ANSWER#1

Correct Answer
Dr Petty cash $71.55 Cr Bank $71.55

Kevin's vouchers total $71.55. This means that he has remaining cash of $48.45. To
bring his cash float back up to $120 he must deposit $71.55 in the petty cash box. He
will withdraw cash of $71.55 from the bank (Cr Bank) and pay it into petty cash (Dr Petty
cash).

ANSWER#2

Correct Answer
Neither statement

Supplier statements can be used to check for errors and discrepancies in the balances
recorded on individual supplier accounts. Where errors made by the bank are
discovered during a bank reconciliation, it is the bank which will need to correct for
these, not the business which has performed the reconciliation.

ANSWER#3

Correct Answer
Dr Irrecoverable debts $496.70 Cr Receivables $496.70

Simon will remove Trevor's debt from amounts receivable, as it will not be received and
charge the loss to the relevant expense account. The correct entry is therefore: Dr
Irrecoverable debts, Cr Receivables.

ANSWER#4

Correct Answer
Credit purchases and cash sales

The sole supplier offers a credit term. Sales are paid for immediately.

ANSWER#5

Correct Answer
Asettlement discount received

Xiaosheng, the customer, has been offered a discount for settling the invoice early. This
means that they will receive a settlement discount.

ANSWER#6
Correct Answer
Dr Furniture and fittings $200
Dr Sales tax account $40
Cr Bank $240

This is the correct journal entry but the incorrect amounts ($200 treated as inclusive of
sales tax)
Dr Furniture and fittings $167
Dr Sales tax account $33
Cr Bank $200

This is the incorrect journal entry and the incorrect amounts

Dr Bank $200
Cr Furniture and fittings $167
Cr Bank $33

This is the incorrect journal entry but the correct amounts

Dr Bank $240
Cr Furniture and fittings $200
Cr Bank $40

ANSWER#7

Correct Answer
1 and 4 only

As bank and inventories are not integrated, only the trade payables general ledger
account and related detailed listing will be updated.

ANSWER#8

Correct Answer
Dr Staff costs
Cr Bank

Both the staff cost and the payment must be recognised.

ANSWER#9

Correct Answer
Account 4 only

If total credits exceed total debits then the account has a credit balance. This is only the
case in account 4.

ANSWER#10

Correct Answer
Revenue

Revenue is recorded in the statement of profit or loss. The other items are shown in the
statement of financial position.

ANSWER#11

Correct Answer
Purchase of a service by Millie

This is the purchase of a service by Millie. Warren is not selling goods, he is selling a
service of window cleaning and Millie has purchased this service and paid for it.

ANSWER#12

Correct Answer
3 and 4

Expenditure which should be charged to profit or loss (also known as 'revenue

expenditure') is expenditure which generally relates to the day-to-day running of the
business. Rental income is not expenditure. Purchase of a machine is asset
expenditure (also known as 'capital expenditure'). Goods for resale and wages (3 and
4) are both examples of expenditure which should be charged to profit or loss.

ANSWER#13

Correct Answer
Dr Drawings Cr Purchases

The incorrect entry made by Tarik will have debited purchases instead of drawings. To
correct this:

Dr Drawings, Cr Purchases
ANSWER#14

Correct Answer
Sales of $50, sales tax of $10 and a cash receipt of $60

Incorrect answers:
Sales of $60 and a cash receipt for the same amount - Ignores sales tax
Sales of $72 and a cash receipt for the same amount - Calculates sales tax on gross
amount and recognises no amount in the sales tax account
Sales of $60, sales tax of $12 and a cash receipt $72 - Calculates sales tax on gross
amount

ANSWER#15

Correct Answer
1 only

Discounts allowed are given to customers and not received from suppliers.

ANSWER#16

Correct Answer
Dr Irrecoverable debt expense Cr Trade receivables

An irrecoverable receivables balance must be removed from the total of trade

receivables. Trade receivables are a debit balance so this will be a credit entry. The
corresponding debit will be to the irrecoverable debt expense account.

ANSWER#17

Correct Answer
1, 2 and 3

All items are an appropriate use of BACS payments.

ANSWER#18

Correct Answer
23274

Parkers is a credit customer so its balance will appear under trade

receivables. Therefore its code must be in the 23000 range and the appropriate code is
23274.

ANSWER#19
Correct Answer
Dr Sales $2,700 Cr Suspense account $2,700

This error will have caused an excess credit of $2,700 (sales) so a debit posting of
$2,700 will have been made to the suspense account to balance the trial balance.

When the error is investigated and the reason for the error identified, the correcting
entry will be Dr Sales, Cr Suspense account.

This removes the excess posting from sales and closes off the suspense account.

Two of the options involve postings to the cash account although we have been told that
the posting to the cash account was correct. Dr Suspense account, Cr Sales is a
reversal of the correct posting.

ANSWER#20

Correct Answer
Dr Purchases Cr Trade payables

As the purchase was made on credit the correct record is to debit the statement of profit
or loss purchases account with the expense and record the liability by crediting trade
payables.

ANSWER#21

Correct Answer
Assets and liabilities

The repayment will affect assets and liabilities. The original loan will have created an
asset (cash) and liability (amount repayable), both for $20,000. The repayment will
reduce the asset (cash) by $10,000 because this amount will be paid out, and it will also
reduce the liability because the amount of the loan to be repaid is now only $10,000.

ANSWER#22

Correct Answer
Alvin has made a payment not yet received by Darcy.

The situation which could explain this discrepancy is that Alvin has made a payment not
yet received by Darcy. Alvin couldhave made a bank transfer of $1,840 which has not
yet been processed by Darcy's bank. When Darcy receives this she will amend Alvin's
supplier balance to $20,140.
If Darcy recorded a payment twice in error or issued a credit note which Alvin had not
yet received, the supplier statement balance would be lower than Alvin's records which
is the opposite of the situation we have.

The supplier statement balance would also be lower than Alvin's records if Darcy had
made the contra entry without informing Alvin. If Alvin and Darcy had both agreed to the
contra, their records would be the same.

ANSWER#23

Correct Answer
Retention policy

Retaining documents relates to the retention policy.

ANSWER#24

Correct Answer
1, 3 and 4 only

Invoices are always prepared showing the amount payable net of trade
discount. Therefore these discounts are taken into account in the totals of invoices
shown on suppliers statements, and will not appear separately. Invoices, credit notes
and payments will all be shown.

ANSWER#25

Correct Answer
Capital $27,000 Assets $49,000 Liabilities $22,000

The accounting equation is:

Assets = Capital + Liabilities

Therefore, Capital $27,000, Assets $49,000, Liabilities $22,000 is correct.

ANSWER#26

Correct Answer
$480

Incorrect answers:

$1,910 - Total debits/ credits in general ledger account

$1,430 - Cash paid to suppliers in June
$1,290 - Purchases from suppliers in June
ANSWER#27

Correct Answer
Dr Computer $270
equipment - cost
Dr Sales tax account $54
Cr Bank $324

Cost of computer equipment = 90% x $300 = $270

Sales tax = 20% x $270 = $54
Cash payment = $270 + $54 = $324

ANSWER#28

Correct Answer
Dr Cash $4,418 Cr Trade receivables $4,418

The correct entry is debit cash (increase in an asset) and credit trade receivables
(decrease in another asset) with the full amount.

The sales tax has already been accounted for in posting the original invoice.

ANSWER#29

Correct Answer
1, 3 and 4

Cash purchases are not relevant to trade payables.

ANSWER#30

Correct Answer
Debit balance of $3,677

This account has debit postings totalling $4,264 and a credit of $587. The closing
balance will therefore be a debit balance of $3,677.

Credit balance of $3,677 treats this as a credit balance rather than a debit, and the
other two options take no account of the $587.

ANSWER#31

Correct Answer
Standing order

This is a standing order: an agreement between Joanna and her bank that a certain
sum is paid to a particular recipient on a particular date. It can only be amended by
Joanna.

A direct debit is similar except that it would be an agreement between Joanna and the
charity that the charity could draw specified sums from her bank account. The charity
would be able to amend the direct debit for instance take a larger amount of money, but
they would have to inform her.

A BACS payment is used to transfer sums of money between accounts and is often
used to pay creditors or salaries. Like a direct debit it is used where the amounts are
variable. It would not be used for small, regular sums of fixed amount.

A petty cash payment will use actual cash so the bank will not be involved in the
payment.

ANSWER#32

Correct Answer
2 and 4

Bank charges and standing order payments (where not already entered) will be entered
into the bank ledger account during the reconciliation because these are items that will
be extracted from the bank statement.

Unpresented cheques and outstanding lodgements are items that are already in the
bank ledger account but have not yet appeared on the bank statement.

ANSWER#33

Correct Answer
1, 2 and 4

The cashier will not be concerned with the credit rating of the business receiving the
payment. This would be a factor to consider if they were selling goods on credit to the
company concerned, but in this case they are buying and paying by cash.

The other checks are all valid and should be made.

ANSWER#34

Correct Answer
$14,100 Cr
Hugo's accounts will show a credit balance of $14,100.

The bank statement shows Hugo's account in the bank's books. A debit balance of
$12,800 means that he is overdrawn by that amount.

We adjust this for outstanding lodgements and unpresented cheques:

12,800 - 3,400 + 4,700 = 14,100 Dr

This will be a credit balance in Hugo's accounts because here we are reflecting the
bank's account in Hugo's books. An overdrawn cash position will be a credit balance:
the money being owed to the bank.

ANSWER#35

Correct Answer
$162.80

Manfred will need to replace the amount of cash that has been spent in order to restore
the imprest amount of $200. Therefore he will need to pay in $162.80.

ANSWER#36

Correct Answer
$10,000

This is calculated by separating out the debit and credit balances - an overdraft will
always be a credit balance.

Dr ($) Cr ($)
Capital 9,000
Sales 32,000
Purchases 26,000
Receivables 23,000
Inventory 14,000
Payables 12,000
Overdraft (balancing figure) - 10,000
63,000 63,000

ANSWER#37

Correct Answer
Dr M4270 Cr B2150

The correct double entry will be to Dr Motor vehicles and Cr Bank. Eddy is not in the
business of buying and selling vans so it is not a purchase of inventory.

ANSWER#38

Correct Answer
Purchase of equipment paid for by bank transfer

This transaction shows Dr Equipment, Cr Bank. This means that money has gone out
of the bank and equipment has been acquired.

'Receipt of a bank loan to purchase equipment' and 'Banking of the proceeds from the
sale of equipment' would mean money coming into the bank and 'Purchase of
equipment on credit' would not involve any movements of funds.

ANSWER#39

Correct Answer
$70,965

Income tax and employee's pension contributions are deducted from gross salary so
they are not an additional cost for the employer.

The total wages and salaries expense will be gross pay plus employer's pension
contributions:
65,708 + 5,257 = $70,965

$74,907 includes employee's contribution and $90,677 includes employee's contribution

plus income tax. $65,708 does not include the employer's pension contributions.

ANSWER#40

Correct Answer
$120

Jan's basic hourly rate = 18,720 / 1,560 = $12

Overtime rate 12 x 2 = $24
12 hours of overtime (12 - 7) x 24 = $120

This shows her overtime pay as $120.

$480 combines her weekly rate ($360) with the 5 hours at double time so is not just her
overtime pay.
$288 values the whole 12 hours at double time.

$60 is just the five hours at the normal hourly rate.

ANSWER#41

Correct Answer
Pension contributions paid by Jasminder on behalf of her employees

The additional $4,000 can only be employers benefit contributions - in this case pension
contributions paid by Jasminder on behalf of her employees.

Jasminder's drawings will not be recorded as an expense and employee income tax
payments and pension contributions will not add to wages and salaries expense - they
will be deducted from the employee's gross salary of $14,000.

ANSWER#42

Correct Answer
Packing and posting costs payable by the customer were omitted from the
invoice

A debit note is used to increase the amount payable by the customer, in this case the
packing and postage costs.

Marion refusing some of the goods and the incorrectly totalled invoice require a
reduction in the amount of the invoice which would be done by credit note.

The invoice being sent to an incorrect customer would require the whole invoice to be
credited as it should not have been issued to this customer.

ANSWER#43

Correct Answer
A manual journal entry for bank charges

Incorrect answers:
A manual journal entry for a depreciation charge - Depreciation charges are a non-cash
expense and are recognised against the cost of the asset

Supplier invoice input to the purchases system - A supplier invoice input to the
purchases system recognises purchases and trade payables

Sales invoice issued from the sales system - A sales invoice issues from the sales
system recognises trade receivables and sales
ANSWER#44

Correct Answer
Trade payables and expenses

Trade payables will be a credit balance and expenses will be a debit balance.

The other pairs will all appear on the same side:

Sales and capital - credit
Trade receivables and purchases - debit
Motor vehicles and inventory - debit

ANSWER#45

Correct Answer
$45,300
$45,000 + ($6,300 - $3,600) - (2 x $1,200) = $45,300

Incorrect answers:
$43,500 - Error 1 deducted and error (2) added as only $1,200
$44,700 - Error 1 dedcuted and error (2) added
$46,500 - Error 2 calculated as only $1,200

ANSWER#46

Correct Answer
$81,470

Cash sales do not form part of the trade receivables balance. The other items are
totalled as follows:

$
Balance b/f 92,320
Cash receipts (46,420)
Credit sales 38,170
Debts written off (2,600)
81,470

ANSWER#47

Correct Answer
$8,500 Cr
 $
Credit purchases 20,800
Returns (3,100)
Cash payment (9,200)
Total owed 8,500

As the amount is still owed this will be a credit balance.

ANSWER#48

Correct Answer
$31,500

Sales tax should be calculated after the trade discount has been deducted.

The sales tax will be calculated as follows:

$
List price 240,000
Less 25% trade discount (60,000)
180,000
x 17.5% 31,500

$42,000 has omitted the trade discount

$35,745 has omitted the trade discount and calculated as if inclusive of sales tax.
$26,809 has calculated as if inclusive of sales tax.

ANSWER#49

Correct Answer
Transposition error

All other options are other types of error.

ANSWER#50

Correct Answer
1 and 3
Minimising record storage costs is a valid reason for having a formal document retention
policy as is helping to locate business records.