Question Chapter 1 The accounting world

29 Jun Question Chapter 1 The accounting world

Question
Chapter 1

The accounting world

1.Sole traders differ from other types of trading organizations. Which of the following statements

correctly summarizes the key characteristics of a sole trader’s business?

(a) Liability is limited to the providers of loan finance and only the trader takes an active part in

managing the business.

(b) The trader has unlimited liability and runs the business in conjunction with the providers of

loan finance.

(c) The trader has unlimited liability and must have the business accounts audited.

(d) The trader has unlimited liability, takes sole responsibility for management of the business and

no audit is needed.

2.Which of the following statements best describes the purpose of financial accounting in a limited

liability company?

(a) To assist in the day-to-day management of the company.

(b) To enable the business to pay the correct amount of tax.

(c) To ensure that the business pays the correct dividend.

(d) To help the directors discharge their obligations to the shareholders.

Chapter 2

Accounting rules

1.A business has prepared its accounts for a financial year and these show a profit of £500 000. The

accounts do not include the following items:

• a likely loss on a contract of £25 000

• a possible Court ruling in favour of the company which is likely to increase profits by £10 000

• a possible Court ruling against the company which could result in damages of between £5 000 to

£15 000.

Having regard to the fundamental accounting concepts, which of the following revised profit

figures is correct when the above factors are taken in to account?

(a) £480 000.

(b) £460 000.

(c) £510 000.

(d) £475 000.

2.A company sells goods on credit valued at £25 000 to a customer. At what point in the sales cycle

should this sale be recognized in the accounts?

(a) When the customer’s order is received.

(b) When the goods are ready for dispatch to the customer.

(c) When the goods are sent, accepted and invoiced.

(d) When the customer pays.

Chapter 3

Recording data

1.Exe Ltd sells goods on credit to Wy Ltd for £3000. Which of the following accounting entries correctly

records this transaction?

(a) Debit sales, credit Wy Ltd £3000.

(b) Debit Wy Ltd, credit sales £3000.

(c) Debit cash, credit sales £3000.

(d) Debit Wy Ltd, credit stock £3000.

2.The following items relate to the bank account of Exe Ltd: balance at 1 January 2001 = £4500 (in

hand), total payments in 2001 were £45 800, total receipts in 2001 were £36 900, bank charges not yet

entered into the bank account were £1200. What was the correct closing bank balance at

31 December 2001?

(a) £5600 overdrawn.

(b) £12 200 overdrawn.

(c) £4400 overdrawn.

(d) £13 400 overdrawn.

3.A business has the following transactions recorded in its sales ledger for 2001:

£000

Debtors at 1 January 2001 25

Sales in 2001 345

Receipts from debtors 318

Credit notes raised in 2001 23

Which is the correct figure for debtors at 31 December 2001?

(a) £29 000.

(b) £27 000.

(c) £52 000.

(d) £75 000.

4.A business has the following transactions recorded in its purchase ledger:

£000

Creditors at 1 January 2001 35

Purchases during 2001 275

Creditors at 31 December 2001 49

Debit notes raised on suppliers 5

Which is the correct figure for the total of payments to suppliers during 2001?

(a) £221 000.

(b) £256 000.

(c) £284 000.

(d) £289 000.

Accounting for Non-Accounting Students, 5th edition,Lecturer’s Guide. © Pearson Education Limited 200199

5.A business receives a cheque from a customer for £256 in full agreed settlement of an account which

showed a debit balance of £270. Which of the following entries correctly records this transaction?

(a) Credit bank £256, credit discount received £14, debit debtor £270.

(b) Debit bank £256, debit discount received £14, credit debtor £270.

(c) Debit bank £256, debit discount allowed £14, credit debtor £270.

(d) Debit bank £256, debit discount allowed £14, credit creditor £270.

100 Accounting for Non-Accounting Students, 5th edition,Lecturer’s Guide. © Pearson Education Limited 2001

Chapter 4

Trading entity accounts

1.Which of the following statements is correct?

(a) Accounting profit is the difference between cash receipts and cash paid in a period.

(b) Accounting profit is the total of cash sales in the year less the expenses for the period.

(c) Accounting profit is the difference between revenue income and expenses for the period.

(d) Accounting profit is the difference between revenue income and cash payments for the period.

2.Which of the following statements is correct in relation to a trial balance?

(a) It shows the financial position of a business.

(b) All the balances in the trial balance will be summarized on the business balance sheet.

(c) It is a list of balances and forms the starting point for the preparation of the business accounts.

(d) It is part of the published accounts of a business.

3.A business has the following items in its trial balance:

£000

Trade debtors 25

Prepayments 10

Bank overdraft 5

Trade creditors 8

Fixed assets 15

Closing stock 8

Which of the following is the correct figure for the working capital of the business?

(a) £42 000.

(b) £45 000.

(c) £50 000.

(d) £30 000.

4.A business has the following items extracted from its trial balance:

£000

Opening stock 10

Purchases 25

Sales 40

Expenses 10

In addition, its closing stock is valued at £15 000.

What is the correct figure for the business gross profit?