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WACE Accounting Finance ATAR study materials
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WACE Accounting Finance ATAR practice questions

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Question 1Financial accounting: recording, processing and reporting financial information

Which accounting assumption justifies preparing financial statements at regular intervals, such as annually, even though a business continues indefinitely?

  1. Going concern assumption
  2. Accrual assumption
  3. Reporting period assumption Correct answer.
  4. Business entity assumption

Explanation

The reporting period assumption divides the life of a continuing business into artificial time periods so that performance can be measured and reported at regular intervals. The going concern assumption instead supports the view that the entity will continue operating long enough to use its assets and settle its liabilities.

Question 2Financial accounting: recording, processing and reporting financial information

A business receives $2,400 cash on 1 March for services to be performed evenly over the next six months. Under accrual accounting, how much revenue is recognised for the month of March?

  1. $2,400
  2. $0
  3. $400 Correct answer.
  4. $1,200

Explanation

Under accrual accounting, revenue is recognised when the service is performed, not when cash is received. Earning the service evenly over six months gives $2,400 divided by 6, which equals $400 per month, and the remaining $2,000 is a liability for unearned revenue.

Question 3Financial accounting: recording, processing and reporting financial information

Which of the following is recorded in the general journal rather than a special journal?

  1. Sale of an old vehicle on credit Correct answer.
  2. Return of faulty goods to a supplier
  3. Credit purchases of inventory
  4. Cash sales of inventory

Explanation

The general journal records transactions that do not fit the routine special journals, such as the sale of a non-current asset on credit. Cash sales, credit purchases and purchase returns are handled by the cash receipts, purchases and purchases returns journals respectively.

Question 4Financial accounting: recording, processing and reporting financial information

A trial balance totals $84,600 on both sides. Which error could still exist despite this agreement?

  1. A cash receipt of $620 was recorded as a debit to cash and a credit to cash
  2. A purchase of $300 was debited to equipment and credited to accounts payable
  3. A payment of $900 for rent was recorded only in the cash payments journal Correct answer.
  4. A sale of $450 was posted to the sales account as $540

Explanation

A one-sided entry leaves the trial balance unequal only if the missing amount is not offset, but a completely omitted transaction from the ledger produces no imbalance at all. Errors that affect only one side of one entry, or that are entirely omitted, keep the trial balance in agreement.

Question 5Financial accounting: recording, processing and reporting financial information

Which document is the source of information for recording a credit purchase of inventory?

  1. Bank statement
  2. Purchase order issued by the business
  3. Supplier's invoice Correct answer.
  4. Delivery docket

Explanation

The supplier's invoice states the goods supplied, the amount payable and the credit terms, so it provides the evidence for recording a credit purchase. A purchase order is only a request to buy, and a delivery docket confirms goods received but not the price charged.

Question 6Financial accounting: recording, processing and reporting financial information

A business uses the perpetual inventory system. It sells goods on credit for $1,500 that cost $900. Which entry correctly records the cost of the sale?

  1. Debit cost of sales $900; credit inventory $900 Correct answer.
  2. Debit cost of sales $1,500; credit inventory $1,500
  3. Debit accounts receivable $900; credit sales $900
  4. Debit inventory $900; credit cost of sales $900

Explanation

Under perpetual inventory, the cost of goods sold is transferred out of the inventory account at the time of each sale. The cost of sales account is debited and inventory is credited with the cost price of $900, separate from the revenue entry.

Question 7Financial accounting: recording, processing and reporting financial information

Which ledger account is classified as a contra asset?

  1. Allowance for doubtful debts
  2. Accumulated depreciation Correct answer.
  3. Depreciation expense
  4. Discount received

Explanation

Accumulated depreciation is a contra asset because it is deducted from the related asset to show carrying amount. It has a credit balance although it sits alongside asset accounts in the ledger.

Question 8Financial accounting: recording, processing and reporting financial information

A firm's bank statement shows a balance of $5,200. Outstanding cheques total $700 and deposits not yet credited total $1,100. What is the adjusted cash book balance?

  1. $6,300
  2. $5,200
  3. $4,800
  4. $5,600 Correct answer.

Explanation

Reconciling from the bank statement balance, add deposits not yet credited and subtract outstanding cheques: $5,200 + $1,100 - $700 = $5,600. This adjusted figure represents the true cash position before any bank errors or unrecorded items are considered.

Question 9Financial accounting: recording, processing and reporting financial information

Which item would require an adjusting entry in the business's own cash book rather than in the bank reconciliation?

  1. A cheque dishonoured by the bank and recorded by the business
  2. An unpresented cheque
  3. A deposit not yet shown on the bank statement
  4. Bank charges not yet recorded by the business Correct answer.

Explanation

Bank charges reduce the bank balance but may not yet appear in the business's records, so the cash book must be updated. Timing differences such as deposits in transit and unpresented cheques are dealt with in the reconciliation itself.

Question 10Financial accounting: recording, processing and reporting financial information

Under the allowance method, a business estimates doubtful debts at 3% of accounts receivable of $80,000. The allowance account already has a credit balance of $500. What is the doubtful debts expense for the period?

  1. $500
  2. $2,400
  3. $1,900 Correct answer.
  4. $2,900

Explanation

The required allowance is 3% of $80,000, which is $2,400. Because $500 already exists as a credit balance, the expense needed to raise the allowance is $2,400 minus $500, equal to $1,900.

Question 11Financial accounting: recording, processing and reporting financial information

Which statement about the straight-line method of depreciation is correct?

  1. It ignores residual value entirely
  2. It bases depreciation on the number of units produced
  3. It charges a higher depreciation expense in the first year than later years
  4. It allocates an equal amount of depreciation each period over the useful life Correct answer.

Explanation

Straight-line depreciation spreads the depreciable amount, being cost less residual value, evenly across the estimated useful life. This produces the same expense each period regardless of usage.

Question 12Financial accounting: recording, processing and reporting financial information

Equipment costing $30,000 with accumulated depreciation of $12,000 is sold for $15,000 cash. What is the result on disposal?

  1. Gain of $3,000
  2. Gain of $15,000
  3. Loss of $15,000
  4. Loss of $3,000 Correct answer.

Explanation

Carrying amount equals cost less accumulated depreciation, which is $30,000 minus $12,000, giving $18,000. Selling for $15,000 produces a loss of $3,000 because proceeds are below carrying amount.

Question 13Financial accounting: recording, processing and reporting financial information

Which of the following is a current liability?

  1. Retained earnings
  2. GST payable to the tax office Correct answer.
  3. A bank loan repayable in five years
  4. Mortgage on land and buildings

Explanation

GST payable is a current liability because it is expected to be settled within the next reporting period through payment to the tax authority. Long-term borrowings and mortgages are non-current liabilities, and retained earnings form part of equity.

Question 14Financial accounting: recording, processing and reporting financial information

A business records a credit sale of $4,000 plus 10% GST. Which entry is correct?

  1. Debit accounts receivable $4,000; credit sales $4,400
  2. Debit sales $4,400; credit accounts receivable $4,400
  3. Debit accounts receivable $4,400; credit sales $4,400
  4. Debit accounts receivable $4,400; credit sales $4,000; credit GST payable $400 Correct answer.

Explanation

The customer owes the selling price plus GST, so accounts receivable is debited with $4,400. Sales revenue is credited with $4,000 and the GST collected of $400 is credited to GST payable as a liability.

Question 15Financial accounting: recording, processing and reporting financial information

Which financial statement reports the assets, liabilities and equity of a business at a particular date?

  1. Statement of changes in equity
  2. Balance sheet Correct answer.
  3. Statement of cash flows
  4. Income statement

Explanation

The balance sheet, also called the statement of financial position, presents assets, liabilities and equity at a specific point in time. The other statements report performance or movements over a period.

Question 16Financial accounting: recording, processing and reporting financial information

A business has current assets of $60,000, inventory of $20,000 and current liabilities of $30,000. What is the quick ratio?

  1. 1.33 Correct answer.
  2. 0.67
  3. 2.00
  4. 1.50

Explanation

The quick ratio excludes inventory from current assets, giving $60,000 minus $20,000, which is $40,000. Dividing by current liabilities of $30,000 gives 1.33.

Question 17Financial accounting: recording, processing and reporting financial information

Which of the following best describes the purpose of a subsidiary ledger?

  1. To record only cash transactions
  2. To calculate depreciation for the period
  3. To provide detailed information about individual accounts summarised in a control account Correct answer.
  4. To replace the general ledger entirely

Explanation

A subsidiary ledger holds the individual debtor or creditor accounts whose totals are summarised in a control account in the general ledger. This keeps detailed records while the control account supports the general ledger balance.

Question 18Financial accounting: recording, processing and reporting financial information

The accounts receivable control account shows a debit balance of $25,000, but the schedule of debtors totals $25,600. Which item could explain the difference?

  1. A credit sale of $600 recorded in the sales journal but not posted to the debtor's account Correct answer.
  2. Depreciation of $600 on office equipment
  3. A cash sale of $600
  4. A purchase return of $600

Explanation

If a sale is entered in the sales journal and posted to the control account but omitted from the individual debtor's account, the schedule of debtors will be lower than the control balance. The difference equals the unposted amount.

Question 19Financial accounting: recording, processing and reporting financial information

Which of the following is an example of an internal control over cash receipts?

  1. Keeping cash in the office safe indefinitely
  2. Allowing the same person to receive cash and record it
  3. Issuing pre-numbered receipts and banking cash daily Correct answer.
  4. Recording cash sales only at the end of the month

Explanation

Pre-numbered receipts provide a record of every amount received, and daily banking reduces the cash held on the premises. Together these controls reduce the risk of theft or unrecorded receipts.

Question 20Financial accounting: recording, processing and reporting financial information

A business pays $1,200 on 1 July for a one-year insurance policy and initially records it as prepaid insurance. What adjusting entry is required at 31 December?

  1. No entry is required until the policy expires
  2. Debit insurance expense $1,200; credit prepaid insurance $1,200
  3. Debit prepaid insurance $600; credit insurance expense $600
  4. Debit insurance expense $600; credit prepaid insurance $600 Correct answer.

Explanation

Six months of the twelve-month policy have expired by 31 December, so $600 has been consumed. The expense is recognised by debiting insurance expense and reducing the prepaid asset by the same amount.

Question 21Financial accounting: recording, processing and reporting financial information

Which of the following would appear in a post-closing trial balance?

  1. Sales revenue
  2. Discount allowed
  3. Depreciation expense
  4. Accounts payable Correct answer.

Explanation

A post-closing trial balance contains only permanent accounts, being assets, liabilities and equity, after temporary revenue and expense accounts are closed. Accounts payable is a liability and therefore appears in it.

Question 22Financial accounting: recording, processing and reporting financial information

A business has a gross profit of $90,000, operating expenses of $55,000 and a loss on disposal of equipment of $5,000. What is the profit for the period?

  1. $40,000
  2. $35,000
  3. $30,000 Correct answer.
  4. $25,000

Explanation

Profit is gross profit less operating expenses and other expenses such as the loss on disposal. That gives $90,000 minus $55,000 minus $5,000, which equals $30,000.

Question 23Financial accounting: recording, processing and reporting financial information

Which qualitative characteristic requires financial information to be free from material error and bias?

  1. Understandability
  2. Timeliness
  3. Comparability
  4. Faithful representation Correct answer.

Explanation

Faithful representation means the information depicts the economic substance of transactions completely, neutrally and without material error. The other characteristics enhance usefulness but do not define freedom from error and bias.

Question 24Financial accounting: recording, processing and reporting financial information

A business's opening capital is $50,000. During the year it earns profit of $18,000, contributes additional capital of $5,000 and the owner withdraws $7,000. What is closing capital?

  1. $76,000
  2. $56,000
  3. $66,000 Correct answer.
  4. $52,000

Explanation

Closing capital equals opening capital plus additional capital plus profit, less drawings. That gives $50,000 + $5,000 + $18,000 - $7,000, which equals $66,000.

Question 25Financial accounting: recording, processing and reporting financial information

Which of the following is the correct treatment of a prepayment in the balance sheet at reporting date?

  1. Reported as equity
  2. Reported as a current liability because cash has been paid
  3. Reported as an expense in full
  4. Reported as a current asset because the benefit will be received in the next period Correct answer.

Explanation

A prepayment represents a future economic benefit controlled by the entity, so the unexpired portion is a current asset. The expired portion is recognised as an expense in the income statement.

Question 26Financial accounting: recording, processing and reporting financial information

A business receives $2,000 cash from a debtor. What is the effect on the accounting equation?

  1. Assets decrease and liabilities decrease
  2. Liabilities increase and assets increase
  3. Assets increase and equity increases
  4. One asset increases and another asset decreases, with no net change Correct answer.

Explanation

Receiving cash from a debtor increases the asset cash and decreases the asset accounts receivable by the same amount. Total assets and total equity are unchanged because the two asset movements offset each other.

Question 27Financial accounting: recording, processing and reporting financial information

Which document is issued by a seller to inform a buyer that the amount owed has been reduced because goods were returned?

  1. Purchase order
  2. Credit note Correct answer.
  3. Remittance advice
  4. Statement of account

Explanation

A credit note records a reduction in the amount a customer owes, typically for returned goods or an overcharge. It is issued by the seller and provides the source document for the return entry.

Question 28Financial accounting: recording, processing and reporting financial information

A business purchases office supplies on credit for $600. Which double-entry is correct?

  1. Debit accounts payable $600; credit office supplies $600
  2. Debit office supplies $600; credit cash $600
  3. Debit office supplies $600; credit accounts payable $600 Correct answer.
  4. Debit cash $600; credit office supplies $600

Explanation

A purchase of supplies increases an expense or asset account, which is debited, and creates a liability to the supplier, which is credited. The credit entry belongs in accounts payable because payment has not yet been made.

Question 29Financial accounting: recording, processing and reporting financial information

Which of the following transactions would be recorded in the general journal rather than a special journal?

  1. Cash sale of inventory to a customer
  2. Return of faulty goods to a supplier
  3. Purchase of inventory on credit from a supplier
  4. Correction of an error that overstated rent expense Correct answer.

Explanation

The general journal records infrequent or non-routine transactions that do not fit the cash receipts, cash payments, sales or purchases journals. Correcting errors is a typical general journal entry because it requires a narrative explanation.

Question 30Financial accounting: recording, processing and reporting financial information

A trial balance has total debits of $84,000 and total credits of $83,550. Which error could explain this difference?

  1. A credit sale of $450 was posted to the wrong customer's account
  2. A $450 cash payment was entered as a debit to cash instead of a credit Correct answer.
  3. A payment of $450 to a creditor was not recorded at all
  4. A $450 purchase was recorded in the wrong month

Explanation

Entering a payment on the wrong side of an account doubles the error in the trial balance, producing a difference equal to twice the amount. A $450 item posted to the wrong side therefore creates a $900 imbalance, so a one-sided posting error of this type is consistent with a mismatch that is a multiple of the amount.

Question 31Financial accounting: recording, processing and reporting financial information

A business has a bank overdraft of $3,000. How should this be classified in the balance sheet?

  1. A current liability Correct answer.
  2. A non-current liability
  3. A current asset
  4. A reduction of equity

Explanation

A bank overdraft is repayable on demand and is therefore reported as a current liability. It represents money owed to the bank rather than a resource controlled by the business.

Question 32Financial accounting: recording, processing and reporting financial information

A business uses the reducing balance method at 20% per annum. Equipment costing $10,000 was purchased on 1 July. What is the depreciation expense for the second year ending 30 June?

  1. $1,800
  2. $1,280
  3. $2,000
  4. $1,600 Correct answer.

Explanation

First-year depreciation is 20% of $10,000, which is $2,000, leaving a carrying amount of $8,000. Second-year depreciation is 20% of $8,000, which equals $1,600.

Question 33Financial accounting: recording, processing and reporting financial information

A business's petty cash imprest is $200. Vouchers total $145 and cash on hand is $50. What does the discrepancy indicate?

  1. The imprest has been increased to $205
  2. The vouchers have been overstated by $5
  3. The petty cashier has a shortage of $5 Correct answer.
  4. The petty cashier has a surplus of $5

Explanation

Under the imprest system, cash on hand plus vouchers should equal the float of $200. Here $50 plus $145 gives $195, so $5 is missing and must be recorded as a cash shortfall.

Question 34Financial accounting: recording, processing and reporting financial information

Which entry records the receipt of a loan from a bank into the business bank account?

  1. Debit cash at bank; credit bank loan Correct answer.
  2. Debit bank loan; credit cash at bank
  3. Debit capital; credit cash at bank
  4. Debit interest expense; credit cash at bank

Explanation

Borrowing increases the asset cash at bank, which is debited, and creates a liability to the lender, which is credited to the bank loan account. Repayments later reverse this entry.

Question 35Financial accounting: recording, processing and reporting financial information

A business records rent paid of $6,000 for the year, but $1,500 of this relates to the next financial year. What adjustment is required?

  1. Debit rent expense $1,500; credit prepaid rent $1,500
  2. No adjustment is needed because cash has been paid
  3. Debit accrued rent $1,500; credit rent expense $1,500
  4. Debit prepaid rent $1,500; credit rent expense $1,500 Correct answer.

Explanation

The portion of rent relating to a future period is an asset at the reporting date. The adjustment reduces the expense and recognises a prepayment by debiting prepaid rent and crediting rent expense.

Question 36Financial accounting: recording, processing and reporting financial information

A business has an opening allowance for doubtful debts of $2,000. At year end, receivables are $90,000 and the allowance is to be 4% of receivables. What is the doubtful debts expense for the year?

  1. $2,000
  2. $1,600 Correct answer.
  3. $3,600
  4. $5,600

Explanation

The required closing allowance is 4% of $90,000, which is $3,600. Since $2,000 already exists, the expense needed to raise the allowance is $1,600.

Question 37Financial accounting: recording, processing and reporting financial information

Which of the following would be classified as a non-current asset?

  1. Prepaid insurance expiring in three months
  2. Accounts receivable due in 30 days
  3. A delivery vehicle used for five years Correct answer.
  4. Inventory awaiting sale

Explanation

A non-current asset is one expected to provide benefit for more than twelve months. A delivery vehicle used over several years meets this definition, whereas inventory, short-term prepayments and receivables are current.

Question 38Financial accounting: recording, processing and reporting financial information

A business has net sales of $200,000, cost of sales of $120,000 and operating expenses of $50,000. What is the profit margin (net profit as a percentage of net sales)?

  1. 15% Correct answer.
  2. 40%
  3. 25%
  4. 60%

Explanation

Gross profit is $200,000 less $120,000, which is $80,000, and net profit is $80,000 less $50,000, which is $30,000. Dividing $30,000 by $200,000 gives a profit margin of 15%.

Question 39Financial accounting: recording, processing and reporting financial information

Which of the following is recorded in the cash payments journal?

  1. A credit purchase of inventory
  2. A credit sale to a customer
  3. Payment of wages by electronic transfer Correct answer.
  4. A customer returning goods bought on credit

Explanation

The cash payments journal records all transactions where cash leaves the business, including electronic transfers. Credit transactions and returns do not involve an immediate cash flow.

Question 40Financial accounting: recording, processing and reporting financial information

A business's inventory at the start of the year was $18,000, purchases were $95,000 and inventory at the end was $22,000. Cost of sales is $88,000. What was the value of closing inventory if the figure of $22,000 is later found to be overstated by $3,000?

  1. $16,000
  2. $25,000
  3. $19,000 Correct answer.
  4. $22,000

Explanation

If the recorded closing inventory of $22,000 is overstated by $3,000, the correct figure is $22,000 less $3,000, which is $19,000. Overstating closing inventory also understates cost of sales and overstates profit.

Question 41Financial accounting: recording, processing and reporting financial information

Which concept requires that expenses be recognised in the same period as the revenues they helped to generate?

  1. Prudence
  2. Matching Correct answer.
  3. Materiality
  4. Consistency

Explanation

The matching principle links expenses with the revenue earned in the same reporting period. This is why adjustments such as accruals and prepayments are made at the end of the period.

Question 42Financial accounting: recording, processing and reporting financial information

A business has equity of $120,000 and liabilities of $45,000. What are its total assets?

  1. $120,000
  2. $45,000
  3. $165,000 Correct answer.
  4. $75,000

Explanation

The accounting equation states that assets equal liabilities plus equity. Adding $45,000 and $120,000 gives total assets of $165,000.

Question 43Financial accounting: recording, processing and reporting financial information

A business receives a bank statement showing bank charges of $35 that have not yet been recorded in its cash book. What is the effect of the required adjustment on the cash book?

  1. No entry is needed because the bank has recorded it
  2. Cash at bank decreases by $35 Correct answer.
  3. Accounts payable increases by $35
  4. Cash at bank increases by $35

Explanation

Bank charges reduce the balance of the business's bank account and must be recorded in the cash book. The entry debits bank charges expense and credits cash at bank, lowering the cash book balance.

Question 44Financial accounting: recording, processing and reporting financial information

A business has a gross profit ratio of 30% and net sales of $250,000. What is the cost of sales?

  1. $75,000
  2. $150,000
  3. $175,000 Correct answer.
  4. $250,000

Explanation

A gross profit ratio of 30% means gross profit is $75,000. Cost of sales is net sales less gross profit, which is $250,000 less $75,000, equal to $175,000.

Question 45Financial accounting: recording, processing and reporting financial information

Which of the following best explains why a post-closing trial balance excludes revenue and expense accounts?

  1. Revenue and expense accounts are recorded only in special journals
  2. Revenue and expense accounts are reported only in the cash flow statement
  3. Revenue and expense accounts have been closed to the capital account Correct answer.
  4. Revenue and expense accounts are contra accounts to assets

Explanation

At the end of the period, revenue and expense account balances are transferred to the capital account through closing entries. Once closed, these accounts have nil balances and do not appear in the post-closing trial balance.

Question 46Financial accounting: recording, processing and reporting financial information

A business's bank statement balance is $8,400. Outstanding deposits total $1,200 and unpresented cheques total $900. What is the adjusted bank balance?

  1. $6,300
  2. $10,500
  3. $8,100
  4. $8,700 Correct answer.

Explanation

The adjusted bank balance is the statement balance plus outstanding deposits less unpresented cheques. Adding $1,200 to $8,400 and subtracting $900 gives $8,700.

Question 47Financial accounting: recording, processing and reporting financial information

A business uses the perpetual inventory system. It discovers that inventory costing $2,000 has been damaged and is now worthless. Which entry records this loss?

  1. Debit inventory $2,000; credit cost of sales $2,000
  2. Debit cost of sales $2,000; credit accounts payable $2,000
  3. Debit inventory loss $2,000; credit inventory $2,000 Correct answer.
  4. Debit accounts payable $2,000; credit inventory loss $2,000

Explanation

Under the perpetual system, the inventory account is kept continuously updated, so writing off damaged stock reduces inventory. The loss is recognised as an expense by debiting inventory loss and crediting inventory.

Question 48Financial accounting: recording, processing and reporting financial information

A business has a current ratio of 2.5 and current liabilities of $40,000. It then pays $10,000 of accounts payable using cash. What is the new current ratio?

  1. 3.0
  2. 2.0 Correct answer.
  3. 1.5
  4. 2.5

Explanation

Current assets initially equal 2.5 times $40,000, which is $100,000. Paying $10,000 of payables reduces both current assets and current liabilities by $10,000, giving $90,000 divided by $30,000, a ratio of 2.0.

Question 49Financial accounting: recording, processing and reporting financial information

Which of the following transactions would increase a business's working capital?

  1. Purchasing inventory on credit
  2. Taking out a five-year loan repayable in 2030
  3. Receiving cash from a debtor
  4. Selling inventory at a profit on credit Correct answer.

Explanation

Working capital is current assets less current liabilities. Selling inventory at a profit on credit increases receivables by more than the inventory removed, so current assets rise and working capital increases.

Question 50Financial accounting: recording, processing and reporting financial information

A business has an accumulated depreciation account for equipment of $24,000. What is the nature of this account in the ledger?

  1. A liability with a credit balance
  2. An expense with a debit balance
  3. An asset with a debit balance
  4. A contra asset with a credit balance Correct answer.

Explanation

Accumulated depreciation is a contra asset account that is offset against the related asset in the balance sheet. It carries a credit balance, which reduces the carrying amount of the asset.