Chapter 10 : Quiz

Which of the following would be posted to the ledgers as a year end adjustment?
i. Purchase of a non-current asset for cash
ii. Purchases of stationery on credit
A. A.(i) only
B. B.(ii) only
C. C.(i) and (ii)
D. D.neither (i) nor (ii)
The correct answer is D.
The purchase of the non-current asset would be recorded in the cash ledger system, and the
stationery would be recorded in purchase ledger system. These are routine transactions
rather than year end adjustments.

Lesson Connection

Chapter 10, section 3

Which of the following statements about the trial balance is/are true?
i. The trial balance would identify an error in the general ledger where the double entry
has been made to the wrong account
ii. The trial balance is a check that all transactions have been posted in the general ledger
at the correct amount
A. A.(i) only
B. B.(ii) only
C. C.(i) and (ii)
D. D.Neither
The correct answer is D.
Statement (i) is not true because the trial balance can only identify where the debits do not
equal the credits. If a debit entry was made to the wrong account, this will not be identified
by the trial balance.
Statement (ii) is not true because the trial balance only checks that the total of the debits
equals the total of the credits. It is not a check that entries have been posted to the correct
accounts or indeed for the correct amounts.

Lesson Connection

Chapter 10, section 3.1

A trial balance is a list of all of the balances included in which ledger?

A. A.Receivables ledger
B. B.Payables ledger
C. C.Cash ledger
D. D.General ledger
The correct answer is D.
The trial balance is a list of the balances from the general ledger.

Lesson Connection

Chapter 10, section 1.1

Which of the following balances will be included as debit balance on a trial balance?
A. A.Drawings
B. B.Capital introduced
C. C.Trade payables
D. D.Accumulated depreciation
The correct answer is A.
Drawings is the account that records amounts taken out of the business by the owner. It is a
reduction to the owner's capital balance (which is a credit).

Lesson Connection

Chapter 10, section 2.1

At the year end the trial balance contained a suspense account. On investigation it was
discovered that this relates to a part exchange allowance of $90 that was given on an old
computer when new equipment was purchased. The part exchange allowance was posted
correctly to the disposal account. However, the accountant did not know where to post the
other side of the transaction so posted it to a suspense account.
What is the accounting entry required to correct this error?
A. A.
DR Suspense $90

CR Asset cost $90

B. B.
DR Asset cost $90

CR Suspense $90
C. C.
DR Asset cost $90

CR Disposal $90
D. D.
DR Disposal $90

CR Asset cost $90

The correct answer is B.
The correct entry would have been: Dr Asset cost $90, Cr Disposal account $90. The
accountant has correctly recorded the credit side to the Disposal account, but recorded the
debit side in a suspense account. To correct this error debit the Asset cost, credit the
suspense account.

Lesson Connection

Chapter 10, section 3.3

Practices
1. Which of the following are both debit balances or both credit balances on the trial
balance?
A. A.Drawings and allowance for receivables.
B. B.Revenue and prepayments.
C. C.Accruals and rental income.
D. D.Opening inventories and purchase returns.
The correct answer is C.
The correct answer is accruals and rental income. Accruals are a liability and rental income
is income, both will appear on the credit side of the trial balance.
The incorrect combinations:
Drawings are a reduction in capital and a debit balance, allowance for receivables is a
reduction of receivables and a credit balance.
Revenue is income and a credit balance, prepayments are a current asset and a debit
balance
Opening inventories is a cost and therefore a debit balance, purchase returns are the
opposite to purchases and is therefore a credit balance.

2. Which TWO of the following are examples of an error of principle?

A. A.A sales invoice omitted from the sales ledger system.
B. B.Travel expenses recorded as electricity expense.
C. C.Motor expenses added to the motor vehicle cost account.
D. D.Bank interest received recorded in trade payables.
The correct answers are C and D.
The correct answers are motor expenses and bank interest received. An error of principle is
where a transaction/balance is recorded in the wrong category of account e.g.an expense as
an asset.
Tutorial note:
A sales invoice not recorded in the sales ledgers is an error of omission.
Travel expenses recorded as electricity expense is an error on commission.

3. Li has recorded a purchase invoice of $630 as $360 in the accounting system. What
type of error is this an example of?
A. A.Commission
B. B.Omission
C. C.Principle
D. D.Transposition
The correct answer is D.
The correct answer is transposition. This happens when two consecutive numbers are
reversed when they are recorded.
Tutorial note:
Commission records a transaction in the wrong type of account but the correct category.
Omission does not record a transaction at all.
Principle records a transaction in the wrong category of account.
4. Which of the following would result in the debit side of a trial balance totalling $50
more than the credit side?
A. A.A purchase of inventories for $50 being omitted from the payables account.
B. B.The sale of goods for $50 being omitted from the receivables account.
C. C.An invoice of $25 for electricity charges being credited to the electricity account.
D. D.The receipt for $50 from a customer being omitted from the cash ledger.
The correct answer is A.
The purchase of inventories - although purchases have been recorded correctly (debit
balance), payables are $50 too low. Therefore, the total debits would exceed total credits.
Tutorial note:
The sale of goods - results in receivables (debit balance) being understated by $50 and so
credits would be higher than debits.
The electricity invoice - results in the electricity expense (debit balance) being understated
by 2 × $25 = $50 and so credits would be higher than debits.
The receipt from a customer - results in the bank balance (debit) being understated and so
credits would be higher than debits.

A trial balance has been extracted and a suspense account opened to balance it. One of the
errors discovered was $200 of discount received posted to the wrong side of the discount
received account.
5. What adjustment is required to correct this error?
A. A.Debit Suspense $400 and Credit Discount Received $400
B. B.Debit Suspense $200 and Credit Discount Received $200
C. C.Debit Discount Received $200 and Credit Suspense $200
D. D.Debit Discount Received $400 and Credit Suspense $400
The correct answer is A.
The journal entry to correct is DR Suspense $400 and CR Discounts received $400.
Here, the discount has been debited instead of credited, so that the balance in the discounts
received account is 2 × $200 = $400 too low.

The trial balance of Ravi does not balance. The total of the debit column is $836,200 and the
total of the credit column is $819,700. A cash receipt from a customer of $19,000 was
correctly entered in the cash ledger but was entered in the receivables ledger account as
$9,100.
6. What is the credit balance on the suspense account after correcting this
error? $_____
The correct answer is $ 6,600.
The suspense account starts with a credit balance because total debits are larger than total
credits, and a credit balance is needed in the suspense account to make total debits and
total credits equal.

Suspense account

$ $

Receivables account (19,000 − 9,100) 9,900 Bal b/f (836,200 − 819,700) 16,500
 Balance c/f 6,600

16,500 16,500

Balance b/d 6,600

Joshua has entered sales returns of $100 on the credit side of the sales returns ledger
account.
7. Which of the following journals would correct this error?
A. A.Debit Sales Returns $200 and Credit Suspense $200
B. B.Debit Suspense $200 and Credit Sales returns $200
C. C.Debit Sales returns $100 and Credit Suspense $100
D. D.Debit Suspense $100 and Credit Sales returns $100
The correct answer is A.
Debit Sales returns $200 and Credit Suspense $200. Sales returns are a debit entry
(opposite to the credit sales entry) so if the sales returns are credited in error then you will
need one adjustment of a $100 to correct the error and a second $100 adjustment to record
the sales return itself.
Tutorial note:
Debit Suspense $200 and Credit Sales returns $200 - the correct principle of adjusting two
lots of $100 but the journal is the wrong way round so it would make the error worse.
Debit Sales returns $100 and Credit Suspense $100 - this would cancel the incorrect credit
entry but would not correctly record the sales return.
Debit Suspense $100 and Credit Sales returns $100 - this will neither cancel the incorrect
credit entry or correctly record the sales return as the amount and the direction of the journal
is incorrect.

Abena opened a suspense account when her trial balance didn't agree. The following two
errors were discovered:

Error

1 A gas bill of $420 had been recorded in the gas expense account as $240

2 Interest received of $70 had been entered in the bank account only
8. What was the balance on the suspense account before these errors were
corrected?
A. A.Debit $110
B. B.Credit $110
C. C.Debit $250
D. D.Credit $250
The correct answer is A.
Think of the other side of the double entry that is needed to correct the error. This will help
you to decide whether the entry in the suspense account should be a debit or a credit entry.

Suspense account
 $ $

Balance (bal. figure) 110 Gas expense 180

Interest received 70

180 180
Credit $110 - the correct balance but wrong side of the suspense account.
Debit $250 - the correct side of the suspense account but has adjusted the interest received
on the wrong side of the suspense account (180 + 70).
Credit $250 - has adjusted the interest received on the wrong side of the suspense account
(180 + 70) and shown the balance of the wrong side of the suspense account.

The trial balance of Chen includes a suspense account balance. Chen discovered that
opening inventory of $31,763 had been entered on the credit side of the trial balance as
$31,763.
9. What is the journal entry to correct this error?
A. A.Debit Opening inventory $31,763 and Credit Suspense $31,763
B. B.Debit Opening inventory $63,526 and Credit Suspense $63,526
C. C.Debit Suspense $31,763 and Credit Opening inventory $31,763
D. D.Debit Suspense $63,526 and Credit Opening inventory $63,526
The correct answer is B.
Debit Opening inventory $63,526 and Credit Suspense $63,526
Opening inventory should be a debit balance (an expense in cost of sales) therefore the
correcting entry needs to be 2 × $31,763. The first $31, 763 to correct the error and the
second $31,763 to record the correct balance in the trial balance.
Tutorial note:
Debit Opening inventory $31,763 and Credit Suspense $31,763 - this will correct the error
but will not record opening inventory.
Debit Suspense $31,763 and Credit Opening inventory $31,763 - this journal is the wrong
way round so would make the difference larger by $31,763.
Debit Suspense $63,526 and Credit Opening inventory $63,526 - although this journal uses
the correct amount it is also the wrong way round so would make the difference larger by
$63,256.

Desmond has not keep a full set of accounting records, but the following information is
available for the month of June 20X9:

Opening receivables 800

Closing receivables 550

Contra with payables 280

 Cash received from customers 6,730

Irrecoverable debt written off 40

10. What is Desmond's sales figure for June 20X9?
A. A.$6,800
B. B.$6,840
C. C.$7,080
D. D.$7,300
The correct answer is A.
Receivables ledger account

$ $

Balance b/d 800 Cash received 6,730

Sales (balancing figure) 6,800 Contra 280

Irrecoverable debt written off 40

Balance c/d 550

7,600 7,600
Tutorial note:
$6,840 excludes the irrecoverable debt (6,800 + 40).
$7,300 records opening and closing receivables the wrong way round (800 + 6,730 + 280 +
40 − 550).
$7,080 excludes the contra entry (6,800 + 280).

Jack has not maintained a full set of accounting records but has the following information
available. At 1 January 20X8 he owes credit suppliers $11,800 and at 31 December 20X8 he
owes $12,400. Jack had returned goods totalling $3,500 and paid a total of $167,000 to
suppliers during the year.
11. What is Jack's total figure for purchases for the year ended 31 December
20X8? $_____
The correct answer is $ 171,100.
Total payables account

$ $

Goods returned 3,500 Balance b/d 11,800

Cash paid to suppliers 167,000 Purchases (Balancing figure) 171,100

Balance c/d 12,400

182,900 182,900
Ethan has lost his opening inventory records for the year ended 31 August 20X8. Closing
inventory records show a balance of $32,000. Sales invoices for the year totalled $460,000
and are made based on a margin of 20%. Total purchases made were $374,000.
12. What is Ethan's opening inventory at 1 September 20X7?
A. A.$22,667
B. B.$26,000
C. C.$38,000
D. D.$41,333
The correct answer is B.
$ $
Sales 460,000 100%
Opening inventory (balance) 26,000
Add: purchases 374,000
Less: closing inventory (32,000)
Cost of sales (80% × 460,000) (368,000) 80%
Gross profit 92,000 20%
Tutorial note:
$22,667 used a mark-up in error and deducted closing inventory instead of adding it back
(((460,000 ÷ 120) × 100) − 32,000 − 374,000)
$41,333 used a mark-up in error (((460,000 ÷ 120) × 100) + 32,000 − 374,000)
$38,000 adjusted closing inventory in the wrong direction (((460,000 ÷ 100) × 80) − 32,000 −
374,000)
Kimi's sales invoices were destroyed by a flood in her office. She has not maintained any
other sales records but she has inventory records showing opening inventory at 1 April 20X7
of $12,800 and closing inventory at 31 March 20X8 of $13,900. Purchase invoices for the
year total $240,000. Kimi makes sales based on a mark-up of 25%.
13. What is Kimi's sales figure for the year ended 31 March 20X8? $_____
The correct answer is $ 298,625.
$ $
Sales (238,900 ÷ 100) × 125 298,625 125%
Opening inventory 12,800
Add: purchases 240,000
Less: closing inventory (13,900)
Cost of sales (238,900) 100%
Gross profit 59,725 25%

Sakura started a new business and was unsure what accounting records to keep. She banks
all cash except for a $100 float that she keeps in her till overnight. She believes that some of
the cash has gone missing. The following information is available for the year ended 30 June
20X8:
$
Cash banked per the bank
statement 16,000
Cash expenses paid from the till 3,120
Cash sales 12,700
 Cash received from credit customer 6,800
14. What is the figure for Sakura's missing cash for the year ended 30 June
20X8? $_____
The correct answer is $280.
Cash account

$ $

Balance b/d nil Cash banked 16,000

Cash sales 12,700 Expenses 3,120

Cash from credit customers 6,800 Cash missing (Balancing figure) 280

Balance c/d 100

19,500 19,500

Charlotte is having trouble preparing her trial balance for the first time.
15. Which column of the trial balance should the two following balances be allocated
to?

Discounts received from
SOFP Debit SOFP Credit SOPL Debit SOPL Credit
suppliers

SOFP Debit SOFP Credit SOPL Debit SOPL Credit Drawings taken by Charlotte
Solution:
Discount received, Statement of profit or loss – Credit. This is discount from suppliers which
is another income balance for the statement of profit or loss which make it a credit balance in
the statement of profit or loss.
Drawings taken by Charlotte, Statement of financial position – Debit. Drawings reduce the
capital outstanding balance. Capital is a credit balance in the statement of financial position
so drawings will be a debit balance in the statement of financial position.

Ravi is completing the process of closing the ledger accounts at 31 December 20X7. The
balance on the capital account at 1 January 20X7 was $208,000. During the year he took
drawings of $23,000 and had expenses in excess of income in the profit or loss ledger
account of $56,000.
16. What is the balance on Ravi's capital account at 31 December 20X7? $_____
The correct answer is $129,000.
Capital account

$ $

Drawings 23,000 Balance b/d 208,000

Loss for the year (Expenses exceed

income) 56,000
 Balance c/d 129,000

208,000 208,000

Ella incorrectly records a credit sale as a cash sale. She notices her mistake and makes a
correcting journal.
17. What will the impact of the correction be on Ella's accounting records?
A. Increase Receivables, Decrease Cash
B. Increase Sales, Decrease Receivables
C. Increase Sales, Decrease Cash
D. Increase Receivables, Decrease Sales
The correct answer is A
The correcting journal entry will increase Receivables (Debit) and decrease Cash (Credit)
The original sale would have been recorded as: DR Cash and CR Sales income
The correct journal should have been DR Receivables and CR Sales income
The correction is therefore: DR Receivables (Increasing receivables) and CR Cash
(Decreasing cash)
There will be no impact on sales as even though the entry was not entirely correct the sale
had been correctly recorded in the sales account.

Lin has net assets in her business on 30 June 20X4 of $70,281. The business had net
assets on 1 July 20X3 of $64,988. During the year ended 30 June 20X4, the business made
a profit of $12,493 and Lin took drawings of $1,000 per month in the period.
18. What amount of additional capital did Lin introduce into the business in the year
ended 30 June 20X4? $_____
The correct answer is $4,800.
Opening net assets + profit − drawings + capital introduced = Closing net assets.
Capital introduced = closing net assets − opening net assets − profit + drawings= $70,281 −
$64,988 − $12,493 + $12,000 (12 × $1,000) = $4,800

Zinan records a purchase invoice with the correct value of $760 in the relevant general
ledgers at a value of $670. These goods had been sold before the year end.
19. If this error is not corrected, what is the effect of the impact on the profit and net
assets of Zinan's business?
A. Profit overstated by $90, Net assets understated by $90
B. Profit understated by $90, Net assets overstated by $90
C. Profit overstated by $180, Net assets overstated by $180
D. Profit overstated by $90, Net assets overstated by $90
The correct answer is D
Profit for the period Overstated by $90, Net assets Overstated by $90
The amount of the credit purchase has been recorded in the ledgers at a figure of $90 below
its correct amount ($760 − $670). This means that purchases will be lower than they should
be (by $90) which will understate cost of sales and overstate profit. It also means that the
figure for trade payables will be lower than it should be (by $90) which will understate current
liabilities and overstate net assets.
The amount to be adjusted will only be doubled to $180 if the entries had been recorded on
the wrong side of the ledger account.

Charlotte started a new business on 1 October 20X7. In the year ended 30 September 20X8,
she introduced capital of $30,000 and paid $500 per month from her business bank account
to her personal bank account. On 30 September 20X8, the net assets of the business were
$15,800.
20. What is the profit or loss of the business in the year ended 30 September 20X8?
A. A.$39,800 loss
B. B.$39, 800 profit
C. C.$8,200 loss
D. D.$8,200 profit
The correct answer is C.
Opening net assets + profit − drawings + capital introduced = Closing net assets.
Profit = Closing net assets − opening net assets + drawings − capital introduced
$15,800 − $nil +(12 × $500) − $30,000 = $8,200 Loss

21. Which TWO of the following are reasons for preparing the trial balance?
A. A.To ensure that the books of prime entry are complete.
B. B.To check that there are equal debits and credits in the ledger accounts.
C. C.To start the preparation of financial statements.
D. D.To ensure that entries in the general ledger are complete.
The correct answers are B and C.
When the trial balance is extracted the first thing that will be identified is whether or not the
debit and credit columns agree. If the answer is 'no' a suspense account will be opened and
the reason for the difference investigated. If the answer is yes the trial balance will then be
the starting point for the preparation of the financial statements following the reconciliation
and adjustments process.

22. Which TWO of the following statements regarding a trial balance are true?
A. A.The trial balance lists only material balances extracted from the general ledger.
B. B.The trial balance will identify whether the total debit equal the total credit entries in the
general ledger.
C. C.It is only possible to produce the trial balance annually.
D. D.The trial balance can identify that the general ledger has errors, but does not correct
the errors.
The correct answers are B and D.
The correct answers are that the trial balance will identify when debits do not equal credits. It
will also identify issues but not correct them.

Riley has prepared his final trial balance but the final result for the period has not yet been
determined. The totals of the statement of profit or loss columns are as follows:
 Debit $ Credit $

Statement of profit or loss 538,884 674,443

23. Which of the TWO following correctly describe the final result for the period?
A. A.Loss of $135,559
B. B.Profit of $135,559
C. C.An increase in capital in the period
D. D.Decrease in capital in the period
The correct answers are B and C.
A surplus of credits of $135,559 (674,443 − 538,884) in the profit or loss columns indicates a
profit for the period. This will increase capital in the current period − opening capital + profit
for the period − drawings = closing capital.

24. When a bookkeeper prepares the final trial balance, into which column would they
transfer the value for non-current assets at cost?
A. A.Statement of financial position credit.
B. B.Statement of financial position debit.
C. C.Statement of profit or loss credit.
D. D.Statement of profit or loss debit.
The correct answer is B.
Non-current assets at cost are an asset, so will be in the Statement of financial position and
all assets are debits.

Burton has cleared his suspense account after making just one adjustment.
The error giving rise to the correction had been to record a cash payment of $766 to an
expense account as $776. The correct figure had been recorded in the cash account.
25. What was the initial balance on the suspense account before Burton corrected the
error?
A. A.$10 credit
B. B.$10 debit
C. C.$20 credit
D. D.$20 debit
The correct answer is A.
The original journal in error was:

DR Expense $776

CR Cash $766

CR Suspense $10
This means that the suspense account had an initial balance of $10 credit.

26. What is the journal entry to record the transfer of profit for the year to capital?
A. Debit Profit or loss, Credit Proprietor's capital
B. Debit Proprietor's capital, Credit Profit or loss
C. Debit Receivables, Credit Proprietor's capital
 D. Debit Proprietor's capital, Credit Receivables
The correct answer is A
The entry required is Debit Profit or loss, Credit Proprietor’s capital
Profit means that there is an overall net credit balance on the profit or loss ledger account.
To transfer this balance (profit) and reset the annual account back to nil ready for the new
year, we debit the profit or loss account and credit capital. This increases the capital account
to reflect the increase in the amount owed by the business to the proprietor.

Lisha accidentally recorded a payment of $140 for fuel for motor vehicles as an addition to
land. At the year-end, she identified her error and corrected it.
27. If the journal to correct the error is recorded, what will the effect of this be on the
profit for the period and on the net assets at the end of the period?
 Increase by $140
Decrease by $140
Profits
 Increase by $140
Decrease by $140
Net assets

Profits Decrease by $140

Net assets Decrease by $140

The correcting journal that she made will have been: DR Motor expenses $140 CR Land
$140 (to remove the incorrect addition to assets)
The effect of this journal is to reduce both profit by charging additional expenses and net
assets by removing the incorrect addition to land by $140.

28. Which TWO of the following are valid uses of a suspense account?
A. A.To force the statement of financial position to balance.
B. B.To post any trial balance imbalance prior to correcting errors.
C. C.To record a transaction temporarily when a bookkeeper is unsure of the correct
treatment.
D. D.To record transactions that relate to future accounting periods.
The correct answers are B and C.
A suspense account may be used to post any trial balance imbalance and as a “temporary
holding account”.

A bookkeeper accidentally records the payment to a credit supplier of $234 in the payables
account as $324.
29. What balance would be created on the suspense account as a result of this error?
A. A.Credit $324
B. B.Credit $90
 C. C.Debit $234
D. D.Debit $90
The correct answer is B.
The assumption from this information is that the cash/bank account entry has been entered
correctly and only the payables account is incorrect.
The payables account has had $90 (324−234) additional payments recorded so the
payables account balance (credit) will be $90 lower than it should be. This means that credit
balances overall will be lower than they should be and the trial balance will show a total of
debits that is $90 higher than credits. This will result in a credit balance being required in a
suspense account to balance the trial balance.

A trial balance has been completed and the result for the period correctly determined as a
loss.
30. How will the loss for the year be shown in the statement of profit or loss and statement of
financial position columns of the extended trial balance?

Debit Credit Statement of profit or loss

Debit Credit Statement of financial position
Solution:
Statement of profit or loss Credit, Statement of financial position Debit.
CR Profit or loss columns as the total of the debit column (expenses) is greater than the total
of the credit column (income) which represents the loss.
DR Capital in the statement of financial position columns as the loss will reduce the capital
balance (credit) owed to the proprietor.

31. Where in the financial statements of a sole trader would the following balances be
reported?

Statement of Profit or Loss Statement of Financial Position Drawings

Statement of Profit or Loss Statement of Financial Position Loans

Statement of Profit or Loss Statement of Financial Position Purchases

Statement of Profit or Loss Statement of Financial Position Receivables
Solution:
Drawings, Statement of Financial Position. Drawings are a repayment of capital which
should be reported as a reduction to capital in the statement of financial position.
Loans, Statement of Financial Position. Loans are a liability which should be reported in the
statement of financial position.
Purchases, Statement of Profit or Loss. Purchases are an expenses to be reported in the
statement of profit or loss.
Receivables, Statement of Financial Position. Receivables are an asset which should be
reported in the statement of financial position.
When extracting her trial balance, Binta finds that the total of the debits is $99 greater than
the total of the credits.
32. Which TWO of the following could account for this difference?
A. A.Cash payment of $556 was correctly posted to the cash ledger, but posted as $655
to the expense account.
B. B.Cash payment of $655 was correctly posted to cash but posted as $556 to the
expense account.
C. C.Credit balance of $99 was extracted as a debit balance of $99.
D. D.Balance of $99 on the accruals account was omitted when extracting the trial balance.
The correct answers are A and D.
A cash payment correctly entered to cash CR Cash $556 but the entry to expense was $99
higher ($655 − $556). This will result in the debit column of the trial balance being $99 higher
than it should be.
The balance on the accruals account would be a credit balance. If this has been omitted the
total of the credit column would be $99 lower that it should be.

33. Which TWO of the following items WILL affect profit for the year once they are
adjusted in the trial balance.
A. Repayment of a loan
B. Profit on sale of a non-current asset
C. Receipt of cash from a credit customer
D. Write-down of inventory from cost to net realisable value
The correct answer is: B and D
Repayment of a loan, Will not affect profit. Repayment of a loan is DR Loan CR Cash - there
is no impact on profit.
Profit on sale of a non-current asset, Will affect profit. Profit on disposal of a non-current
asset will increase profit as follows DR Cash, CR Non-current asset and CR Profit on
disposal (P/L)
Receipt of cash from a credit customer Will not affect profit. The receipt of cash from a credit
customer (receivable) will have no affect on profit DR Cash CR Receivable
Write-down of inventory from cost to net realisable value, Will affect profit. The write down of
inventory will reduce inventory in profit or loss which will increase cost of sales and in turn
reduce profit.

34. Which of the following statements is FALSE?

A. A suspense account balance should be investigated.
B. A suspense account is a temporary holding account.
C. A suspense account is used to record immaterial transactions.
D. A suspense account balance should be cleared to zero.
The correct answer is C
The statement a suspense account is used to record immaterial transactions is False. The
other statements are True.
A suspense account is a temporary account that can help balance a trial balance or
complete the double entry for a transaction whose full information is not available. The
suspense account should always be fully investigated and cleared to zero. It should not be
used for non-cash transactions. Immaterial transactions are recorded in the general ledger.
Just because transactions are small does not mean that they are posted to the suspense
account. They would still be recorded in their appropriate ledger account.

35. Which of the following errors will be identified when the trial balance is extracted
from the ledger accounts?
A. A.Full omission
B. B.Partial omission
C. C.Commission
D. D.Principle
The correct answer is B.
A partial omission error could cover a lot of potentially different errors but the overall affect is
that the debit and credits recorded will not equal each other resulting in the trial balance not
balancing.

36. In which column of the trial balance would drawings be entered?

A. A.Statement of profit or loss, debit column
B. B.Statement of profit or loss, credit column
C. C.Statement of financial position, debit column
D. D.Statement of financial position, credit column
The correct answer is C.
Drawings are a reduction of the amount of capital owed to the proprietor. Capital is a credit
balance so a debit against this balance will reduce it. All capital transactions are recorded in
the statement of financial position column.

Max has a draft profit for the period of $87,420. Max's business is registered for sales tax.
Since producing the draft financial statements, Max discovers the following errors and
omissions:
 An overdraft of $500 has been reported as a non-current liability.
 Purchases have been included in profit or loss at their gross amount of $240 (sales tax
$40).
 An accrual of $420 net of sales tax for electricity used before the year-end needs to be
made.
37. What is Max's revised profit figure after making the necessary corrections the
errors and omissions?
A. A.$87,800
B. B.$86,540
C. C.$87,000
D. D.$87,040
The correct answer is D.
The classification of the overdraft has no impact on profit for the year on the balances within
the statement of financial position
The correct purchases figure should be net of recoverable sales tax. He will therefore make
this correction:

DR Sales tax recoverable $40

 CR Purchases $40
The required electricity accrual will reduce profit for the period by increasing electricity
expense by $420.
The correct profit is therefore $87,420 + $40 − $420 = $87,040

Miguel has identified two errors made when producing his draft financial statements:
1. Purchase of a used car has been recorded as purchase of office machinery
2. A payment to a supplier has been recorded in cash as $530 has been recorded in
payables as $350
38. Will each error give rise to a suspense account?
 Yes
No
Purchase of used car
 Yes
No
Payment to supplier
Purchase of used car No

Payment to supplier Yes

The purchase of the car will simply need to be transferred from office machinery. DR Motor
vehicles CR Office Machinery – no impact on a suspense account.
The payment to the supplier has a transposition error in one side of the entry. This will create
an imbalance in debits and credits in the trial balance and a suspense account will need to
be opened.

Alan has identified the following errors in his accounting records as part of the process of
finalising his year-end accounts:
 Overpayment of a credit supplier by $340.
 Omission of the charge for depreciation on an asset of $800.
 No record of a dishonoured cheque from a credit customer of $900.
 Alan's draft profit before considering any of the above was $10,220.
39. What is Alan's revised profit figure after correcting for the above errors? $_____
The correct answer is $9,420.
The overpayment to the supplier will have been recorded as:

DR Payables $340

CR Bank $340
Profit will be unaffected.
Charging depreciation will reduce profit by $800.
The returned cheque will be recorded as:

DR Receivables $900
 CR Bank $900
This will not change profit.
The corrected revised profit is therefore $10,220 − $800 = $9,420

Ken's business has a draft loss for the period of $12,498.

His accountant has discovered the following errors and omissions in Ken's accounting
records:
 depreciation of $2,000 was charged on an asset when the correct figure should be only
$200.
 opening inventory of $5,332 was omitted when calculating cost of sales for the period.
 a payment of $500 was received from a debt that had previously been written off. Ken
has not recorded the receipt in his ledger accounts.
40. What will be Ken's revised loss figure for the period after adjusting for the items
above?
A. A.$15,530
B. B.16,530
C. C.$4,866
D. D.$17,130
The correct answer is A.
The adjustments are $1,800 favourable, $5,332 unfavourable and $500 favourable. A
combined adjustment of $3,032 unfavourable. This increases the loss from $12,498 to
$15.530.

Manisha has not maintained a full set of accounting records. The following information is
available:

Payables 1 April 20X8 142,600

Cash paid to suppliers 542,300

Discounts received 13,200

Goods returned 27,500

Payables 31 March 20X9 137,800

41. What is Manisha's figure for purchases for the year ended 31 March 20X9? $_____
The correct answer is $578,200.
Trade Payables

$ $

Cash paid 542,300 b/d 142,600

Discounts received 13,200

 Goods returned 27,500 Purchases (Bal fig) 578,200

c/d 137,800

720,800 720,800

Iris has provided you with the following list of her assets and liabilities at 31 December 20X8:

Non-current assets 12,200

Inventories 2,348

Receivables 700

Payables 1,832

Bank overdraft 900

Iris also believes that there should be an accrual of $450 and a prepayment of $980.
42. What is the figure for Iris's capital at 31 December 20X8? $_____
The correct answer is $13,046.
Assets − Liabilities = Capital
(12,200 + 2,348 +700 + 980) − (1,832 + 900 + 450) = 13,046

During the period from 1 January to 20X5 to 17 October 20X5, Rita made sales of $364,560.
On 17 October 20X5, there was a fire that destroyed all the inventory in her warehouse.
Inventory on 1 January 20X5 was correctly valued at $43,000 and Rita has invoices for
purchases between 1 January 20X5 and 17 October 20X5 totalling $324,500. Rita operates
using a profit margin of 20%.
43. What was the cost of inventory destroyed in the fire?
A. A.$43,000
B. B.$63,700
C. C.$72,192
D. D.$75,852
The correct answer is D.
Firstly use the profit margin on sales to work out the cost of sales.

$ $

Sales 364,560 100%

Opening inventory 43,000

Add: Purchases 324,500

 Less: Closing inventory (?)

Cost of sales 291,648 80%

(80% × 364,560)

Gross profit 72,912 20%

Now follow cost of sales = Opening inventory + purchases − closing inventory to work out
the missing figure.
Cost of sales $291,648 = Opening inventory $43,000 + Purchases $324,500 − Closing
inventory
Therefore, Closing inventory $75,852 = Opening inventory $43,000 + Purchases $324,500 −
Cost of sales $291,648

Tisha has an opening balance on her trade payables of $22,494. During the period ended 5
April 20X2, she made purchases on credit of $437,583 and purchases for cash of $2,894.
Tisha's suppliers allowed her a prompt payment discount of $5,600 which she took. The
closing balance on trade payables at 5 April 20X2 were $14,689.
44. How much was paid to credit suppliers in the period? $_____
The correct answer is $439,788.
$

Opening balance 22,494

=> Credit purchases 437,583

Discounts received (5,600)

Paid to credit suppliers (439,788)

Closing balance 14,689

At the beginning of the year there was $50 in the cash till and receivables were $2,000. Total
sales revenue in the year was $230,000. Receivables at the end of the year were $3,000.
Cheques banked from credit sales were $160,000 and cash sales of $50,000 have been
banked. There is $100 in the cash till at the year end, but the accountant has discovered that
some cash has been stolen.
45. How much cash was stolen during the year?
A. A.$18,950
B. B.$19,000
C. C.$19,950
D. D.$20,950
The correct answer is A.
$
 Sales revenue 230,000

Money banked (160,000 + 50,000) 210,000

20,000

Increase in receivables (3,000 − 2,000) (1,000)

Increase in cash in till (100 − 50) (50)

Money unaccounted for = stolen 18,950

Rajesh has not maintained a full set of accounting records during the year ended 31
December 20X8. From his sales invoices he established sales for the year were $360,000.
Inventory records for the beginning of the year showed a balance of $21,800 and at the end
of the year $24,600.
Rajesh makes sales based on a gross profit mark-up of 20%.
46. What is Rajesh's purchases figure for the year ended 31 December 20X8? $_____
The correct answer is $302,800.
$ $

Sales 360,000 120%

Cost of sales:

Opening inventory 21,800

Purchases 302,800

Closing inventory (24,600)

(360,000/120 × 100) (300,000) 100%

Gross profit 60,000 20%

Sasha has provided you with the following list of assets and liabilities at 30 June 20X8:

Non-current assets 9,760

Inventory 674

Receivables 1,347
 Payables 2,317

Bank and cash (positive) 374

At the start of the year, her capital balance was $5,487. There was no new capital introduced
in the period, but Sasha took drawings of $6,000 during the year.
47. What was Sasha's profit or loss for the year ended 30 June 20X8?
A. A.$1,649 loss
B. B.$1,649 profit
C. C.$10,351 profit
D. D.$10,351 loss
The correct answer is C.
This is an application of the accounting equation to find a missing figure. First, find the net
assets at the year-end, because this must be capital. Then apply the fact that: Opening net
assets + capital introduced + profit − drawings = Closing net assets

Non-current assets 9,760

Inventory 674

Receivables 1,347

Payables (2,317)

Bank and cash (positive) 374

Closing net assets 9,838

Opening net assets (capital) $5,487 + Capital introduced nil + Profit − Drawings $6,000 =
Closing net assets $9,838
Rearrange that formula Closing nets assets $9,838 − Opening net assets $5,487 + Drawings
$6,000 = Profit $10,351

Miu has provided you with the following asset and liability balances at 31 January 20X4 in
order to establish a balance for payables.

Non-current assets 980

Inventories 749

Receivables 400

Cash 448

Payables ?

Bank loans 1,000

Mui's capital at 31 January 20X4 was $1,304.
48. What is Mui's figure for payables at 31 January 20X4? $_____
The correct answer is $273.
Non-current assets 980
Inventories 749
Receivables 400
Cash 448
Payables (Balance) (273)
Bank loans (1,000)
Closing capital 1,304

Lisha is concerned that the manager in her shop might be understating sales and stealing
from her. Lisha knows that the purchases in the period were $453,580 and that the inventory
levels for the beginning and end of the year are $35,000 and $42,000 respectively. Lisha
works out all of her prices using a mark-up of 25%. The shop manager has reported total
sales in the period of $534,220.
49. Assuming there are no inventory losses, what is the amount stolen from the
business?
A. A.$24,005
B. B.$32,755
C. C.$41,505
D. D.$61,220
The correct answer is A.
Use the mark-up to calculate the amount of sales income that would be expected from the
figure for cost of sales. Then compare this to reported sales to find the shortfall.
$
Expected sales
(446,580/100 × 125)
558,225 125%
Cost of sales
$35,000 + $453,580 −
$42,000
446,580 100%
Reported sales 534,220
Shortfall
(558,225 − 534,220) 24,005

Ken has not maintained a full set of accounting records for his business. He has the
following information available for the quarter ended 30 June 20X9:

Sales:

Cash 20,000
 Credit 160,000

Purchases 143,000

Opening inventory 24,000

Ken applies a mark-up of 25% to all sales.
50. What is the closing inventory of Ken at 30 June 20X9?
A. A.$32,000
B. B.$23,000
C. C.$39,000
D. D.$47,000
The correct answer is B.
$ $
Sales
(20,000 + 160,000) 180,000 125%
Cost of sales:
Opening inventory 24,000
Purchases 143,000
Closing inventory
(Balance)
(23,000)
(180,000/125 × (144,000
100) ) 100%
Gross profit 36,000 25%

Clara does not maintain a full set of accounting records. The following information is
available:

Receivables 1 April 20X8 132,800

Cash received from customers 317,300

Irrecoverable debts 8,200

Sales returns 16,500

Receivables 31 March 20X9 148,800

51. What is Clara's figure for sales for the year ended 31 March 20X9? $_____
The correct answer is $358,000.
Receivables account

$ $

b/d 132,800 Cash received 317,300

 Irrecoverable debts 8,200

Sales (Balance) 358,000 Sales returns 16,500

c/d 148,800

490,800 490,800

Malena had net assets at 1 January 20X8 of $12,100. She has provided you with the
following list of her assets and liabilities at 31 December 20X8:

Non-current assets 14,100

Inventories 3,458

Receivables 400

Payables 2,713

Bank overdraft 600

During the year to 31 December 20X8 Malena introduced capital of $3,000 and made of
profit of $8,200.
52. What are Malena's drawings for the year ended 31 December 20X8?
A. A.$5,655
B. B.$7,455
C. C.$8,655
D. D.$13,745
The correct answer is C.
Total assets (14,100 + 3,458 + 400) − total liabilities (2,713 + 600) = Closing net assets
$14,645
Closing net assets − opening net assets = profit + Capital introduced − Drawings
$14,645 − $12,100 = 8,200 + $3,000 − Drawings
Drawings = $8,655

Shota makes a profit margin of 30%. He is completing an insurance form to claim for
inventories lost in a flood. The only information that he has to work out the inventories lost is
as follows:

Sales 212,000

Purchases 166,000
Opening inventory records shows a total of $14,000 and closing inventory records shows a
total of $23,000.
53. What is the amount of inventory lost by Shota? $_____
The correct answer is $8,600.
$ $
Sales 212,000 100%
Cost of sales:
Opening inventory 14,000
Purchases 166,000
Inventory lost (Balance) (8,600)
(23,000
Closing inventory )
(212,000/100 × 70) (148,400) 70%
Gross profit 63,600 30%

Lea applies a mark-up of 20% to all sales. Sales for the first month of trading were $30,000.
Inventory was physically counted at the end of the month and had a total cost of $2,500.
Purchases for the month were $28,000.
Lea is aware that some inventory is inevitably lost from the business due to wastage or theft.
54. What is the amount of Lea's inventory lost in the month? $_____
The correct answer is $500.
$ $
Sales 30,000 120%
Cost of sales:
Opening inventory 0
Purchases 28,000
Inventory lost (Balance) (500)
Closing inventory (2,500)
(30,000/120 × 100) (25,000) 100%
Gross profit 5,000 20%

David's draft financial statements show a profit of $8,000 for the year ended 30 June 20X4.
David's inventories at 30 June 20X4 were valued at $25,000. This valuation includes a
quantity of product H, valued at a cost of $3,000, which is now obsolete. David expects to be
able to sell product H during the year ended 30 June 20X5 for $1,200.
55. Which TWO of the following statements are correct?
A. David should write down inventories by $1,800 as an application of prudence

B. David will record the loss in relation to product H in his financial statements for the year
ended 30 June 20X5, when they are sold

C. Closing inventories at 30 June 20X4 should be valued at $23,800

D. A. David's adjusted profit for the year ended 30 June 20X4 should be $6,200
The correct answers are A and D.
Option A is correct. Inventories should be recorded at the lower of cost or net realisable
value in accordance with IAS 2 Inventories. This is an application of prudence as assets
must not be overstated.
Option D is correct. Inventories must be adjusted by $1,800 ($3,000 − $1,200) to reflect the
lower net realisable value of product:

Dr Cost of sales – P/L

Cr Inventories – SFP
The adjustment in profit or loss is a debit entry and, therefore, profit will reduce (reflects the
future loss expected on the sale of inventories).
Adjusted profit for the year is calculated as follows:
$
Draft profit 8,000
Inventories adjustment (1,800)
6,200
Option B is incorrect as this does not apply the measurement criteria per IAS 2.
Option C is incorrect. Inventories should be recorded as $23,200 ($25,000 − $1,800).

The following errors have been detected in a bookkeeping system:

1. $1,000 paid for purchase of plant has been debited to plant repairs.
Depreciation for a full year at a rate of 20% per annum has yet to be charged
2. $10,000 of additional capital received from the owner has been credited to the sales
account
56. What is the net increase or decrease in profit when these errors are corrected?
A. $9,200 increase

B. $9,200 decrease

C. $10,800 increase

D. A. $10,800 increase
The correct answer is B.
Although there are only two notes in this question, there are actually three errors. Firstly,
recording the purchase of plant as a repair is an example of an error of principle and results
in expenses being overstated initially. The second error results from the fact that, in the
absence of an asset, depreciation has not been calculated. The third error relates to an error
in recording capital introduced which should not be recorded as a sale.
The requirement to the question is not to provide a journal entry to correct the errors but to
consider the impact on profit that the correction of errors would have.
In your workings, a good way to answer this type of question is to think about what has
happened, what should have happened and what will the correcting journal be. If there is an
adjustment to a profit or loss account, remember debit entries reduce profit and credit entries
increase profit.
1. Purchase of plant
The original journal has been posted as:
Dr Plant repairs (expense) $1,000

Cr Bank $1,000
The journal that should have been recorded is:
Dr Plant (asset account) $1,000

Cr Bank $1,000
To correct the original error:
Dr Plant (asset account) $1,000

Cr Plant repairs $1,000

Note: the credit to plant repairs will increase profit.
Depreciation of $200 ($1,000 × 20%) will also need to be charged for the year as follows:

Dr Depreciation expense $200

Cr Plant accumulated depreciation $200

Note: the debit to the depreciation expense account will reduce profit.
2. Additional capital received
The original journal has been posted as:
Dr Bank $10,000

Cr Sales $10,000
The journal that should have been recorded is:
Dr Bank $10,000

Cr Capital $10,000
To correct the original error:
Dr Sales $10,000

Cr Capital $10,000
Note: the debit to the sales account will reduce profit.
Overall, the impact on profit is a decrease of $9,200 (+$1,000 − $200 − $10,000).

Jane invested $20,000 to start a new business. At the end of the first year of trading she had
the following assets and liabilities:

Motor vehicle 15,000

 Equipment 2,300

Inventory 950

Trade receivables 2,468

Cash at bank 1,723

Trade payables 3,005

During the year Jane had taken drawings of $1,000 per month.
57. What is Jane’s profit for the year? $_____
The correct answer is $11,436.
In this question, you are required to consider the information contained within the question to
calculate Jane’s profit for the first year of trading. A good way to do this is to use the
accounting equation where assets – liabilities = capital introduced + profit – drawings. This
can be done as follows:

Assets − Liabilities = Capital + Profit − Drawings

$ $ $ $ $

Capital introduced 20,000

Motor vehicle 15,000

Equipment 2,300

Inventory 950

Trade receivables 2,468

Cash at bank 1,723

Trade payables 3,005

Drawings 12,000

22,441 − 3,005 = 20,000 + ? − 12,000

Once the information has been input into the accounting equation working, the balancing
amount will be the profit for the year of $11,436. The accounting equation can also be
rearranged to calculate the missing profit figure: profit = assets - liabilities - capital +
drawings.

58. Which of the following are part of the process of producing final accounts from a
trial balance?
1. Estimating accruals
 2. Accounting for the purchase of non-current assets

3. Valuing closing inventory

A. 1, 2 and 3

B. 1 and 3 only

C. 2 and 3 only

D. A. 1 and 2 only
The correct answer is B.
Both (1) and (3) are examples of the process of preparing final accounts. At the reporting
date a review for accruals is undertaken. This is to ensure that expenditure is recorded in the
relevant period, rather than simply when cash is paid.
During the year, when inventory is purchased it is recorded as debit purchases, credit
bank/payables. Purchases should be matched to the sales made in the year. Any goods left
in inventory at the reporting date should be removed from cost of sales and carried forward
to current assets in the statement of financial position. Therefore, at the reporting date,
inventory is counted, valued and adjusted for in the financial statements.
The purchase of a non-current asset is not part of the process of producing final accounts
and would be recorded immediately when purchased. The cost of purchase would be
recognised within non-current assets on the statement of financial position and spread over
the asset’s useful life through a depreciation charge.

Llama maintains its petty cash records using an imprest system. The total petty cash float is
topped up monthly to $300. Last month the following expenses were paid from petty cash:

Stationery 30

Tea and coffee 60

Postage stamps 120

In error, the purchase of postage stamps was recorded as $12 and as a result $102 cash
was added to the petty cash float.
59. Which of the following will result from the error?
A. A.An imbalance in the trial balance of $108 and a petty cash balance that is $108
less than it should be
B. B.An understatement of expenses of $108 and a petty cash balance that is $192 less
than it should be
C. C.An understatement of expenses of $108 and a petty cash balance that is $108 less
than it should be
D. D.An imbalance in the trial balance of $192 and a petty cash balance that is $192
less than it should be
The correct answer is C.
The difference in the amount at which the purchase of stamps was recorded is $120 − $12 =
$108. As only $12 was recorded expenses have clearly been understated. Petty cash should
have been topped up with ($30 + $60 + $120) = $210, so the $102 top-up is $210 − $102 =
$108 too little.