FA1 PRACTISE QUESTIONS

FOR MID TERM PREP

1. Which of the following correctly describes the function of a credit note issued by a supplier
to one of its customers?
A. A demand for payment
B. An agreed allowance which can be deducted from the next invoice payment
C. A loan available to the customer
D. A document used by the supplier to cancel part or all of a previously issued invoice

2. Which of the following correctly describes the term 'debit note'?

A. It is issued by a supplier to a customer to demand payment in full for goods supplied
B. It is issued by a customer to a supplier to request a credit note
C. It is issued by a customer when goods are delivered
D. It is issued by a customer to a supplier to cancel an invoice received

3. What is a 'trade discount'?

A. A reduction in the amount of an invoice given by the supplier if a customer pays
promptly
B. A price reduction which a supplier applies to a selection of goods on special offer
C. A refund which a supplier agrees with an individual customer after an invoice has been
sent at full price
D. A reduction in the invoice price by a supplier because of the terms of trade agreed with
an individual customer

4. Which of the following correctly explains sales tax?

A. A tax on business profits
B. A tax levied on the sale of goods and services which is administered and collected by the
government
C. A tax levied on the sale of goods and services which is administered by the government
D. A tax levied on the sale of goods and services which all businesses must pay

5. What is the purpose of a remittance advice?

A. It provides details of amounts being paid
B. It identifies goods that have been received by the business
C. It identifies goods that have been despatched by the business
D. It provides details of cheques to be issued

6. The bookkeeper of a business makes the following entries in the books of account:
DR Office premises $500,000
CR Payables $500,000
These entries record which of the following business transactions?
 A. The business has taken out a bank loan to refurbish the head office
B. The business has paid an outstanding invoice for repairs to office premises
C. The business has purchased a non-current asset on credit
D. The business has purchased a non-current asset for cash

7. X Co purchases goods with a list price of $100,000 subject to a 5% trade discount. X Co is

allowed
2.5% cash discount for payment within 30 days from invoice date. Assuming the discount is
taken, how much will X pay? (Ignore sales tax).
A. $92,625
B. $102,375
C. $97,500
D. $95,000

8. X starts a business with $50,000 cash, buying inventory $10,000 from cash and paying
business
expenses of $1,000. Inventory is purchased on credit for $5,000. Following these transactions,
what is
the capital of X's business?
A. $39,000
B. $49,000
C. $50,000
D. $54,000

9. A business receives an accountant's bill for $500. Which of the following statements correctly
shows the effect upon the accounting equation of the business, assuming the bill is unpaid?
A. Assets decrease, liabilities increase
B. Capital decreases, liabilities increase
C. Capital increases, liabilities decrease
D. Assets decrease, capital decreases

10. Which of the following statements concerning a debit entry is correct?

A. It records a decrease in assets
B. It records a business expense
C. It records a sale
D. It records an increase in the liabilities of a business

11. Which of the following statements concerning credit entries is correct?

A. Credit entries record decreases in capital or liabilities
B. Credit entries record increases in assets
C. Credit entries record increases in profits
 D. Credit entries record increases in expenses

12. Which of the following correctly records the repayment of a loan of $10,000 plus
outstanding interest $500?
A. Assets – $10,500, capital – $10,500
B. Assets + $10,500, Liabilities + $10,500
C. Assets – $10,500, Liabilities – $10,000, Expenses + $500
D. Assets – $10,500, Liabilities – $10,500

13. A trade receivable is?

A. A person owing money to the business in return for goods supplied
B. A person to whom the business owes money in return for goods supplied
C. A person to whom the business owes money which was lent to finance the trading
operations of the business
D. A person who has purchased goods from the business

14. Which of the following is an example of an expense to the statement of profit and loss?
A. Insurance of goods in transit to customers
B. Import duties charged on a new non-current asset for the business
C. Delivery and installation costs of a new non-current asset
D. A new delivery van

15. A business buys a machine for $500 (cash) and pays machinery insurance $50 (cash). Which
of the following shows the correct double entry for this transaction?
A. Debit machinery $550, credit cash $550
B. Debit cash $550, credit machinery $550
C. Debit machinery $500, credit cash $550, debit insurance $50
D. Debit cash $550, credit machinery $500, credit insurance $50

16. Which of the following statements is correct?

A. Sales invoices are recorded in the sales returns daybook and are summarised and
posted to the receivables ledger
B. Purchase invoices are recorded in the purchase daybook and are summarised and
posted to the payables ledger
C. Cash received is recorded in the cash book and posted to the journal
D. Adjustments to the financial statements are recorded in the cash book and summarised
and posted to the general ledger

18. A sales tax registered business sells goods $1,200 plus $240 sales tax and purchases goods
costing $200 plus sales tax $40. Assuming these are the only transactions in the sales tax period
and that input tax is fully recoverable, how much sales tax is due/payable to/from the
government?
 A. Payable $200
B. Recoverable $200
C. Payable $240
D. Payable $280

19. Which of the following statements is correct?

A. Output tax charged to a customer is debited to the sales tax account
B. A machine is purchased for $200 plus sales tax $40. The machinery account is debited
with $200 and the sales tax account debited with $40. The sales tax is irrecoverable
C. If the sales tax account has a debit balance at the end of the sales tax quarter, the
balance is recoverable from the government
D. The sales figure in the statement of profit or loss of a sales tax registered business
includes sales tax

20. Accounts are classified according to the nature of the transactions which are recorded in
them. Which of the following classifications is incorrect?
A. Insurance is recorded in a general ledger account
B. Rents received are recorded in a general ledger account
C. Sales transactions with individual customers are recorded in a personal ledger
D. Non current assets are kept in the personal ledgers

21. A machine (cost $5,000) is bought on credit. Subsequently, $1,000 of the debt is paid by
cheque. Which of the following correctly records the transactions?
A. Debit payables $5,000, credit machine $5,000. Debit bank $1,000, credit payables
$1,000
B. Debit payables $5,000, credit machine $5,000. Debit payables $1,000, credit bank
$1,000
C. Debit machine $5,000, credit payables $5,000. Debit bank $1,000, credit payables
$1,000
D. Debit machine $5,000, credit payables $5,000. Debit payables $1,000, credit bank
$1,000

22. The following entries appear in a cash account in March.

$
Payments by customers 15,000
Rents received 250
Insurance paid 150
Drawings 700
Capital paid in 2,000
The balance at 1st March was $2,000 (in hand) what was the closing balance at 31st March?
A. $14,400
 B. $18,400
C. $15,800
D. $10,400

23. Which of the following statements concerning journal entries is correct?

A. All journal entries are made for routine transactions and as such need not be authorised
B. Journal entries are used exclusively for the correction of errors
C. The journal is a ledger account in the accounting system of a business
D. All journal entries must have a narrative explanation

24. What is a trial balance?

A. A list of ledger balances extracted from customer accounts
B. A list of ledger balances extracted from accounts which helps to ensure that the
bookkeeping has been accurate
C. An accounting document which a business must prepare
D. A list of all the transactions which have occurred in a period taken from ledger accounts

25. Which of the following statements is correct?

A. The balance on a bank loan account will appear in the debit column of a trial balance
B. The sales returns account balance will appear in the credit column of a trial balance
C. Loan interest paid will appear in the debit column of a trial balance
D. Purchase returns will appear in the debit column of a trial balance

26. The following balances have been taken from the trial balance of XYZ. What is the trial
balance total on the debit side?
$
Rent paid 1,800
Capital 15,000
Purchases 10,000
Sales 12,000
Wages 5,000
Sundry expenses 1,000
Cash 9,200
A. $26,000
B. $29,000
C. $42,000
D. $27,000

26. Which of the following transactions is likely to occur on a daily basis in a large business
organisation?
A. Credit sales
B. Payroll
 C. Purchase of equipment
D. Payment of suppliers

27. What is the purpose of a credit note?

A. It acknowledges a purchase on credit
B. It is a reference from an agency detailing the creditworthiness of a new customer
C. It is issued when a deposit is paid on goods
D. It is issued to cancel all or part of a sales invoice

28. Which of the following is not an internal document for purchases?

A. Supplier list
B. Delivery note
C. Goods received note
D. Purchase order

29. What is a remittance advice for?

A. To indicate items now paid
B. To identify goods received
C. To advise remittances received
D. For notification of goods dispatched

30. What is the purpose of a purchase invoice?

(i) To claim back the sales tax
(ii) To identify the goods bought
(iii) To record how much is owed to the supplier
(iv) To record how much is owed from the customer
A. (i), (ii) and (iii) only
B. All
C. (ii) and (iii) only
D. (i) and (ii) only

31. In the purchasing procedure, which document will usually follow the goods received note?
A. Delivery note
B. Invoice
C. Statement
D. Advice note

32. Keith received a document from Cullen's Stationery Supplies for 8 reams of paper which
they supplied three days ago. How would Keith refer to this document?
A. It is a goods received note
B. It is a receipt
C. It is a purchase invoice
D. It is a credit note
33. How will a sales invoice from a supplier be regarded by their customer?
A. As a credit note
B. As a debit note
C. As a purchase invoice
D. As a receipt
34. Horace started a business by paying $5,000 into a business bank account. What are the
accounting entries required to record this?
A. Dr Capital $5,000 Cr Bank $5,000
B. Dr Bank $5,000 Cr Capital $5,000
C. Dr Bank $5,000 Cr Drawings $5,000
D. Dr Drawings $5,000 Cr Bank $5,000

35. Andrea started a taxi business by transferring her car, worth $5,000, into the business.
What are the accounting entries required to record this?
A. Dr Capital $5,000 Cr Car $5,000
B. Dr Car $5,000 Cr Drawings $5,000
C. Dr Car $5,000 Cr Capital $5,000
D. Dr Car $5,000 Cr Bank $5,000

36. Jones’ account is shown below:

What is the balance on Jones’ account as at 31 January?

A. Debit $250
B. Debit $1,750
C. Debit $900
D. Credit $900

37. Which of the following changes could not occur as a result of an entry in the bookkeeping
records?
A. Increase asset and increase liability
 B. Increase asset and increase capital
C. Increase capital and increase liability
D. Increase capital and decrease liability

38. A business has capital of $10,000 and liabilities of $4,000.

Which of the following asset and liability figures could appear in this business’ statement of
financial position?
A. Assets $6,000 Liabilities $16,000
B. Assets $6,000 Liabilities $4,000
C. Assets $10,000 Liabilities $10,000
D. Assets $14,000 Liabilities $4,000

39. What is the double entry to record receipt of cash from an account receivable?
A. Debit sales Credit receivables
B. Debit receivables Credit cash
C. Debit cash Credit sales
D. Debit cash Credit receivables

40. A sole trader had opening capital of $10,000 and closing capital of $4,500. During the
accounting period, the owner introduced capital of $4,000 and withdrew $8,000 for her own
use. What was her profit or loss for the accounting period?
A. $9,500 loss
B. $1,500 loss
C. $7,500 profit
D. $17,500 profit

41. What does a debit entry usually represent?

A. Assets and income
B. Liabilities and income
C. Assets and expenses
D. Liabilities and expenses.

42. What is the double entry required to record the purchase of a motor van on credit?
A. Debit: motor expenses Credit: cash
B. Debit: motor van Credit: cash
C. Debit: motor expenses Credit: account payable
D. Debit: motor van Credit: account payable
43. What is the double entry required to record the withdrawal of cash from a business bank
account by the owner?
A. Debit: drawings Credit: cash
B. Debit: drawings Credit: capital
C. Debit: liability Credit: cash
D. Debit: capital Credit: drawings

44. What is the usual double entry to record the sale of inventory for cash?
A. Debit: inventory account Credit: sales account
B. Debit: cash account Credit: sales account
C. Debit: cash account Credit: inventory account
D. Debit: cash account Credit: inventory account

45. A debit balance would be expected to arise when the accounts are balanced at the period
end on which of the following accounts?
A. Capital
B. Sales
C. Electricity
D. Loan

46. A credit balance would be expected to arise when the accounts are balanced at the period
end on which of the following accounts?
A. Drawings
B. Telephone
C. Receivables
D. Payables

47. A business sells goods on credit to a customer who pays one month later. What are the
accounting entries required to record the receipt of cash?
A. Debit: Cash at bank account Credit: Accounts receivable
B. Debit: Cash at bank account Credit: Accounts payable
C. Debit: Accounts receivable Credit: Cash at bank account
D. Debit: Accounts payable Credit: Cash at bank account

48. Which of the following describes the separate entity principle?

A. The non-current assets of a business are a separate entity from the current assets
B. The drawings of a business are a separate entity from the profit of the business
C. The business is a separate entity from the owner of the business
D. The owner of the business must be a separate entity from a lender to the business
49. Which of the following is a liability?
A. Trade receivables
B. Inventory
C. Bank overdraft
D. Drawings

50. Which of the following is not an asset?

A. Owner's capital
B. Petty cash
C. Motor vehicle
D. Computer software

51. Which of the following would normally be a debit balance on the ledger account?
(i) Sales revenues (sales)
(ii) Rent
(iii) Drawings
(iv) Capital
A. Only (i) and (iii)
B. Only (ii) and (iii)
C. Only (i) and (iv)
D. Only (ii) and (iv)

52. Which of the following statements is true?

A. Purchase of a motor car is asset expenditure and repairs to a delivery van are expense
to statement of profit and loss.
B. Repairs to a delivery van are asset expenditure and rent for a factory is expense to
statement of profit and loss.
C. Purchase of a motor car is asset expenditure and purchase of computers for office use is
expense to statement of profit and loss.
D. Purchase of shelving for the office is capital expenditure and purchase of computers for
office use is revenue expenditure.

53. Which of the following are examples of asset expenditure?

(i) Purchase of a new computer for office use
(ii) Purchase of a second hand computer for office use
(iii) Repairs to the computer
(iv) Purchase of additional hardware to enhance the computer
A. (i) only
 B. (i) and (iv)
C. (i), (ii) and (iv)
D. All four

54. Which of the following is an example of expense charged to statement of profit and loss?
(i) Purchase of a second-hand delivery van
(ii) Purchase of goods for resale
(iii) Repairs to the delivery van
(iv) Insurance of the delivery van
A. (i), (ii) and (iii)
B. (i), (ii) and (iv)
C. (ii), (iii) and (iv)
D. (iii) and (iv)

55. Which of the following types of expenditure would be classified as asset expenditure?
A. Legal fees associated with the purchase of an office building
B. Repairs to a delivery van
C. Rent of a leasehold property for five years
D. Repainting the office premises

56. Which document lists transactions between a supplier and customer during the month?
A. Purchase invoice
B. Credit note
C. Supplier statement
D. Goods received note

57. What business transaction is documented using a remittance advice?

A. Cheque
B. Supplier payment
C. Petty cash reimbursement
D. Credit sale

58. Which financial document contains the confirmed prices of goods that a supplier has
delivered?
A. Delivery note
B. Purchase order
C. Invoice
D. Remittance advice
59. Which financial document shows the amount of money a customer needs to pay for goods
purchased?
A. Credit note
B. Purchase order
C. Delivery note
D. Sales invoice

60. Which financial document is issued by the supplier and signed off by the customer to
confirm receipt of goods?
A. Goods received note
B. Invoice
C. Credit note
D. Delivery note

61. A business sells goods to a customer for $3,000. The customer returns half of the goods as
faulty. What document does the business issue to the customer for the returns?
A. Debit note
B. Remittance advice
C. Credit note
D. Goods received note

62. What is the purpose of a remittance advice?

A. It details the amount being paid
B. It lists purchases being returned
C. It lists invoiced amounts still outstanding
D. It summarises daily sales

63. Which accounting records show assets, liabilities, and capital at the end of an accounting
period?
A. Statement of Profit or Loss and Other Comprehensive Income
B. Supplier statement
C. Trial balance
D. Statement of Financial Position
64. Which is classified as a current liability?
A. Output Sales Tax
B. Drawings
C. Trade Receivables
D. Bank

65. Which is classified as asset expenditure concerning a machine?

A. Purchase cost of the machine
B. Cost of repairs of the machine
C. Manufacturing costs of product made using the machine
D. Parts purchased to maintain the machine

66. What is the purpose of including customer purchase order numbers in a sales invoice?
A. It prevents fraud
B. It will be used as a unique code in the large organisation's coding system
C. It is required for tax purposes
D. It facilitates verification by the customer of the validity of sales invoices

67. Which of the following items would normally be a credit balance in the trial balance?
(i) Bank loan
(ii) Owner’s capital
(iii) Drawings
(iv) Purchases
A. (i) and (ii)
B. (i) and (iii)
C. (ii) and (iii)
D. (ii) and (iv)

68. Which of the following balances would appear on the same side in the trial balance?
A. Drawings and trade payables
B. Drawings and purchases
C. Owner’s capital and purchases
D. Owner’s capital and rent

69. Which of the following pairs of balances would appear on the same side of a trial balance?
(i) bank loan and cash in hand
(ii) Trade receivables and purchases
(iii) Trade payables and purchases
(iv) Bank loan and trade payables
 A. (i) and (ii)
B. (ii) and (iii)
C. (ii) and (iv)
D. (iii) and (iv)

70. What does a trial balance indicate?

A. All the transactions have been entered
B. Every entry is correct
C. Double entry has been performed
D. All necessary accounts have been opened