Table of Contents

I. Theory......................................................................................................1
1. Chapter 1: Overview of Accounting 1
Question 1: Types of Accounting.........................................................1
Question 2: Accounting assumptions and accounting principles. .2
Question 3: Users of financial information and the needs..............3
Question 4: Fundamental qualitative characteristics and
enhancing qualitative characteristics................................................4
2. Chapter 2: The accounting equation 4
Question 1 What is the accounting equation?..................................4
Question 2: Describe the basic elements of the Accounting
Equation...................................................................................................4
(assets, liabilities, and equity)............................................................4
Question 3 Analyze the effects of transactions in the accounting
equation...................................................................................................5
Question 4: What will happen if the accounting equation is not
balanced...................................................................................................6
3. Chapter 3: Recording financial transaction 6
Question 1 What is a source document ?...........................................6
Question 2: Some ways to manage source documents...................7
4. Chapter 4: the use of ledger entry 7
Question 1: Define a ledger account. How many types of ledger
accounts?.................................................................................................7
Question 2: What are accounting journal entries?...........................8
Question 3: How to write an accounting journal entry?..................8
5. Chapter 5: Trial Balance 9
Question 1: Definition of trial balance and steps for preparing a
trial balance............................................................................................9
Question 2: Purpose of trial balance and its content......................9
6. Chapter 6 The Basic Financial Statement 9
Question 1: What are financial statements?...................................10
Question 2: The types of financial statements?..............................10
 I. Theory
1. Chapter 1: Overview of Accounting
Question 1: Types of accounting
- There are 2 main types of accounting:
+ Financial accounting is concerned with reporting information to users
external to an entity in order to help them make sound economic decisions
about the entity’s performance and financial position.
+Management accounting (also referred to as managerial accounting) is that
area of accounting concerned with providing financial and other information
to all levels of management in an organization to enable them to carry out
their planning, controlling and decision‐making responsibilities.

Question 2: Accounting assumptions and accounting principles

* Accounting assumption:
- Going concern concept: Concept assumes that the entity is reviewed as
continuing in operation for the foreseeable future. It is assumed that the
entity has neither the intention nor the necessity of liquidation or ceasing to
trade. The conditions that are not appropriate with the going concern
concept:
+ The entity is being liquidated or has ceased trading
+ The directors either intend to liquidate the entity or to cease trading
+ Scale down operations in a material way.
- The monetary unit assumption: The monetary unit assumption requires that
companies include in the accounting records only transaction data that can
be expressed in money terms. This assumption enables accounting to
quantify (measure) economic events. The monetary unit assumption is vital
to applying the historical cost principle.
- Economic entity assumption (The business entity concept): A business is a
separate entity from its owner that accountants regard a business as a
separate entity, distinct from its owners or managers. The concept applies
whether the business is a limited liability company (and so recognized in law
as a separate entity), a sole trader or a partnership (in which case the
business is not legally recognized as separate from its owners).
- The accounting period concept: The accounting period concept states that
the life of a business can be divided into artificial periods and that useful
reports covering those periods can be prepared for the business.

* Accounting principles:
- Accrual basis: The effects of transactions and other events are recognized
when they occur (and not as cash or its equivalent is received or paid) and
they are recorded in the accounting records and reported in the FSs of the
periods to which they relate. Entities record when revenues or expenses are
earned or incurred in the accounting period, to which they relate, not as the
cash is paid or received
- Matching principles (Matching conventions): The matching principle is
a core accounting concept that goes hand in hand with the accrual basis. It
stipulates those expenses must be recognized in the same accounting period
as the revenue they contribute to generating. In other words, it aims to
match costs (expenditures) with the revenues they contribute to generating.
For example, if a company incurs costs (expenses) to produce goods or
services, those costs should be recognized in the same period as the related
revenue is earned. This ensures a more accurate representation of a
company's profits over a given period.
The matching principle improves the accuracy and reliability of financial
reports by reflecting the economic reality of business activities.
- Materiality and aggregation:
+ Omissions or misstatements of items are material if they could,
individually or collectively, influence the economic decisions of users taken
based on the financial statements.
+ Financial statements result from processing large numbers of
transactions or other events that are then aggregated into classes according
to their nature or function, such as 'revenue', 'purchases', 'trade receivables',
and 'trade payables'.
- Consistency of presentation: the presentation and classification of items in
the financial statements should stay the same from one period to the next,
unless:
+ There is a significant change in the nature of the operations or a
review of the financial statements indicates a more appropriate presentation.
+ A change in presentation is required by an IAS.
- Historical cost: Transactions are recorded at their cost when they are
incurred. It is a basic principle of accounting that the monetary amount at
which items are normally measured in financial statements is at historical
cost.
+ Numerous possibilities can be considered, including:
• The original cost (historical cost) of the machine.
• Half of the historical cost, on the ground that half of its useful life has
expired
• The amount the machine might fetch on the second hand market
(realizable value)
• The amount needed to replace the machine with an identical machine
(replacement cost) is the amount needed to replace the machine with a
more modern machine incorporating the technological advances of the
previous two years.
 • The machine’s economic value, ie, the amount of the profits it is
expected to generate for the company during its remaining life (present
value)

Question 3: Users of financial information and the needs

* The users of financial information:
- External users: Lenders, Consumer groups, Shareholders, External auditors,
Governments, Customers.
- Internal users: Managers, Officers/Directors, Budget Officers, Sales Staff,
Internal Auditors, Controllers.
* Information needs:
- Managers of the company: They need information about the company's
financial situation as it is currently and as it is expected to be in the future.
This is to enable them to manage the business efficiently and to make
effective decisions
- Shareholders of the company: They want to know how profitable the
company's operations are and how much profit they can afford to withdraw
from the business for their own use
- Trade contacts: Suppliers want to know about the company's ability to pay
its debts; customers need to know that the company is a secure source of
supply and is in no danger of having to close down
- Financial analysts and advisers need information for their clients or
audience. For example, stockbrokers need information to advise investors.
Credit agencies want information to advise potential suppliers of goods to
the company. Journalists need information for their reading public

Question 4: Fundamental qualitative characteristics and enhancing

qualitative characteristics
- Qualitative characteristics are the qualities or attributes that make financial
accounting information useful to the users
- The objective is to ensure that the information is useful to the users in
making economic decisions
- Financial information should be relevant and faithfully represent what it
purports to represent. The usefulness of financial information is enhanced if
it is comparable, verifiable, timely and understandable
* Fundamental Qualitative characteristic:
- Relevance – financial information is regarded as relevant if it can influence
users' decisions.
- Faithful representation means that financial information must be complete,
neutral and free from error.
* Enhancing Qualitative characteristic
- Comparability – it should be possible to compare an entity over time and
with similar information about other entities.
- Verifiability – if information can be verified (e.g. through an audit) this
provides assurance to the users that it is both credible and reliable.
- Timeliness – information should be provided to users within a timescale
suitable for their decision-making purposes.
- Understandability – information should be understandable to those that
might want to review and use it. This can be facilitated through appropriate
classification, characterization and presentation of information.

2. Chapter 2: The accounting equation

- ASSETS= LIABILITIES+ EQUITY
CASH+ EQUIP + SUPPLIES + RECEIVE= PAYABLE CAPITAL-
DRAWING= REVUNUE-EXPENSE.
Question 1 What is the accounting equation?
The accounting equation is considered to be the foundation of the double-
entry accounting system.
The accounting equation shows on a company's balance sheet whereby the
total of all the company's assets equals the sum of the company's liabilities
and shareholders' equity.

It is expressed as Assets = Liabilities + Equity

Question 2: Describe the basic elements of the Accounting Equation

(assets, liabilities, and equity).
2.1. Assets
Assets is a resource controlled by the entity as a result of past events and
from which future economic benefits are expected to flow to the entity.
● Assets represent the valuable resources owned by the company
● 2 types: current assets & non-current assets.
a, Current assets
An asset should be classified as a current asset when it is:
· Expected to be realized in, or is held for sale or consumption in, the entity's
normal operating cycle.
· Held primarily to be traded.
· Expected to be realized within 12 months after the reporting date.
· Cash or a cash equivalent that is not restricted in its use.
All other assets should be classified as non-current assets.
b, Non-current asset
Non-current includes tangible, intangible operating, and financial assets of a
long-term nature. Other terms with the same meaning can be used (eg
'fixed', 'long-term').
2.2. Liabilities
Liabilities are a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits.
● The liabilities represent its obligations

2.3. Equity
Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
Equity is also the amount invested in a business by the owners.
● Capital reserves usually have to be set up by law, whereas revenue
reserves are appropriations of profit.
With a sole trader, profit was added to capital. However, in a limited
company, share capital and profit have to be disclosed separately because
profit is distributable as a dividend but share capital cannot be distributed.
Therefore any retained profits are kept in the retained earnings reserve

Question 3 Analyze the effects of transactions in the accounting

equation
Every transaction affects two accounts, one with a debit entry and one with a
credit entry. The total debits must always equal the total credits for the
equation to remain balanced. If an account increases, it gets debited, and if
it decreases, it gets credited.

In every case, the total value on the left side (assets) equals the total value
on the right side (liabilities + equity). This double-entry system ensures
accuracy and completeness in recording financial transactions.

ASSETS = LIABILITIES + EQUITY

Increase Increase

Reduce Reduce

Increase and reduce Not change

Not change Increase and reduce

1. Assets:
● - Increase in Assets: When a business receives something of value,
such as cash, inventory, or equipment, the asset side of the equation
increases.
● - Decrease in Assets: If assets are used or sold, the asset side of the
equation decreases.
 2. Liabilities:
● - Increase in Liabilities: If the business incurs debts or obligations,
such as taking out a loan or purchasing goods on credit, the liabilities
side of the equation increases.
● - Decrease in Liabilities: Repaying debts or fulfilling obligations
decreases the liabilities side of the equation.
3. Owner's Equity:
● - Increase in Owner's Equity: Any contribution by the owner (such as
investments) or profits earned by the business increase the owner's
equity.
● - Decrease in Owner's Equity: Withdrawals by the owner or losses
incurred by the business decrease the owner's equity.

Question 4: What will happen if the accounting equation is not

balanced

If the accounting equation is not balanced, it indicates an error in the

financial records of a business. The accounting equation is a fundamental
principle in accounting, representing the relationship between a company's
assets, liabilities, and equity. The equation is:

{Assets} = {Liabilities} + {Equity}

● Inaccurate Financial Statements: Financial statements like the

balance sheet and income statement rely on the accounting equation.
An unbalanced equation throws off these reports, making them
misleading and unreliable.
● Poor Decision Making: Management uses financial statements to
make crucial decisions about the business. Inaccurate statements
based on an unbalanced equation can lead to bad investments, missed
opportunities, or even financial difficulties.
● Difficulty Identifying Errors: An unbalanced equation is a symptom,
not the root cause. You'll need to spend time finding the underlying
errors, which can be a tedious process.
● Potential Legal Issues: Auditors and regulatory bodies rely on
accurate financial statements. Unbalanced books could raise questions
about your accounting practices and potentially lead to legal trouble.

3. Chapter 3: Recording financial transaction

Question 1 What is a source document ?

● Source documents are the documents that are produced by or input
into a business's accounting system as the starting point to recording
the transactions of a business for accounting purposes.
 ● The source documents are essential to the bookkeeping and
accounting process as it provide evidence that a financial transaction
has occurred. During an accounting or tax audit, source documents
back up the accounting journals and general ledger as an indisputable
transaction trail.
o A source document describes all the basic facts of the
transaction, such as the amount of the transaction, to whom the
transaction was made, the purpose of the transaction, and the
transaction date.
Question 2: Some ways to manage source documents
One of the best ways to manage source documents is to manage it digitally.
🡺 to implement a process and technology that will automate and digitize
document management.
Establish a Filing System: Set up a systematic and organized filing
system for source documents. Categorize documents based on their nature,
such as invoices, receipts, bank statements, etc.
Consistent Data Entry Practices: Ensure consistency in data entry. Follow
a standardized format for entering information into the accounting system.
This helps prevent errors and makes it easier to locate specific transactions.
Timely Recording: Record transactions promptly. Waiting too long can lead
to errors or omissions. It's best to record transactions as soon as the source
documents are received.
Digital Documentation: Consider using digital tools for document
management. Scan and save electronic copies of source documents to
reduce physical paperwork. Cloud-based accounting systems can provide
convenient and secure storage.
Backup Systems: Implement backup systems for digital files to prevent
data loss. Regularly back up important financial documents to an external
drive or a secure cloud service.
Document Retention Policy: Develop a document retention policy.
Determine how long different types of documents need to be retained for
compliance and auditing purposes. Dispose of unnecessary documents
securely.
Reconciliation: Regularly reconcile source documents with the accounting
records. This ensures that all transactions are accurately captured, and
discrepancies are promptly addressed.
Use Technology: Explore accounting software that can automate data
entry and streamline the bookkeeping process. Many modern accounting
tools can directly import information from source documents, reducing
manual data entry.
Training and Education: Provide training to the bookkeeping staff on
proper documentation practices. Ensure that everyone involved in the
process understands the importance of accurate and complete source
documents.
Communication with Stakeholders: Maintain open communication with
relevant stakeholders, such as vendors and clients. Clarify expectations for
documentation and request complete and accurate invoices and receipts.

4. Chapter 4: the use of ledger entrySEEEEEEEEEEEEEEEEE

Question 1: Define a ledger account. How many types of ledger

accounts?

A Ledger Account is a journal in which a company maintains the data of all

the transactions and financial statements. The company’s general ledger
account is organized under the general ledger with the balance sheet
classified into multiple accounts: asset, liability, equity, revenue, or expense.
Each account in the ledger represents an individual element of a company's
financial position or performance.

There are several types of ledger accounts, broadly categorized into five
main groups:

● Asset Accounts:
● A resource controlled by an entity as a result of past events and
from which future economic benefits are expected to flow to the
entity: Inventories, Machinery, Trading securities, Receivable,
Cash in bank, Cash on hand, Factory buildings, Motor vehicles,
Furniture
● Liability Accounts:
● A present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow of
resources embodying economic benefits: Payable, loan
● Equity Accounts:
● The residual interest in the assets of an entity after deducting its
liabilities: Capital, Net profit (Undistributed profit after tax)
● Revenue Accounts:
● Arises in the course of the ordinary activities of an entity and is
referred to by a variety of different names including sales, fees,
interest, dividends, royalties, and rent:
● Expense Accounts:
 ● Decreases in economic benefits during the accounting period in
the form of outflows or depletions of assets or incurrences of
liabilities that result in decreases in equity, other than those
relating to distributions to equity participants: Salaries, rent paid,
bank interest paid, insurance expenses, advertising expenses

Question 2: What are accounting journal entries?

Accounting entries are understood as the activity of recording financial

transactions that arise in the ledger. It includes information such as the
accounts involved, the amount affected, and whether each account is
debited or credited. Journal entries are an important accounting component
because they provide a detailed and chronological record of all financial
transactions.

More specifically, a journal entry typically includes the following:

● Date: Date the transaction took place.

● Account title: Name of the account(s) affected by the transaction.
● Debit/Credit: Whether the account(s) are debited or credited.
● Amount: The amount involved in the transaction.
● Description: Brief description of the transaction.

Question 3: How to write an accounting journal entry?

● Identify the Accounts Affected: Analyze the transaction to
determine which accounts in your general ledger will be impacted. This
typically involves two accounts: one being debited (increased) and the
other credited (decreased).
● Understand Account Types: Remember that accounts have normal
balances. Asset, expense, and dividend accounts have debit balances
and increase with debits. Conversely, liability, equity, and revenue
accounts have credit balances and increase with credits.
● Determine Debit and Credit Amounts: Assign the correct amount
to be debited and credited to the respective accounts. The amounts
should be equal to ensure the accounting equation remains balanced
(Assets = Liabilities + Shareholders' Equity).
● Date and Description: Include the date of the transaction for proper
chronological order. Also, provide a brief description of the transaction
to enhance clarity for future reference.

5. Chapter 5: trial balance

Question 1: Definition of trial balance and steps for preparing a trial
balance

- Definition of trial balance: A trial balance is a report that lists the

balances of all general ledger accounts of a company at a certain point in
time. The accounts reflected on a trial balance are related to all major
accounting items, including assets, liabilities, equity, revenues, expenses,
gains, and losses. It is primarily used to identify the balance of debits and
credit entries from the transactions recorded in the general ledger at a
certain point in time.

- Steps for preparing a trial balance:

● The first step: You must have a collection of ledger accounts before
you draw up a list of account balances.
● The second step: balancing ledger accounts.
At the end of an accounting period, a balance is struck on each
account in turn. This means that all the debits on the account are
totaled and so are all the credits. If the total debits exceed the total
credits there is said to be a debit balance on the account; if the credits
exceed the debits then the account has a credit balance.
● The third step is collecting the balances.
If the basic principle of double entry has been correctly applied
throughout the period it will be found that the credit balances equal
the debit balances in total

Question 2: Purpose of trial balance and its content

A trial balance can be used to test the accuracy of the double-entry
accounting records. It works by listing the balances on ledger accounts,
some of which are debits and some credits. Total debits should equal total
credits. The content of a trial balance typically includes all ledger
accounts with their respective debit and credit balances.

6. Chapter 6 The Basic Financial Statement

Question 1: What are financial statements?

Financial statements are formal records of the financial activities and
position of a business, person, or other entity. They provide information
about the entity's financial performance, changes in financial position,
and cash flows. The purpose of financial statements is to provide relevant
and reliable information to users, such as investors, creditors, and
management, to make informed decisions about the entity.
Question 2: The types of financial statements?
1. Income Statement (also known as Statement of Comprehensive Income
or Profit and Loss Statement): It shows the revenues, expenses, and net
income or loss of an entity over a specific period.
2. Balance Sheet (also known as Statement of Financial Position): It
presents the assets, liabilities, and equity of an entity at a specific point in
time.
3. Statement of Cash Flows: It provides information about the cash inflows
and outflows of an entity during a specific period.
4. Statement of Changes in Equity (also known as Statement of Retained
Earnings): It shows the changes in equity of an entity over a specific
period, including contributions, distributions, and net income or loss.

II. MCQs
1. Chapter 1: Overview of accounting

2. Q Answe Explanation
ue r
st
io
n
1.1. D The qualitative characteristics according to
Conceptual framework are: Relevance, Faithful
representation, Comparability, Verifiability,
Timeliness and Understandability.
1.2. C Accounting principles include Materiality and
aggregation, Consistency of presentation (or
Conservatism) and Historical cost.
1.3. D The qualitative characteristics according to
Conceptual framework are: Relevance, Faithful
representation, Comparability, Verifiability,
Timeliness and Understandability.
1.4 C The accruals concept shows the effects of
transactions and other events are recognized when
they occur and are recorded in the accounting
records and reported in the Financial Statements of
the related period.
1.5. D Users of accounting information include:
Management, HMRC, Owners, Bodies, Financial
analysts and advisers, Government agencies,
 Employees, Finance provider, Trade contacts and
The public.
1.6. A The qualitative characteristics according to IASB’s
Conceptual framework are: Relevance, Faithful
representation, Comparability, Verifiability,
Timeliness and Understandability.
1.7. D Fundamental accounting assumptions include:
Going concern and Accrual basis.
1.8. C Enhancing qualitative characteristic include:
Comparability, Verifiability, Timeliness and
Understandability.
1.9. A Debit entries increase assets and expenses and
decrease liabilities, equity and revenue.
1.10. A The fundamental qualitative characteristics
contains: Comparability, Verifiability, Timeliness and
Understandability.
1.11. D Financial accounting information describes the
financial resources of an entity, providing
information for external decision-makers to assess
the financial health and performance of economic
entities.
1.12. A External user of accounting information consists of:
Lenders, Shareholders, Governments, Consumer
groups, External auditors and Customers.
1.13. D External user of accounting information consists of:
Lenders, Shareholders, Governments, Consumer
groups, External auditors and Customers.
1.14. B The cost principle emphasizes historical costs,
objectivity, and verifiability to enhance the reliability
of financial reporting.
1.15. B A basic principle of accounting is that the monetary
amount at which items are normally measured in
financial statements is at historical cost. This means
that the cost of an asset is based on the actual
amount paid in the transaction to acquire it, which is
usually paid in cash, the fair market value of other
property or services given up, or the fair value of
 securities issued in exchange.
1.16. D GAAP is the set of accounting rules set forth by the
Financial Accounting Standards Board (FASB) that
U.S. companies are expected to follow when putting
together their financial statements.

1. 2. chapter 2 The accounting equation

Questi Answer Explanation

on

2.1 A. Liabilities + According to the accounting equation:

Asset = Capital Asset = Liabilities + Capital

2.2 C. $500 Owner’s equity = Assets - Liabilities = $750 -

$250 = $500

2.3 B. Statement of
profit or loss

2.4 C. Not change ● Increase in assets: The asset purchased

is recorded as an increase in the
company's total assets.
● Decrease in cash: The amount of cash
used to purchase the asset decreases
the company's cash holdings, which is
also considered an asset.
Since both assets and cash are both part of
the overall "assets" category, their change
cancels each other out in terms of their
impact on owner's equity. The assets section
increases by the value of the new asset, but
the cash portion within assets decreases
proportionally by the same amount.
Therefore, the net effect on owner's equity
remains neutral.

2.5 D. $300 000 We have: Assets = Liabilities + Capital

-> Assets = $130 000 + $170 000 = $300
000

2.6 B. A credit records A credit records an increase in liabilities -> A

 an increase in credit records an increase in assets
assets

2.7 C. $440 000 We have: Assets = Liabilities + Owner’s

equity
-> Liabilities = Assets - Owner’s equity
-> Liabilities = $820 000 - $380 000 = $440
000

2.8 A. Must be equal All debits and credits must be equal

2.9 B. Increase by We have: Assets = Liabilities + Owner’s

$100 000 000 equity
-> Assets + $80 000 000 = Liabilities - $20
000 000 + Owner’s equity + x (x is the
number of changing of owner’s equity)
-> Assets + $80 000 000 = Liabilities +
Owner’s equity - $20 000 000 + x
-> Assets + $80 000 000 = Assets - $20 000
000 + x
-> $80 000 000 = x - $20 000 000
-> x = $100 000 000

2.10 B. A = C + L + (R- We have: Assets = Liabilities + Owner’s

E) equity
-> Assets = Liabilities + Owner’s capital +
Revenues - Expenses

2.11 B. Capital account

When the owner withdraws cash from a sole
proprietorship business, it reduces the
owner's equity in the business, which is
tracked in the capital account.

2.12
C. Increase in When the owner invests personal cash in the
Assets and business, it increases both the business's
Increase in assets (cash) and the owner's equity (capital)
Owner's (or
Stockholders')
Equity
2.13
D. Not change When the company purchases equipment
total assets with its cash, the assets simply change form
from cash to equipment. The total value of
the assets remains the same.

2.14
D. 1300 Asset = 2,000+ 500
Liabilities = 200+ 1,000
Equity= asset - lia = 1,300

2.15
C. Increase in When the owner contributes a personal asset
Assets and (the truck) to the business, it increases the
Increase in business's assets and also increases the
Owner's (or owner's equity, as this is essentially an
Stockholders') investment in the business.
Equity

2.16 D. Added in
capital A favorable balance of the profit and loss
account (meaning a net profit) increases the
owner's equity, and this is reflected by adding
the profit to the capital account.

2.17 The correct statement for the balance sheet

C. Assets = accounting equation is:
liabilities - owner's
equity Assets = Liabilities + Owner's Equity

2.18
D. Both cash sales Revenue includes all income earned by the
and credit sales business through sales, regardless of whether
they are cash or credit transactions.

2.19 0. Purchase of
land on credit When land is purchased on credit, the asset
(land) increases, but the liability (account
 payable) also increases by the same amount,
leaving the owner's equity unchanged.

2.20 D. The owner

contributed This transaction involves the owner
his/her personal contributing a personal asset (truck) to the
truck to the business, which would increase the assets of
business. the business but would not affect liabilities. In
the other transactions:

● Purchase of land from the proceeds of a

bank loan: This would increase both
assets (land) and liabilities (bank loan).
● Repays the bank that had lent money to
the company: This would decrease both
assets (cash) and liabilities (bank loan).
● Purchases a significant amount of
supplies on credit: This would increase
both assets (supplies) and liabilities
(accounts payable).

3. chapter 3: Recording financial transaction

Questio
Answer Explanation
n
A debit note might be issued to a supplier as a
1 A means of formally requesting a credit note from
that supplier.
The main books of original entry are:
- Sales day book
- Petty cash book
2 B - Purchases day book
- The payroll
- Cash book
- The journal
3 C
4 C
5 C
6 B
A Petty cash voucher serves as evidence that an
item of expenditure from petty cash has been
approved. It confirms that cash has been issued
7 A
for an approved expense, while the receipt merely
shows the amount spent, and the petty cash book
records the transaction in the bookkeeping system
Statement 1 is False.Cash purchases are recorded
in the cash book, not the purchase day book. The
purchase day book, also known as the purchases
journal, is specifically used to record credit
purchases made by a business. This means that
any purchase where the business owes the
supplier money and will pay later is recorded in
the purchase day book. In contrast, the cash book
tracks all cash transactions, including both cash
purchases and cash payments made for any other
expenses. So, when a business buys something
outright with cash, that transaction is recorded in
the cash book.
8 B It's important to separate these two records
because they track different aspects of a
business's financial activity. The purchase day
book helps manage outstanding debts to
suppliers, while the cash book provides a
comprehensive view of all cash inflows and
outflows.

Statement 2 is FALSE. The sales day book is used

to keep a list of invoices issued to customers, not
invoices received from suppliers. Invoices received
from suppliers are recorded in the purchases day
book
9 B
 Suppliers’ invoices and credit notes serve as
source documents for credit purchases. Invoices
10 A
and credit notes to customers are related to sales,
not purchases
A credit note would be issued by the supplier to
11 C rectify the overcharge and adjust the customer’s
account
12 C
13 A
14 C
Source documents: are the documents which
are produced by or input into a business's
15 A accounting system as the starting point to
recording the transactions of a business for
accounting purposes
Cash Book is not an accounting source document.
A cash book is part of the accounting system and
16 D
records cash transactions, but it is not the initial
source document.
17 B
18 C
19 C
20 A
Cash register tapes provide a detailed record of
transactions made from petty cash, including the
amount disbursed, the date, and often the
21 A
purpose of the expense. This makes them a
suitable form of evidence for tracking the
disbursement of funds from petty cash.
22 B
23 A Source documents provide the necessary
information to complete journal entries. These
documents serve as evidence of transactions and
include details such as the date, amount, parties
involved, and nature of the transaction. Journal
 entries are then recorded based on the
information contained in these source documents.
A receipt is used to record the receipt of cash (not
payment). When a payment is made, a receipt is
24 B issued to acknowledge that the payment has been
received. So, a receipt serves as proof that the
payment has been made.
25 C
A purchase order is sent by the buyer to the
vendor to specify the details of the goods or
26 B services being ordered, including the quantity,
description, price, delivery date, and any other
relevant terms or instructions.
A delivery note is prepared by the seller to
confirm that goods have been dispatched or
delivered to the buyer. It typically includes details
27 B such as the description of the goods, quantity
shipped, date of dispatch, and other relevant
information pertaining to the delivery of the
goods.
A purchase order is sent by the buyer to the
vendor to specify the details of the goods or
28 D services being ordered, including the quantity,
description, price, delivery date, and any other
relevant terms or instructions.
A debit note is prepared by the buyer to notify
the seller of returned goods or an adjustment in
the amount owed. The debit note serves to
29 C
formally request a reduction in the amount
payable to the seller and reflects the decrease in
the buyer's accounts payable to the seller.
Examining the source documents is the first
step in the accounting cycle. This step involves
reviewing and analyzing the original documents
30 A
that provide evidence of financial transactions,
such as invoices, receipts, purchase orders, and
bank statements.
31 A A bank statement provides a summary of
 financial transactions that occurred in a bank
account over a specific period, typically a month.
It includes details such as deposits, withdrawals,
transfers, and any fees charged by the bank.
Source documents provide evidence of
transactions and are used as the basis for
32 C
recording financial entries in the accounting
records.

4. chapter 4: the use of ledger entry

Questi Answer Explanation

on

4.1 D. $180,000 We have:

● The initial net assets was: $101,700
● The profit earned during the year was:
$72,500
● The proprietor injected new capital of
$8,000 => which increase the net assets
● However, the proprietor also withdrew
goods for private use, costing $2,200 =>
which would decrease the net assets.
Therefore, to calculate the closing net assets,
we need:
Closing Net Assets = Initial Net Assets + Profit
Earned + Capital Injection - Private

⇔ Closing Net Assets = $101,700 + $72,500 +

Withdrawals

⇔ Closing Net Assets = $180,000

$8,000 - $2,200

=> The correct answer is D. $180,000.

4.2 B. $55,500 We have:

● Profit = $35,400
● New capital = $10,200
● Monthly withdrawal = $500
● Net assets at the end of 20X9 = $95,100
Therefore, to calculate the capital at the
beginning of the year we need:
Beginning Capital = Closing net assets -
Change in net assets
 -> Closing net assets were given as $95,100.
So to calculate opening capital, we just need to
find the change in net assets during the period.

So, Profits = Change in net assets - Capital

introduced (gia tang von) + Drawings
=> Change in net assets = Profits + Capital

⇔ Change in net assets = 35,400 + 10,200 -

Introduced - Drawings

⇔ Change in net assets = $39,600

(500 x 12)

(Drawings = $500 x 12 because each month

withdraw $500, there are 12 months in a year)
=> Beginning capital = Closing net assets -

⇔ Beginning capital = $95,100 - $39,600 =

Change in net assets

$55,500.
=> The correct answer is B. $55,500.

4.3 D. Dr Drawings
$800
Journal entry for goods taken for personal use:
Cr Sales $800

● Cost of goods taken: $800

Normal selling price: $1,600

The correct journal entry is:
Dr Drawings $800
Cr Inventory $800
Dr Drawings $800
Cr Sales $800
The answer is D. Dr Drawings, Cr Sales.

4.4 C. The Profit and bank balance are not the same: Profit
lengthening of the is calculated on your income statement,
period of credit reflecting revenue minus expenses. A bank
given to balance, on the other hand, shows your actual
customers cash flow. They can be different due to timing
and non-cash expenses.
Lengthening customer credit terms delays cash
inflow: While extending credit to customers
might increase your sales and therefore profit, it
 also means you receive the payment later.
This creates a lag between recognizing the
revenue (and therefore the profit) and actually
receiving the cash, leading to a potential
decrease in your bank balance.
The other options are less likely to cause this
specific scenario:
A. Sale of non-current assets at a loss: This
would indeed reduce your bank balance due to
the loss realization, but it wouldn't necessarily
affect your profit, as the loss would be factored
into the profit calculation.
B. Depreciation charge: Depreciation is a non-
cash expense, meaning it reduces your profit on
paper but doesn't affect your immediate cash
flow.
D. Lengthening supplier credit: While this might
improve your short-term cash flow by delaying
payments, it wouldn't directly impact your profit
or long-term bank balance.

4.5
May's total profit or loss for the year ended 31
A. $44,000 profit December 20X2:

● Net assets at the beginning of the year

(1 January 20X2): $138,000
● Capital introduced during the year:
$50,000
● Drawings during the year: $48,000

Net assets at the end of the year (31

December 20X2): $184,000
Total profit or loss = (Net assets at the end +
Drawings) - (Net assets at the beginning +
Capital introduced)
Total profit or loss = ($184,000 + $48,000) -
($138,000 + $50,000)
Total profit or loss = $232,000 - $188,000 =
$44,000 profit
4.6 The correct ledger entries for the transactions
C. Dr Purchases of Jones Co are:
$400, Dr Trade
Payable $250, Cr 1. Payment to J Bloggs for a cash purchase:
Cash $650. ● Debit Cash: $400
● Credit Purchases: $400

This is because the purchase from J Bloggs was

a cash transaction, resulting in a decrease in
cash (debit) and an increase in the cost of
goods purchased (credit).

0. Payment to J Doe for invoice:

● Debit Purchases: $250
● Credit Trade Payables: $250

This is because the payment to J Doe settles an

outstanding invoice, decreasing the amount
owed to suppliers (credit to Trade Payables)
and increasing the cost of goods purchased
(debit to Purchases).

4.7 0. Dr T Tallon had the following transactions:

Receivable $150, 1 Sale of goods on credit for $150 to FRogit
Dr Sale Returns 2 Return of goods from B Blending originally
$300, Cr Sales sold for $300 in cash to B Blending. What are
$150, Cr Cash the correct ledger entries to record these
$300 transactions?
Solution:
1. The first transactions:
Debit: Accounts Receivable - $150
Credit: Sales - $150
This entry records the sale of goods on credit
to FRogit, increasing the Accounts Receivable
account and the Sales revenue account.
0. The second transactions:
Debit: Sales Returns - $300
Credit: Cash - $300
This entry records the return of goods from B
Blending. Since the original sale was for cash,
the Cash account is credited for the full
amount, and the Sales Returns account is
debited to reduce sales revenue.
 Account Deb Cred Explanation
it it

Accounts $15 Increase for sale on

Receivable 0 credit to FRogit

Sales $15 Record revenue

0 from sale to FRogit

Sales $30 Record return of

Returns 0 goods originally
sold to B Blending

Cash $30 Refund cash for

0 returned goods

4.8 C. The purchase - Answer A: “The sales returns day book” is the
returns day book book of returned goods. This is a book for
businesses to record products that customers
have returned to them, not a book to record
items sent back by businesses to distributors,
so answer A is incorrect.
- Answer B: “The cash book” is the cash book.
This is the book that will record the business's
expenses/receipts, and cannot be used to
record increased invoices due to returning
items. So answer B is wrong.
- Answer C: “The purchase returns day book”
means the book of goods returned to the
supplier. This type of book is used to record
the value of items that businesses return to
distributors.
- Answer D: “The purchase day book” is the
purchase book. This is where the business's
purchase debit invoices to suppliers are
recorded, not where the value of returned
goods is recorded, so answer D is incorrect.

4.9 ● The information provided is for June 30,

D. $186,450 Dr. 20X6, and we don't have any details
about transactions between then and
October 1, 20X0.
● Assuming no transactions occurred
during that period, the balance would
 remain the same.
● Therefore, the closing balance on June
30, 20X6 ($186,450), which is on the
debit side, becomes the opening balance
for October 1, 20X0.

4.10 B. $14,000 CR ● The information provided is specifically

about the trade payables account at 30
September 20X1.
● The "Balance b/d" of $14,000 represents
the opening balance of the account for
the period that ended on September 30,
20X1.
● Since we don't have any details about
the company's transactions before
October 1, 20X0, we can assume that
this opening balance from September 30,
20X1, would also be the closing balance
for the previous year on October 1, 20X0.
● Therefore, the trade payables balance in
the trial balance at 1 October 20X0
would be $14,000 CR.

It's important to note that the "Balance c/d" of

$11,900 and the "Purchases" amount of
$19,500 are not relevant to determining the
balance at 1 October 20X0, as they represent
transactions that occurred within the period
ending on September 30, 20X1.

4.11 B. An account is - Answer A: This statement is generally true for

an individual expense and asset accounts, where debits
accounting represent increases. However, for liability and
record of equity accounts, the opposite is true; credits
increases and represent increases. Therefore, this statement
decreases in is not universally true for all accounts.
specific asset, - Answer C: While it's true that there are
liability, and numerous accounts for different types of
owner’s equity assets and liabilities, there can be multiple
items. owner's equity accounts depending on the
business structure. For example, a sole
proprietorship might have a single "Capital"
account, while a partnership might have
 separate "Capital" accounts for each partner.
- Answer D: Similar to the first statement, this
is generally true for expense and asset
accounts, but for liability and equity accounts,
credits represent increases. So, this statement
also lacks universality.
->Answer B, regardless of whether the
changes are increases or decreases, and there
can be multiple accounts for each category
(assets, liabilities, owner's equity) depending
on the specific items being tracked.

4.12 C. Increase Debits represent the left side of the accounting

assets and equation, which shows assets on the left and
decrease liabilities and equity on the right. When a debit
liabilities. is made to an asset account, it increases the
asset balance, and when a debit is made to a
liability account, it decreases the liability
balance

4.13
A revenue account is increased by credits.
D. is increased Revenue accounts are part of the income
by credits. statement, which shows a company’s revenues
and expenses over a period of time. Revenues
are recorded as credits because they increase
the company’s net income

4.14
D. assets, - Assets: Debits increase asset accounts. When
expenses, and a company acquires an asset (such as cash,
drawing. accounts receivable, supplies, or equipment), it
records a debit to reflect the increase in value.
For example, when a business receives cash, it
debits the Cash account.

- Expenses: Debits increase expense accounts.

Expenses represent the costs incurred by a
business to generate revenue. When the
business incurs an expense (like rent, salaries,
utilities, or cost of goods sold), it records a
 debit to the respective expense account,
reflecting the increase in costs.

- Drawing: Debits increase the drawing

account. When an owner withdraws funds from
the business for personal use, it is recorded as
a debit to the drawing account. This reflects
the reduction of the owner's equity in the
business.

4.15 B. Assets =
Liabilities + The expanded accounting equation is:
Owner's Capital Assets = Liabilities + Owner's Capital –
Owner's Owner's Drawings + Revenues - Expenses.
Drawings
Revenues -
Expenses.

4.16 B. Preparing a Entering and posting journals, analyzing

statement of transactions, and posting ledgers are all part of
comprehensive the recording process. Preparing a statement
income. of comprehensive income is a step in the
reporting process, not the recording process.

4.17 A. It is not a book A journal is indeed a book of original entry

of the original where transactions are first recorded. The
entry. journal is used to record transactions before
they are posted to the ledger

4.18 C. A debit to The purchase of supplies on account should

Supplies and a result in a debit to Supplies and a credit to
credit to Accounts Payable. This is because the
Accounts company is acquiring an asset (supplies) and
Payable incurring a liability (accounts payable)

4.19 B. Assets, The typical order in a ledger is assets,

liabilities, liabilities, owner's equity (including capital and
owner's capital, drawings), revenues, and expenses.
 owner's
drawings,
revenues,
expenses.

4.20 C. Is collection of A ledger contains all account balances, not just

the entire group assets and liabilities. It's not a book of original
of accounts entries, just a grouping of accounts.
maintained by a
company.

4.21 D. Transfers Posting involves copying information from

journal entries to journals to individual accounts in the ledger. It
ledger accounts. doesn't occur before journalizing or
transferring data back to the journal.

4.22 C. $11,000 Before posting the payment, the balance of

Accounts Payable was $16,000.
After posting the payment, the balance of
Accounts Payable would be reduced by $5,000,
resulting in a new balance of $16,000 - $5,000
= $11,000.

5. chapter 5: the trial balance

Question Answer Explanation

Debits and credits must always balance in a

5.1 C
trial balance. This means the total of all debit
entries must equal the total of all credit
entries. In option C, omitting a $800 credit
entry (commission receivable) would leave
the debits $800 higher than the credits.

In accounting, purchases increase payables

5.2 A
(credit) and inventory (debit). So omitting a
purchase from payables means no credit to
offset the debit to inventory, causing a $50
 imbalance.

5.3 B This is an error of principle because the

purchases account is typically used for the
purchase of inventory, not for the purchase of
non-current assets like plant and machinery.
This error violates the principle of proper
classification and can distort the financial
statements.

5.4 D Since the purchase return has been correctly

entered in the supplier's account, it would
also be included on the credit side of the trial
balance. Therefore, the credit side of the trial
balance would be $48 less than it should be,
while the debit side would be $48 more than
it should be. This results in a difference of $96
between the two sides, with the debit side
being $96 more than the credit side.

5.5 C Errors of principle, such as recording a capital

expenditure transaction as revenue
expenditure, would not be revealed by a trial
balance because it would not create an
inequality between total debits and total
credits. Transposition errors are errors

where figures (digits) are written in the wrong

order in either a credit or a debit entry. This
would create an imbalance between credits
and debts, and so the error would be
indicated by extracting a trial balance.

5.6 C 10000 (balance at start) + Sales on credit –

80000 (cash received from credit sales) =
9000

So 10000 + sales on credit – 80000 = 9000

 Sales on credit = 79000

5.7 A Sales and refunds are posted on the debit

side, changes in the allowance for receivables
do not appear in the control account.

Control accounts, like the receivables ledger,

5.8 B
contribute to the accuracy of the trial balance
by ensuring the totals of their subsidiary
accounts (individual customer accounts) are
in balance. However, they don't guarantee
the entire trial balance balances

5.9 A all of A features all items that decrease the

money owed by customers and belong on the
credit side of the receivables control account

5.10 D Trade payables are a current liability.

5.11 C In preparing a bank reconciliation,

lodgements recorded before date in the cash
book but credited by the bank after date
should reduce an overdrawn balance in the
bank statement.If a cheque received from a
customer is dishonored after date, a credit
entry in the cash book is required. Bank
charges not entered in the cash book can be
entered, and the cash book balance adjusted.

5.12 C A discount received reduces the amount

owing. An invoice from a supplier increases
the amount owing.

So $31.554 - $53 + $622 = $32.123

5.13 The correct answer is A. $2,250
Starting Balance: $3,500

Materials Payment:
- Materials cost: $2,000
- Trade discount: 20% of $2,000
= 0.2 x $2,000 = $400
- Net amount for payment after trade discount:
$2,000 - $400 = $1,600
- Cash discount: 10% of $1,600
= 0.1 x $1,600 = $160
- Amount paid for materials:
$1,600 - \$160 = $1,440

Received Cheque
- Cheque amount: $200
- Cash discount:
5% of $200 = 0.05 x $200 = $10
- Net amount received:
$200 - $10 = $190

Total Changes:
- $3,500 - $1,440 + $190 = $2,250

5.14 The correct option is: C. Failing to write off a bad debt of $ 130

A suspense account with a credit balance typically indicates an error or

omission that has resulted in an overstatement of assets or income. In this
case, a credit balance of $ 130 suggests that there might be an unrecovered
bad debt of $ 130.

5.15 The correct answer is C. $ 3,000 paid for repairs to plant has
been debited to the plant asset account.

This error would result in an understatement of expenses and an

overstatement of the plant asset account. When this error is corrected by
debiting the repairs expense and crediting the plant asset account, it would
reduce the difference between the debit and credit totals in the trial balance.

5.16 The correct answer is C. 2 and 4 only

The errors that would require an entry in the suspense account are:
2. Cash received from the sale of a non-current asset was correctly entered
in the cash book but was debited to the disposal account.
4. Goods taken from inventory by the proprietor had been recorded by
crediting drawings account and debiting purchases account.

5.17 The correct answer is B. Credit $210.

The original balance on the suspense account was determined by analyzing

the errors and their impact on the trial balance. The errors collectively
resulted in a credit balance of $200. Since the original balance on the
suspense account is the opposite of the total impact, it would be a credit
balance of $210.

5.18 The correct answer is C. Undercasting the sales day book by

$100

A suspense account with a debit balance suggests that there are more debits
than credits in the accounting records, indicating potential errors that result
in an understatement of liabilities or an overstatement of expenses.

Option C, undercasting the sales day book by $100, would result in fewer
credits being recorded for sales. This error effectively reduces the overall
credit balance in the accounts, contributing to a debit balance in the
suspense account.

5.19 The correct answer is A. 3 and 4

The errors that would require an entry to the suspense account as part of the
process of correcting them are:

3. $ 9,500 paid for rent was debited to the rent account as $ 5,900 .
- This error leads to an understatement of expenses and an overstatement
of net income. To correct this, an entry is needed to debit the correct amount
to the rent account and credit the suspense account.

4. The total of the discount allowed column in the cash book had been
debited in error to the discounts received account.
 - This error results in an overstatement of discounts received and an
understatement of expenses. To correct this, an entry is required to debit the
correct account for discount allowed and credit the suspense account.

5.20 The correct answer is A. is a list of accounts with their balances

at a given time.

A trial balance is a list of accounts with their balances at a specific point in

time. It is prepared to ensure that the total debits equal the total credits in
the accounting system. The purpose of a trial balance is to check the
arithmetic accuracy of the ledger accounts and provide a snapshot of the
financial position of the business at the given moment.

5.21 The correct answer is C. A $100 cash drawing by the owner is

debited to Owner's Drawings for $1,000 and credited to Cash for
$100.

This is an error because the debit and credit amounts do not match, resulting
in an imbalance in the trial balance.

5.22 The correct answer is A. $131,000

The accounts and their balances given:

- Cash: $5,000 (debit)

- Service Revenue: $85,000 (credit)
- Salaries and Wages Payable: $4,000 (credit)
- Salaries and Wages Expense: $40,000 (debit)
- Rent Expense: $10,000 (debit)
- Owner's Capital: $42,000 (credit)
- Owner's Drawings: $15,000 (debit)
- Equipment: $61,000 (debit)

Sum up the balances in the debit column:

$5,000 + $40,000 + $10,000+ $15,000+ $61,000 = $131,000

6. chapter 6: financial statement

Answe
r

1e 1. Accounting e. The basic tool of accounting, stated

equation as Assets = Liabilities + Equity

2a 2. Asset a. An economic resource that is

expected to be of benefit in the future

3i 3. Balance sheet i. Reports on an entity's assets,

(SOFP) liabilities, and stockholders' equity as
of a specific date

4f 4. Expense f. Decreases in equity that occur in the

course of selling goods or services

5j 5. Income statement j. Reports on an entity's revenues,

expenses, and net income or loss for
the period

6b 6. Liability b. Debts are owed to creditors

7d 7. Net income d. Excess of total revenues over total

expenses

8c 8. Net loss c. Excess of total expenses over total

revenues

9g 9. Revenue g. Increases in equity that occur in the

course of selling goods or services

10h 10. Statement of cash h. Reports on a business's cash

flow receipts and cash payments during a
period

11k 11. Statement of k. Reports how the company's

retained earnings retained earnings balance changed
from the beginning to the end of the
period