. This is the only error.

Which Suspense account entry will make the trial balance totals agree?

A credit $200
B credit $400
C debit $200
D debit $400

20 A trial balance does not agree and the difference has been entered in a Suspense account. It is
then found that a receipt of $120 from Natasha, a credit customer, has been recorded correctly in
the cash book but debited in the Sales account.

What will be the correcting journal entry?

debit credit

A Natasha $120 Suspense $120

B Natasha $120 Suspense $240
Sales $120
C Suspense $120 Sales $120
D Suspense $240 Natasha $120
Sales $120

21 What is the purpose of preparing a bank reconciliation statement?

A to check that all expenses have been paid

B to check on the amount owed by debtors
C to explain the difference between the bank statement balance and cash book balance
D to see by how much the bank balance has increased
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22 The balance of cash at bank shown in the cash book is $1200. The bank statement shows the
balance to be $1440.

Which can explain the difference?

A payment to a supplier, $120, entered on the wrong side of the cash book
B bank charges, $240, not in the cash book
C cheques to suppliers, $240, not yet presented to the bank
D receipts from customers, $240, banked but not yet entered in the bank statement

23 In connection with stock valuation, what is meant by “net realisable value”?

A selling price
B selling price minus estimated profit
C selling price minus selling expenses
D selling price minus estimated trade discount

24 On 1 January 1999 X bought a computer for use in his business. He sold the computer on
31 December 2001.

How should the transaction of 31 December be classified?

A capital expenditure
B capital receipt
C revenue expenditure
D revenue receipt

25 The purchase of fixtures and fittings has been mistakenly entered in the General Expenses
account.

What is the effect of this on the final accounts?

Profit and Loss Account Balance Sheet

A profit understated assets overstated

B profit understated assets understated
C profit overstated assets overstated
D profit overstated assets understated

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26 What is the purpose of depreciating a fixed asset?

A to find the value of the asset at the end of its useful life
B to estimate the profit on sale at the end of the asset’s useful life
C to provide money for a replacement at the end of the asset’s useful life
D to spread the cost of the asset over its expected useful life

27 A machine is purchased for $15 000. It is to be depreciated at 20% per annum using the reducing
balance method.

What is the charge for depreciation in the second year?

A $2400 B $3000 C $5400 D $6000

28 At the end of the financial year, X has prepaid her insurance by $60.

What action has to be taken to record the correct expense in her final accounts?

Profit and Loss Account Balance Sheet

increase decrease increase increase

expenses expenses current assets current liabilities

A ✔ ✔
B ✔ ✔
C ✔ ✔
D ✔ ✔

29 What is the effect of providing for depreciation?

A It increases profit.
B It reduces profit.
C It increases the cash balance.
D It extends the life of fixed assets.

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30 The following information is provided.

$
Sales for the year $220 000
Purchases for the year $130 000
Opening stock $10 000
Closing stock $12 000

What is the cost of goods sold?

A $90 000 B $92 000 C $128 000 D $132 000

31 In a partnership, Adam has a capital of $20 000 and Ben $10 000. Adam receives a salary of
$8 000.

The balance of profit is shared equally. The net profit for the year is $26 000.

What is Ben’s total income from the business?

A $9 000 B $10 000 C $13 000 D $17 000

32 The table shows information relating to a trader at a given date.

fixed assets at valuation 33 000

stock at cost 8 000
debtors 6 500
cash at bank 7 000
creditors 3 000

What is the trader’s capital at that date?

A $44 500 B $51 500 C $54 500 D $57 500

33 The financial year of X ends on 31 December 2001. On 1 May 2001 X paid rent of $2400 for the
period 1 May 2001 to 30 April 2002.

What will be the amount of prepaid rent at 31 December 2001?

A nil B $800 C $1600 D $2400

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34 Which is an intangible asset?

A debtors
B goodwill
C prepayment
D stock

35 Which is a current liability for a business?

A accrued interest charges on loan from bank

B provision for depreciation of fixed assets
C five year loan from bank
D insurance premium prepaid

36 A trader has 2000 units of stock of which 100 are unsaleable. Each unit costs $10 and the sale
price is $20.

What is the value of the stock?

A $19 000 B $20 000 C $38 000 D $40 000

37 A business provides the following information for the year ended 31 May 2002.

$
Sales 200 000
Cost of sales 150 000
Expenses 30 000

What is the percentage of net profit to sales?

A 10 % B 15 % C 25 % D 60 %

38 The following is extracted from a Balance Sheet.

fixed assets 80 000

current assets 45 000
total assets 125 000
current liabilities 20 000

What is the working capital?

A $15 000 B $25 000 C $60 000 D $105 000

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39 How is the quick ratio calculated?

A current assets minus current liabilities

B current assets divided by current liabilities
C (current assets minus stock) minus current liabilities
D (current assets minus stock) divided by current liabilities

40 The following information about a business is provided.

$
Sales 75 000
Cost of sales 60 000
Opening stock 6 000
Closing stock 9 000

What is the rate of stock turnover?

A 4 times
B 5 times
C 8 times
D 10 times

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