Foundations level

Recording Financial
Transactions
(FA1)
Mock Exam 2 – Questions

Time allowed: 2 hours

This exam contains 50 questions each worth 2 marks,
100 marks in total.

All questions are compulsory.

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This exam contains 50 questions each worth 2 marks, 100 marks in total.
All questions are compulsory.
1 A business has a balance on its Trade Receivables account of $87,500 at the end of August.
What does this mean?
A Total sales for August were $87,500
B Credit sales for August were $87,500
C The business owes suppliers $87,500 at the end of August
D Customers owe the business $87,500 at the end of August

2 A business received a supplier statement showing an outstanding balance of $637.

However, the business has not yet received an invoice for $84, and payment was sent
yesterday by cheque to the supplier for $432.
What would be the amount recorded as owing to the supplier in the supplier’s
account?
A $289
B $1,153
C $205
D $121

3 Business A has the following information about transactions conducted with Business B
during May.
Credit sales $5,000
Remittances received $4,500
Credit notes issued $500

If there was no opening balance, what balance should appear on the month-end
statement of account?
A $1,000
B Nil
C $2,000
D $500

4 Which statement is true?

A Every transaction must be recorded in two ledger accounts
B If the trial balance balances, the financial statements must be accurate
C A suspense account is always included in the trial balance
D The financial statements are prepared from the trial balance

5 A business has recorded the credit purchase of office furniture as an expense.

Which statements are true?
(i) Assets are overstated
(ii) Expenses are overstated
(iii) Assets are understated
(iv) Expenses are understated

A i) and ii)
B iii) and iv)
C i) and iv)
D ii) and iii)

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6 A motor vehicle purchase for $4,300 was correctly debited to the motor vehicle asset
account but incorrectly debited to the cash book as $3,400.
Which journal entry would correctly adjust for this error?
A DR Suspense $900
CR Bank $900
B DR Suspense $7,700
CR Bank $7,700
C DR Suspense $3,400
CR Bank $3,400
D DR Suspense $4,300
CR Bank $4,300

7 A business sells goods with a list price of $7,000 to a customer. The customer is entitled to
a 5% discount for payment within seven days. The customer pays half of the amount two
weeks later.
What remaining amount should the business record as outstanding from the
customer?
A $3,500
B $3,325
C $3,675
D $3,725

8 Business A is a credit customer of Business B. Business A says that a statement of account

sent by Business B with a balance of $50,000 is incorrect because a credit note of $2,000
and remittance advice of $15,000 have not been included.
What should be the correct balance on the statement of account?
A $63,000
B $37,000
C $33,000
D $67,000

9 A business is owed $10,000 by its credit customers at the beginning and $30,000 at the
end of the month. The customers paid the business $40,000 during the month.
What were the business's credit sales?
A $20,000
B $50,000
C $70,000
D $60,000

10 Which ledger account records goods returned by credit customers?

A Sales
B Sales Returns
C Purchase
D Purchase Returns

11 An employee's wages vary weekly depending on the number of units produced.

What is the basis on which the employee is paid?
A Overtime
B Piecework
C Unitised
D Piecework hours

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12 Charlie is paid a basic hourly rate of $12. If his weekly hours exceed 38, he receives an
overtime rate of 150% of the basic hourly rate. In addition, he receives a productivity bonus
of $25 if he produces more than 100 units weekly.
If the employer deducts tax at 20%, what is Charlie's net pay for a week in which
he works 42 hours and produces 106 units?
A $423.20
B $553.00
C $447.40
D $442.40

13 Which of the following are not details shown in the journal?

A Journal reference
B Ledger accounts to be removed
C Description of the journal entry
D Ledger account to be debited and credited

14 Which transactions require journal entries?

(i) The transfer of an asset into a business by its owner
(ii) Writing off an irrecoverable debt

A i) only
B ii) only
C Both i) and ii)
D Neither i) nor ii)

15 Clive offers the following three discounts to his customers:

5% for bulk purchase
2% for regular customers
3% for early settlement of invoices
All customers are expected to take advantage of the early settlement discounts.
When Clive calculates sales to be recorded in his financial statements, which
discounts should be deducted?
A 1 only
B 1 and 2 only
C 3 only
D 1, 2 and 3

16 Why must a business take extra care when accounting for payroll?
(i) Employers effectively act as tax collectors and have statutory responsibilities in
most countries
(ii) The accuracy of wages is a matter of great sensitivity for employees
A i) only
B ii) only
C Both i) and ii)
D Neither i) nor ii)

17 A business’s petty cash box contains payment vouchers totalling $457 and
receipts vouchers of $84. If the business has an imprest amount of $750, how
much cash should the cashier have found in the petty cash box?
A $1,291
B $750
C $377
D $84

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18 Which statement is true about petty cash?
A Petty cash payments do not have sales tax
B Petty cash float remains fixed at the start of each month
C Petty cash tin must be balanced at the end of each day
D Petty cash vouchers are the source documents recorded therein

19 Which is most likely paid using petty cash?

A Reimbursement of a taxi fare
B Drawings
C Purchase of a non-current asset
D Supplier refunds

20 Which statements are correct?

(i) When paying casual labour through petty cash, there is no obligation to deduct
income tax
(ii) There should be limits on the amount of petty cash held and the maximum
allowable petty cash payment.
A i) only
B ii) only
C Both i) and ii)
D Neither i) nor ii)

21 Which document is NOT used to verify a supplier invoice for inclusion in the
Purchase ledger account?
A Delivery note
B Goods received note
C Purchase order
D Cheque requisition

22 Which item is a current liability?

A Bank loan payable in 1 year
B Interest charges on a loan
C Bank (statement balance in credit)
D Trade payables

23 A business needs to make a substantial payment to purchase an item of machinery. The

supplier requires payment before delivery.
Which method of payment is most appropriate for this purpose?
A Cash
B Cheque
C Direct credit transfer
D Direct debit

24 One of a business's suppliers offers a 5% settlement discount for invoices settled within 30
days. The business has also negotiated a 10% trade discount from the supplier.
The settlement discount is not recorded on the purchase date.
How will the business record the payment if it buys goods with a list price of
$7,400 and pays after 20 days? (Ignore sales tax)
A DR Trade Payables $6,660, CR Cash $6,327, CR Discounts Received $333
B DR Trade Payables $7,400, CR Cash $6,327, CR Discounts Received $1,073
C DR Trade Payables $7,400, CR Cash $6,290, CR Discounts Received $1,110
D DR Trade Payables $6,660, CR Cash $6,290, CR Discounts Received $370

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25 Which is true in respect of business cheques?
A They always require two signatories
B Any employee can sign
C Only individuals on the bank mandate can sign
D All directors of a company can sign

26 Alice is responsible for processing all purchase transactions. Before she processes a
purchase invoice for payment, she completes a checklist to ensure all checks have been
carried out.
Which would appear on the purchase invoice checklist?
(1) Checked against the purchase order
(2) Checked against the delivery note
(3) Calculations checked
(4) Customer account code entered for posting
(5) General ledger account code entered for posting

A 1 and 2 only
B 3, 4 and 2 only
C 1, 2, 3 and 5 only
D 1, 2 3, 4 and 5

27 Gavin is a sole trader. During the year ended 31 December 20X6, he received a salary from
the business.
In which ledger account should his salary be debited?
A Drawings
B Business Expenses
C Cost of Sales
D Bank

28 The bank reconciliation of a business has uncovered the following:

 a cheque written to a supplier of $341 has not been cashed

 cheques paid yesterday totalling $836 have not yet cleared into the business's
account.

 a cheque written for $1,270 was recorded as $1,720.

If the cash account balance was DR $8,923 before the reconciliation, what was
the balance on the business's bank statement?
A DR $8,878
B CR $8,878
C DR $9,868
D CR $9,868

29 Which best describes the segregation of duties concerning receiving payments?

A Two members of staff should go to the bank to deposit receipts
B Different individuals should record monies received each week
C The person receiving and counting monies received should not also be responsible
for recording them
D Incoming mail should be opened in the presence of a second employee

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30 Edward’s insurance company makes monthly deductions from his bank account to pay his
insurance premium.
What is this type of deduction known as?
A Standing order
B Direct debit
C BACS payment
D Cheque payment

31 Colin is starting a new business as a sole trader, and the business has taken out a loan
from the bank for $10,000. He has also paid $2,500 of his own money into the business
bank account and used it to purchase a van for $1,000.
What is the balance on Colin's capital account?
A $10,000
B $2,500
C $1,500
D $12,500

32 What may debit entry to a general ledger account relate to?

A A decrease in an expense
B A decrease in an asset
C A decrease in a liability
D A decrease in drawings

33 A business's Trade Payables ledger had a total balance of $5,400 at the start of May. In
May, the business purchases goods to the value of $8,200, half of which is for cash, and
sends cheques to suppliers totalling $3,000, only $2,500 of which have been presented at
the month’s end.
What is the balance of the business's Trade Payables ledger at the end of May?
A $11,100
B $10,600
C $7,000
D $6,500

34 A business is registered for sales tax and buys goods from a supplier. The business's
purchase net of sales tax of 20% was $31,000.
What are the necessary accounting entries?
A DR Sales Tax $6,200, DR Purchases $31,000, CR Payables $37,200
B DR Payables $37,200, CR Purchases $31,000, CR Sales Tax $6.200
C DR Purchases $31,000, CR Payables $31,000
D DR Purchases $37,200, CR Payables $37,200

35 The trial balance of Chief failed to balance. Total debit balances were $842,000, and total
credit balances were $821,700.
A suspense account was opened for the difference, and the following error was found and
corrected:

 A discount of $4,300 for prompt settlement of a credit purchase had not been posted
to the Discount Received ledger.
After correcting this error, what will the remaining balance be on the suspense
account?
A $16,000 Dr
B $16,000 Cr
C $24,600 Dr
D $24,600 Cr

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36 A business owes a supplier $6,400 for goods supplied. The supplier is also a customer that
owes the business $3,850.
The business and its supplier/customer have agreed to net off their respective amounts
owed.
What entries to the business’s general ledger would correctly reflect the net off?
A DR Trade Payables $3,850, CR Trade Receivables $3,850
B DR Trade Receivables $3,850, CR Trade Payables $3,850
C DR Trade Payables $6,400, CR Trade Receivables $6,400
D DR Trade Receivables $6,400, CR Trade Payables $6,400

37 If a business's liabilities increase by $20,000 and capital falls by $5,000, what

must be the change in total assets?
A Increase of $15,000
B Decrease of $15,000
C Increase of $25,000
D Decrease of $25,000

38 A business commences business in June. Its sales account from the general ledger at the
end of June is as follows.
Dr. Sales Account (Income) Cr.

Sales Return $100 Cash $250

Trade Receivables $800

What is the brought-down balance at the start of July?

A CR $1,050
B DR $1,050
C DR $950
D CR $950

39 If a business takes advantage of an early settlement discount, which statements

are true?
(i) It increases purchases
(ii) It increases net assets

A i) only
B ii) only
C Both i) and ii)
D Neither i) nor ii)

40 A business discovers that a customer has become bankrupt. The customer owes the
business $2,360.
If the sales tax is 20%, what accounting entries are necessary?
A DR Irrecoverable debts $2,360, CR Receivables $2,360
B DR Irrecoverable debts $1,888, DR Sales tax $472, CR Receivables $2,360
C DR Irrecoverable debts $2,360, CR Sales tax $393.33, CR Receivables $1,966.67
D DR Irrecoverable debts $1,966.67, DR Sales tax $393.33, CR Receivables $2,360

41 A cash purchase of $529 was entered into a business's accounting system as $259.
What error is this?
A Compensating error
B Error of principle
C Transposition error
D Reversal error

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42 A credit sale of $34,562 was posted as $35,462 in error, debiting Sales and crediting the
Trade Receivables account.
What entry would be made to correct this error? (Ignore sales tax)
A DR Trade Receivables $70,024, CR Sales $70,024
B DR Trade Receivables $34,562, CR Sales $34,562
C DR Trade Receivables $35,462, CR Sales $35,462
D DR Trade Receivables $69,124, CR Sales $69,124

43 A business's general ledger contains the following balances:

Sales $10,000
Purchases $4,000
Irrecoverable debts $500
Receivables $4,000
Payables $2,000
Non-current assets $5,000
Wages and salaries $2,000
Capital $4,450
Cash $950

What is the total of the debit side of the trial balance?

A $3,500
B $7,950
C $32,900
D $16,450

44 Which statements are true of the Trade Payables account?

(i) The Trade Payables account can be used to derive missing figures such as
purchases and cash paid
(ii) It provides a figure for inclusion in the trial balance
A i) only
B ii) only
C Both i) and ii)
D Neither i) nor ii)

45 When a business's accountant prepares the trial balance, a credit of $810 is transferred to
the suspense account.
Which would explain the need for this?
A The entries for a credit sale of $810 were made the wrong way round
B A cash sale of $1,900 was recorded as $1,090
C A cash purchase of $810 was omitted from the accounting records
D Both entries about a cash sale of $405 were recorded as debits

46 Which statements are true?

(i) Opening a suspense account allows the trial balance to be redrafted
(ii) When the suspense account balance is zero, all errors in the accounting records
have been detected and corrected
A i) only
B ii) only
C Both i) and ii)
D Neither i) nor ii)

47 Which of the following is classified as capital expenditure?

A Purchase of shelving units
B Payment of wages to employees
C Bank fees
D Cost of repairing existing computers

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48 Which of the following would not be found on the credit side of the Trade
Receivables account?
A Irrecoverable Debts
B Sales
C Cash received
D Returns

49 If sales exceed purchases, on which side would the Sales Tax balance be in the
trial balance?
A A credit
B A debit
C Zero
D Either a credit or a debit

50 It has been identified that a credit sale of $349 has been entered twice, and another credit
sale of $571 was omitted entirely. In addition, a cash sale of $286 was posted as $826.
To correct these errors, what would be the total value of entries to the Trade
Receivables account?
A $762 DR
B $222 DR
C $762 CR
D $222 CR

End of Questions

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