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AAT ITBK practice questions

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Question 1Fundamentals of double-entry bookkeeping

Which concept states that every transaction has two equal and opposite effects in the accounts?

  1. Dual aspect concept Correct answer.
  2. Business entity concept
  3. Prudence concept
  4. Going concern concept

Explanation

Double-entry bookkeeping rests on the dual aspect concept: each transaction is recorded in at least two accounts, as a debit and an equal credit, so the accounting equation stays in balance.

Question 2Fundamentals of double-entry bookkeeping

A business buys office stationery and pays for it in cash. Which account is debited?

  1. Bank loan account
  2. Cash at bank account
  3. Stationery account Correct answer.
  4. Capital account

Explanation

Stationery is an expense, and expenses are increased by debits. Cash is credited because the asset has been reduced by the payment.

Question 3Fundamentals of double-entry bookkeeping

Which of the following accounts is increased by a credit entry?

  1. Motor vehicles
  2. Trade payables Correct answer.
  3. Bank current account
  4. Rent expense

Explanation

Liabilities and income are increased on the credit side, while assets and expenses are increased on the debit side. Trade payables is a liability, so a credit increases the amount owed to suppliers.

Question 4Fundamentals of double-entry bookkeeping

The owner pays £5,000 into the business bank account. Which double entry records this?

  1. Dr Bank £5,000, Cr Loan from owner £5,000
  2. Dr Capital £5,000, Cr Bank £5,000
  3. Dr Bank £5,000, Cr Sales £5,000
  4. Dr Bank £5,000, Cr Capital £5,000 Correct answer.

Explanation

Money introduced by the owner increases the bank asset, so bank is debited, and it increases the owner's capital, which is a credit balance.

Question 5Fundamentals of double-entry bookkeeping

What does a trial balance that balances prove?

  1. That no errors have been made in the ledger
  2. That all transactions have been recorded twice
  3. That the business has made a profit
  4. Total debits equal total credits Correct answer.

Explanation

A trial balance is simply a list of ledger balances. If the debit and credit totals agree, the arithmetic of double entry has been applied consistently, but this does not prove the ledger is free of error.

Question 6Fundamentals of double-entry bookkeeping

Goods are sold on credit to a customer. Which double entry is made in the seller's books?

  1. Dr Trade receivables, Cr Sales Correct answer.
  2. Dr Purchases, Cr Trade payables for goods bought on credit
  3. Dr Cash, Cr Sales
  4. Dr Sales, Cr Trade receivables

Explanation

A credit sale increases the amount owed by the customer, so trade receivables (an asset) is debited, and income is increased by crediting the sales account.

Question 7Fundamentals of double-entry bookkeeping

Goods bought on credit are returned to the supplier. Which double entry records the return?

  1. Dr Trade payables, Cr Purchase returns Correct answer.
  2. Dr Trade payables, Cr Purchases
  3. Dr Purchases, Cr Trade payables
  4. Dr Purchase returns account, Cr Trade payables account

Explanation

Returning goods reduces the amount owed to the supplier, so trade payables is debited, and it reduces the purchases expense, so purchase returns is credited.

Question 8Fundamentals of double-entry bookkeeping

The owner takes £300 from the business cash for personal use. Which double entry is made?

  1. Dr Cash £300, Cr Drawings £300
  2. Dr Drawings £300, Cr Cash £300 Correct answer.
  3. Dr Drawings £300, Cr Capital £300
  4. Dr Drawings £300, Cr Sales £300

Explanation

Drawings reduce the owner's equity and are recorded as a debit. Cash paid out of the business is credited because the asset has fallen.

Question 9Fundamentals of double-entry bookkeeping

A customer paying an invoice early deducts a settlement discount. Which account is debited with the discount in the seller's ledger?

  1. Discount received
  2. Discount allowed Correct answer.
  3. Bank
  4. Trade receivables

Explanation

A settlement discount given to a customer is an expense called discount allowed, so it is debited. Bank is debited with the cash received and trade receivables is credited with the full debt.

Question 10Fundamentals of double-entry bookkeeping

A supplier's list price is £800 and a 10% trade discount is offered. At what amount is the purchase recorded in the buyer's books?

  1. £720 Correct answer.
  2. £80
  3. £880
  4. £800

Explanation

Trade discount is deducted from the list price before the invoice value is recorded, so the purchase is entered at the net £720. The discount itself is never posted to a ledger account.

Question 11Fundamentals of double-entry bookkeeping

A business makes a credit sale of £1,000 plus VAT at 20% and records VAT separately. Which entry is correct?

  1. Dr Receivables £1,200, Cr Sales £1,200
  2. Dr Receivables £1,200, Cr Sales £1,000, Cr VAT £200 Correct answer.
  3. Dr Receivables £1,000, Cr Sales £1,000
  4. Dr Receivables £1,200, Cr Sales £1,200, with VAT recorded separately

Explanation

Sales are recorded net of VAT, so sales is credited with £1,000. Output VAT of £200 is a liability and is credited, while trade receivables is debited with the gross £1,200.

Question 12Fundamentals of double-entry bookkeeping

Which error would still allow the trial balance to agree?

  1. Recording a sale in the sales returns account Correct answer.
  2. Recording £90 in the debit column and £900 in the credit column
  3. Making an addition error in the debit column total
  4. Posting only the credit side of a transaction

Explanation

Posting an amount to the wrong account of the same class keeps debits and credits equal, so the trial balance still balances. One-sided postings and arithmetic errors unbalance it.

Question 13Fundamentals of double-entry bookkeeping

The bank column of a business's cash book shows a credit balance of £250. How is this presented?

  1. As an expense in the statement of profit or loss
  2. As a current asset in the statement of financial position
  3. As a current liability Correct answer.
  4. As capital in the statement of financial position

Explanation

A credit balance on the bank account in the business's own records means the account is overdrawn, which is a liability. An overdraft is presented within current liabilities.

Question 14Fundamentals of double-entry bookkeeping

A customer who is also a supplier agrees to set off a £400 balance against what each party owes the other. Which double entry records this in the business's ledger?

  1. Dr Sales £400, Cr Purchases £400
  2. Dr Bank £400, Cr Receivables £400
  3. Dr Receivables £400, Cr Payables £400 (set-off in the sales ledger)
  4. Dr Payables £400, Cr Receivables £400 Correct answer.

Explanation

A contra entry reduces both the amount owed to the supplier and the amount owed by the customer. Payables is therefore debited and receivables credited, with no cash involved.

Question 15Fundamentals of double-entry bookkeeping

Which of these is a contra entry in the two-column cash book?

  1. Cash withdrawn from the bank for the office cash float Correct answer.
  2. A cheque received from a credit customer
  3. Cash paid into the bank from a credit customer's cheque
  4. Payment of rent by cheque

Explanation

A contra entry affects only the cash and bank columns of the cash book, with no other ledger account involved. Taking cash from the bank for the office float is debited to cash and credited to bank.

Question 16Fundamentals of double-entry bookkeeping

Which book of prime entry is used to record credit notes issued to customers?

  1. General journal
  2. Sales day book (credit sales)
  3. Purchases day book
  4. Sales returns day book Correct answer.

Explanation

Credit notes issued to customers record returned or credited goods and are entered in the sales returns day book, one of the books of prime entry.

Question 17Fundamentals of double-entry bookkeeping

Which transaction increases one asset and decreases another asset by the same amount?

  1. Buying office equipment by cheque Correct answer.
  2. Paying a supplier's invoice by cheque
  3. Buying office equipment on credit
  4. The owner introducing cash into the business

Explanation

Paying by cheque for equipment debits the equipment asset and credits the bank asset, so total assets are unchanged. The accounting equation stays in balance with no change to capital or liabilities.

Question 18Fundamentals of double-entry bookkeeping

A business has assets of £45,000 and liabilities of £17,000. What is its capital?

  1. £45,000
  2. £17,000
  3. £28,000 Correct answer.
  4. £62,000

Explanation

The accounting equation is assets = capital + liabilities, so capital equals assets minus liabilities. £45,000 − £17,000 gives capital of £28,000.

Question 19Fundamentals of double-entry bookkeeping

A business receives a £10,000 bank loan. Which double entry is correct?

  1. Dr Bank £10,000, Cr Bank loan £10,000 Correct answer.
  2. Dr Bank £10,000, Cr Capital £10,000
  3. Dr Bank loan £10,000, Cr Bank £10,000 (repayment of the loan)
  4. Dr Capital £10,000, Cr Bank £10,000

Explanation

Receiving a loan increases the bank asset, which is debited, and creates an obligation to the lender that is credited to the bank loan account. A loan is not capital because it must be repaid.

Question 20Fundamentals of double-entry bookkeeping

A sales invoice of £560 was entered in the sales day book as £650. Which journal corrects the error?

  1. Dr Receivables £90, Cr Sales £90
  2. Dr Sales £90, Cr Receivables £90 Correct answer.
  3. Dr Sales £560, Cr Receivables £560
  4. Dr Sales £650, Cr Receivables £650

Explanation

The invoice was overstated by £90 on both sides, so the correction must reduce sales with a debit and reduce the receivable with a credit of £90. Both errors were equal in amount, so the trial balance still agreed.

Question 21Fundamentals of double-entry bookkeeping

A trial balance shows debits of £84,300 and credits of £84,030. Where is the difference shown while it is investigated?

  1. A £270 debit balance in a suspense account
  2. A £270 credit balance in a suspense account Correct answer.
  3. A £270 debit balance in the drawings account of the business
  4. A £270 credit balance in the capital account

Explanation

Debits exceed credits by £270, so a credit balance of £270 is entered in a suspense account to make the trial balance agree provisionally. The suspense account is cleared once the cause of the difference is found.

Question 22Fundamentals of double-entry bookkeeping

Goods bought for resale were debited to the office equipment account. What is the effect of this error on the financial statements?

  1. Profit understated and non-current assets understated
  2. No effect on profit, but non-current assets overstated
  3. Profit overstated and non-current assets understated
  4. Profit overstated and non-current assets overstated Correct answer.

Explanation

The debit went to a non-current asset instead of the purchases expense. Assets are therefore overstated and costs understated, which overstates profit.

Question 23Fundamentals of double-entry bookkeeping

Wages of £450 were paid by cheque but were debited to both the wages account and the bank account. What is the effect on the trial balance?

  1. The trial balance still agrees
  2. Debit column exceeds credit column by £900 Correct answer.
  3. Debit column exceeds credit column by £450
  4. Credit column exceeds debit column by £450

Explanation

The bank should have been credited with £450. Debiting it instead leaves a missing credit of £450 and an extra debit of £450, so the debit column is £900 too high.

Question 24Fundamentals of double-entry bookkeeping

A customer's account in the receivables ledger shows a credit balance of £75. What does this indicate?

  1. The business owes £75 to the customer Correct answer.
  2. The customer has been written off as a bad debt
  3. The customer owes £75 to the business
  4. The business has charged £75 too little VAT

Explanation

Receivables normally carry debit balances because customers owe the business money. A credit balance means the customer has paid more than was owed or been over-credited, so the business owes the customer, a current liability.

Question 25Fundamentals of double-entry bookkeeping

Which task is recorded in the general journal rather than in a book of prime entry?

  1. Correcting an error in the ledger Correct answer.
  2. Recording a credit purchase of goods
  3. Recording a credit sale of goods
  4. Recording cash received from a customer

Explanation

The general journal records adjustments and corrections, giving the reason for the entry as well as the debit and credit. Routine credit and cash transactions are recorded in the day books and the cash book.

Question 26Fundamentals of double-entry bookkeeping

Which of these correctly states the accounting equation?

  1. Capital = Assets + Liabilities
  2. Assets = Capital + Liabilities Correct answer.
  3. Liabilities = Assets + Capital
  4. Assets = Capital − Liabilities

Explanation

The accounting equation shows that the resources owned (assets) are funded either by the owner (capital) or by outside parties (liabilities), so Assets = Capital + Liabilities. Any rearrangement must keep the three elements in the same relationship.

Question 27Fundamentals of double-entry bookkeeping

A business buys office equipment for £2,000 and pays by cheque. Which double entry is made?

  1. Debit office equipment £2,000; credit capital £2,000
  2. Debit office equipment £2,000; credit bank £2,000 Correct answer.
  3. Debit bank £2,000; credit office equipment £2,000
  4. Debit purchases £2,000; credit bank £2,000

Explanation

Office equipment is a non-current asset, so it is debited when it is acquired. The bank balance has fallen, so the bank account, being an asset, is credited.

Question 28Fundamentals of double-entry bookkeeping

Which statement describes the double-entry principle?

  1. Each transaction is entered once in the account that it affects
  2. Debit entries are always written before the credit entries in the ledger
  3. Only cash transactions need to be recorded in two separate accounts
  4. Every transaction is recorded in two accounts so that total debits equal total credits Correct answer.

Explanation

Double entry means that each transaction has two equal and opposite effects, one debit and one credit. Recording both sides keeps the ledger arithmetically balanced and allows a trial balance to be extracted.

Question 29Fundamentals of double-entry bookkeeping

Which of these accounts normally carries a debit balance?

  1. Bank loan
  2. Sales
  3. Capital
  4. Motor vehicles Correct answer.

Explanation

Assets and expenses normally have debit balances, and motor vehicles is an asset account. Liabilities, capital and income accounts normally carry credit balances.

Question 30Fundamentals of double-entry bookkeeping

Goods are sold for £150 cash. Which double entry is made in the seller's books?

  1. Debit sales £150; credit capital £150
  2. Debit sales £150; credit cash £150
  3. Debit cash £150; credit sales £150 Correct answer.
  4. Debit cash £150; credit purchases £150

Explanation

Cash received increases an asset, so the cash account is debited. The income earned from the sale is credited to the sales account.

Question 31Fundamentals of double-entry bookkeeping

A sole trader pays £5,000 into the business bank account as capital. Which double entry is made?

  1. Debit bank £5,000; credit capital £5,000 Correct answer.
  2. Debit cash £5,000; credit sales £5,000
  3. Debit capital £5,000; credit bank £5,000
  4. Debit bank £5,000; credit drawings £5,000

Explanation

The business bank balance rises, so the bank asset account is debited. The owner's stake in the business rises by the same amount, so the capital account is credited.

Question 32Fundamentals of double-entry bookkeeping

An expense account is increased by an entry on which side?

  1. Either side, depending on the type of expense
  2. The side showing the smaller balance
  3. The credit side
  4. The debit side Correct answer.

Explanation

Expenses reduce profit and therefore carry debit balances. An increase in any expense is always recorded on the debit side of its account.

Question 33Fundamentals of double-entry bookkeeping

Which document does a supplier issue to reduce the amount owed by a customer who has been overcharged?

  1. A remittance advice
  2. A credit note Correct answer.
  3. An invoice
  4. A statement of account

Explanation

A credit note is issued by a supplier to reduce the amount owed, for example when goods are returned or an invoice was overcharged. It is recorded in the returns inwards and returns outwards books of the two parties.

Question 34Fundamentals of double-entry bookkeeping

A business buys goods on credit for £900. What is the effect on the accounting equation?

  1. Liabilities increase by £900 and capital decreases by £900
  2. Assets increase by £900 and liabilities increase by £900 Correct answer.
  3. Assets increase by £900 and capital increases by £900
  4. Assets decrease by £900 and capital decreases by £900

Explanation

The business gains inventory, which is an asset, so assets rise. The supplier has not yet been paid, so the amount owed is a liability that rises by the same amount, leaving capital unchanged.

Question 35Fundamentals of double-entry bookkeeping

What is the main purpose of preparing a trial balance?

  1. To calculate the profit or loss for the period
  2. To prove that no errors have been made in the accounting records
  3. To check that the total of debit balances equals the total of credit balances Correct answer.
  4. To record transactions before they are posted to the ledger accounts

Explanation

A trial balance lists the ledger balances in debit and credit columns and tests whether the two totals agree. Agreement confirms arithmetical accuracy only, because several types of error leave debits and credits equal.

Question 36Fundamentals of double-entry bookkeeping

A business pays £75 to have purchased goods delivered to its premises. How is this recorded?

  1. Debit purchases returns £75; credit bank £75
  2. Debit carriage outwards £75; credit bank £75
  3. Credit carriage inwards £75; debit bank £75
  4. Debit carriage inwards £75; credit bank £75 Correct answer.

Explanation

Carriage inwards is the cost of bringing purchased goods into the business and is treated as an expense, so it is debited. The bank balance falls, so the bank account is credited.

Question 37Fundamentals of double-entry bookkeeping

Which of these is capital expenditure?

  1. Repainting the office interior
  2. The purchase of a new delivery van Correct answer.
  3. The business rates for the quarter
  4. Replacing a broken window pane

Explanation

Capital expenditure is spending on a non-current asset that will benefit the business for more than one period, such as a delivery van. Repairs, rates and glass replacement maintain the business and are revenue expenditure.

Question 38Fundamentals of double-entry bookkeeping

A business takes advantage of a £40 discount offered by a supplier for early payment. How is the discount recorded in the buyer's books?

  1. Debit the supplier's account £40; credit discount received £40 Correct answer.
  2. Debit discount received £40; credit the supplier's account £40
  3. Debit the supplier's account £40; credit discount allowed £40
  4. Debit discount allowed £40; credit the supplier's account £40

Explanation

A discount received reduces the amount the business owes, so the supplier's account is debited to reduce the liability. The benefit is income, so discount received is credited.

Question 39Fundamentals of double-entry bookkeeping

At the year end a sole trader's drawings account has a debit balance of £4,000. How is this treated?

  1. It is added to capital as a further contribution by the owner
  2. It is shown as an expense in the income statement
  3. It is deducted from capital in the statement of financial position Correct answer.
  4. It is carried forward as an asset in the statement of financial position

Explanation

Drawings are amounts taken out by the owner and are not a business expense. The balance is transferred to the capital account, reducing the owner's capital in the statement of financial position.

Question 40Fundamentals of double-entry bookkeeping

What is the effect of a debit entry in a liability account?

  1. It increases an expense
  2. It increases the liability
  3. It decreases the liability Correct answer.
  4. It has no effect until the account is balanced

Explanation

Liability accounts carry credit balances, so a debit entry reduces the amount owed. Increases in liabilities are recorded on the credit side.

Question 41Fundamentals of double-entry bookkeeping

A petty cash imprest of £100 is restored after £62 has been spent. How much cash is drawn to restore the float?

  1. £62 Correct answer.
  2. £38
  3. £162
  4. £100

Explanation

Under the imprest system the float is restored to its original amount by reimbursing exactly what has been spent. Since £62 was spent, £62 is drawn so that the float returns to £100.

Question 42Fundamentals of double-entry bookkeeping

Which of these describes an error of principle?

  1. Both the debit and credit entries are omitted from the records
  2. A purchase of a vehicle is debited to the motor repairs account Correct answer.
  3. The same transaction is entered twice in the accounts
  4. The wrong amount is entered in both of the accounts affected

Explanation

An error of principle breaks the rules of accounting by placing an item in the wrong class of account, for example treating capital expenditure as a repair. Debits and credits stay equal, so the trial balance still agrees.

Question 43Fundamentals of double-entry bookkeeping

A customer's debt of £250 is written off as irrecoverable. Which double entry is made?

  1. Debit bad debts £250; credit the customer's account £250 Correct answer.
  2. Debit sales £250; credit the customer's account £250
  3. Debit bad debts £250; credit sales £250
  4. Debit the customer's account £250; credit bad debts £250

Explanation

Writing off the debt removes the customer as a receivable, so the customer's account is credited. The loss to the business is an expense, so the bad debts account is debited.

Question 44Fundamentals of double-entry bookkeeping

Which of these is revenue expenditure?

  1. The purchase of a new delivery van
  2. The annual service of the delivery vans Correct answer.
  3. The cost of installing a new lift in the building
  4. Legal fees paid when buying new premises

Explanation

Revenue expenditure is spending on the day-to-day running of the business and is charged to the income statement, such as routine vehicle servicing. Buying or installing non-current assets, including the related legal costs, is capital expenditure.

Question 45Fundamentals of double-entry bookkeeping

Which of these is a book of prime entry?

  1. The sales day book Correct answer.
  2. The nominal ledger
  3. The sales ledger
  4. The trial balance

Explanation

A book of prime entry is where a transaction is first recorded from a source document, and credit sales are listed in the sales day book. Ledgers contain the accounts themselves, and the trial balance is a summary prepared from the ledger.

Question 46Fundamentals of double-entry bookkeeping

A sole trader has capital of £39,000 at the start of the year, makes a profit of £12,000 and withdraws £5,000 for personal use. What is the capital at the end of the year?

  1. £51,000
  2. £56,000
  3. £46,000 Correct answer.
  4. £36,000

Explanation

Closing capital equals opening capital plus profit earned less drawings taken: £39,000 + £12,000 − £5,000 = £46,000. Profit increases the owner's interest, while drawings reduce it.

Question 47Fundamentals of double-entry bookkeeping

The purchases day book total of £4,560 was posted to the purchases account as £4,650. Which journal entry corrects this?

  1. Debit suspense account £90; credit purchases account £90
  2. Debit purchases account £90; credit suspense account £90 Correct answer.
  3. Debit purchases account £90; credit the supplier's account £90
  4. Debit suspense account £90; credit the supplier's account £90

Explanation

The purchases account was debited with £90 too much (£4,650 − £4,560), so it must be credited with £90. The opposite debit goes to the suspense account, which held the original difference in the trial balance.

Question 48Fundamentals of double-entry bookkeeping

Which of these errors would be revealed by a trial balance that does not agree?

  1. A purchase of £250 is entered in the wrong supplier's account
  2. A payment of £180 is credited to the bank account only Correct answer.
  3. A sale of £400 is completely omitted from the books
  4. A sale of £300 is recorded as a purchase of £300

Explanation

A trial balance only exposes errors that make total debits differ from total credits, such as a one-sided entry where the debit has not been made. Errors of omission, commission and principle keep debits and credits equal.

Question 49Fundamentals of double-entry bookkeeping

The owner takes goods costing £800 from the business for personal use and no entry has been made. What is the effect on the accounting equation?

  1. Assets increase by £800 and capital increases by £800
  2. There is no effect because the goods belong to the owner
  3. Assets decrease by £800 and capital decreases by £800 Correct answer.
  4. Assets decrease by £800 and liabilities increase by £800

Explanation

Goods taken by the owner are drawings, so inventory, an asset, falls by £800. The owner's interest in the business falls by the same amount, reducing capital, while no liability arises.

Question 50Fundamentals of double-entry bookkeeping

A trader has capital of £25,000 and liabilities of £8,000. She then buys goods on credit for £2,000 and sells half of those goods for £1,500 cash. What are her total assets after these transactions?

  1. £33,000
  2. £34,500
  3. £35,500 Correct answer.
  4. £37,000

Explanation

Opening assets are £25,000 + £8,000 = £33,000. The credit purchase adds £2,000 of inventory and £2,000 of liabilities, and the sale removes inventory costing £1,000 while adding £1,500 cash, giving assets of £33,000 + £2,000 + £1,500 − £1,000 = £35,500.