I85PREP
⌘ K
BCS Written Accounting study materials
BCS Written Accounting study resources

BCS Written Accounting practice questions

One question at a time. Build your BCS Written Accounting understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Financial Accounting

Under the accrual basis of accounting, when is revenue generally recognised?

  1. When the financial year ends regardless of activity
  2. When the invoice is printed and mailed
  3. When it is earned and the performance obligation is satisfied Correct answer.
  4. When cash is received from the customer

Explanation

The accrual basis records revenue when the entity satisfies its performance obligation by transferring promised goods or services, not when cash changes hands. This matching of earnings to the period in which value is delivered is the core of accrual accounting.

Question 2Financial Accounting

Which accounting equation correctly expresses the statement of financial position?

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

Explanation

The statement of financial position always balances because the resources controlled by the entity (assets) are financed either by outsiders (liabilities) or by owners (equity). Hence assets equal liabilities plus equity.

Question 3Financial Accounting

A company pays a twelve-month insurance premium in advance. What is the correct treatment at the reporting date?

  1. Recognise the unexpired portion as a prepayment asset Correct answer.
  2. Expense the whole premium immediately
  3. Record the unexpired portion as a liability
  4. Recognise the whole premium as revenue

Explanation

Only the portion of the premium relating to the expired period is an expense of the current period. The unexpired portion represents a future economic benefit controlled by the entity and is carried as a prepayment asset.

Question 4Financial Accounting

Which document is prepared to prove that total debits equal total credits before financial statements are produced?

  1. Trial balance Correct answer.
  2. Statement of cash flows
  3. Bank reconciliation
  4. Aged receivables report

Explanation

A trial balance lists every ledger account with its closing balance in debit and credit columns. Its purpose is to test the arithmetic equality of the double-entry records before statements are prepared.

Question 5Financial Accounting

Which cost flow assumption usually results in the highest cost of goods sold during a period of rising prices?

  1. Specific identification of oldest units
  2. Weighted average cost
  3. First-in, first-out
  4. Last-in, first-out Correct answer.

Explanation

When prices rise, the most recently purchased units carry the highest unit cost. Charging those units to cost of sales under last-in, first-out therefore produces the highest cost of goods sold and the lowest closing inventory value.

Question 6Financial Accounting

What is the effect on the accounting records when a business owner withdraws cash for personal use?

  1. Decrease cash and decrease equity Correct answer.
  2. Decrease cash and increase equity
  3. Increase cash and decrease liabilities
  4. Increase cash and increase liabilities

Explanation

A drawing reduces the cash asset and also reduces the owner's residual interest in the business. Both sides of the equation fall by the same amount, so the equation remains in balance.

Question 7Financial Accounting

Which of the following is a non-current asset?

  1. Motor vehicle held for use in deliveries Correct answer.
  2. Trade receivables due in thirty days
  3. Cash held in a current bank account
  4. Inventory awaiting sale

Explanation

A non-current asset is one expected to provide benefit over more than one reporting period. A delivery vehicle used in operations meets that definition, whereas the other items are realised or consumed within the normal operating cycle.

Question 8Financial Accounting

A business receives a bank loan of 50,000 in cash. How does this transaction affect the accounting equation?

  1. Liabilities increase and equity decreases
  2. Assets increase and liabilities increase Correct answer.
  3. Assets decrease and liabilities decrease
  4. Assets increase and equity increases

Explanation

Cash, an asset, rises by 50,000 when the loan is received. At the same time the obligation to repay the lender creates a liability of the same amount, so both sides of the equation grow equally.

Question 9Financial Accounting

A machine costing 40,000 has accumulated depreciation of 15,000 and is sold for 22,000. What is the result on disposal?

  1. A gain of 3,000 Correct answer.
  2. A gain of 7,000
  3. A loss of 18,000
  4. A loss of 3,000

Explanation

Carrying amount is cost less accumulated depreciation, that is 25,000. Proceeds of 22,000 are lower than the carrying amount, so the disposal produces a loss of 3,000.

Question 10Financial Accounting

A company has current assets of 90,000 and current liabilities of 60,000. What is the current ratio?

  1. 1.0 : 1
  2. 2.5 : 1
  3. 1.5 : 1 Correct answer.
  4. 0.67 : 1

Explanation

The current ratio divides current assets by current liabilities. Dividing 90,000 by 60,000 gives 1.5, expressed as 1.5 to 1, meaning the entity holds 1.50 of current assets for each unit of current liability.

Question 11Financial Accounting

Which of the following items would be added back to profit when preparing the operating section of a statement of cash flows using the indirect method?

  1. Depreciation expense for the year Correct answer.
  2. Proceeds from the sale of a factory
  3. An increase in trade payables
  4. A decrease in inventory

Explanation

Depreciation reduces reported profit without using any cash in the period. It is therefore added back to profit to arrive at cash generated from operations.

Question 12Financial Accounting

Under the allowance method, writing off a specific irrecoverable receivable against an existing allowance affects which elements?

  1. Profit and the allowance only
  2. Profit and trade receivables only
  3. Cash and profit
  4. Trade receivables and the allowance, with no effect on profit Correct answer.

Explanation

The write-off reduces the gross receivable and reduces the allowance by the same amount. Because the expense was recognised when the allowance was created, there is no further effect on profit at the date of write-off.

Question 13Financial Accounting

An entity pays 12,000 on 1 April for a one-year rental period, and its year end is 31 December. What expense and prepayment arise for that year?

  1. Expense 6,000 and prepayment 6,000
  2. Expense 3,000 and prepayment 9,000
  3. Expense 12,000 and prepayment nil
  4. Expense 9,000 and prepayment 3,000 Correct answer.

Explanation

Nine months of the twelve-month period fall within the reporting year, so nine-twelfths of 12,000, or 9,000, is expense. The remaining three months, 3,000, relate to the following year and are carried as a prepayment.

Question 14Financial Accounting

Which statement about the reducing balance method of depreciation is correct?

  1. It charges an equal amount each year over the useful life
  2. It charges a higher depreciation amount in the earlier years of an asset's life Correct answer.
  3. It is calculated on the original cost each year
  4. It ignores any expected residual value entirely

Explanation

The reducing balance method applies a fixed percentage to the declining carrying amount. Because the base falls each year, the depreciation charge is largest in the first year and decreases thereafter.

Question 15Financial Accounting

A business records sales of 200,000, of which 150,000 were on credit. Opening receivables were 30,000 and closing receivables were 40,000. What were the cash receipts from credit customers?

  1. 140,000 Correct answer.
  2. 150,000
  3. 130,000
  4. 160,000

Explanation

Cash collected equals opening receivables plus credit sales less closing receivables. That is 30,000 plus 150,000 less 40,000, giving 140,000 collected during the period.

Question 16Financial Accounting

Which of the following best describes the purpose of a suspense account?

  1. To hold a difference temporarily until its cause is found Correct answer.
  2. To accumulate depreciation on plant
  3. To record profits set aside for future investment
  4. To record amounts owed to the tax authority

Explanation

When a trial balance does not agree, the difference is entered in a suspense account so that draft statements can be prepared. The balance is cleared once the underlying error or errors are identified and corrected.

Question 17Financial Accounting

An entity issues goods to a customer with a right of return within 30 days. At the reporting date return is expected but the customer has not yet returned the goods. What is the appropriate treatment?

  1. Recognise the goods as inventory and no liability
  2. Recognise revenue net of expected returns and a refund liability Correct answer.
  3. Recognise full revenue and ignore the expected return
  4. Recognise no revenue until the return period expires

Explanation

Where a right of return exists, revenue is recognised only to the extent that it is highly probable no significant reversal will occur. The entity therefore recognises revenue net of expected returns and records a refund liability for the amount it expects to repay.

Question 18Financial Accounting

Which of the following is a fundamental qualitative characteristic of useful financial information?

  1. Comparability
  2. Relevance Correct answer.
  3. Verifiability
  4. Timeliness

Explanation

The conceptual framework identifies relevance and faithful representation as the two fundamental qualitative characteristics. Comparability, timeliness, verifiability and understandability are enhancing characteristics that increase usefulness but are not fundamental.

Question 19Financial Accounting

A company has profit before tax of 80,000 and a tax rate of 25 percent. It also has a non-deductible expense of 8,000. What is the tax expense for the year?

  1. 22,000 Correct answer.
  2. 26,000
  3. 18,000
  4. 20,000

Explanation

Tax is computed on taxable profit, which adds back the non-deductible expense to accounting profit. Taxable profit is therefore 88,000, and 25 percent of that gives a tax expense of 22,000.

Question 20Financial Accounting

A company issues 10,000 ordinary shares of nominal value 1.00 at 2.50 each. How is the premium treated?

  1. Recorded in a share premium account within equity Correct answer.
  2. Recorded as a liability to the shareholders
  3. Recognised as income in profit or loss
  4. Deducted from the nominal share capital

Explanation

The nominal value of 10,000 is credited to share capital and the excess of 15,000 is credited to a share premium account. Share premium forms part of equity and is not recognised as income.

Question 21Financial Accounting

An entity's inventory cost includes the purchase price, import duties and freight inwards. Which additional cost should normally be included?

  1. Conversion costs incurred in bringing the inventory to its present condition Correct answer.
  2. Selling commission on goods sold
  3. Abnormal wastage during production
  4. Storage costs not necessary in the production process

Explanation

Inventory cost comprises costs of purchase and costs of conversion, together with other costs incurred in bringing the inventory to its present location and condition. Conversion costs such as direct labour and production overheads therefore qualify for inclusion.

Question 22Financial Accounting

A company uses the allowance method. At the year end receivables are 100,000 and an allowance of 4 percent is required. The existing allowance is 2,500. What is the charge to profit or loss?

  1. 2,500
  2. 1,000
  3. 1,500 Correct answer.
  4. 4,000

Explanation

The required allowance is 4 percent of 100,000, which is 4,000. Since 2,500 already exists, only the increase of 1,500 is charged to profit or loss in the current period.

Question 23Financial Accounting

Opening inventory was 20,000, purchases were 90,000 and closing inventory was 25,000. Sales were 150,000. What is the gross profit percentage on sales?

  1. 36.7 percent
  2. 62.5 percent
  3. 40.0 percent
  4. 43.3 percent Correct answer.

Explanation

Cost of sales is opening inventory plus purchases less closing inventory, giving 85,000. Gross profit is 150,000 less 85,000, which is 65,000; dividing by sales of 150,000 gives approximately 43.3 percent.

Question 24Financial Accounting

A company reverses a previously recognised impairment loss on a machine. Under the cost model, what is the upper limit for the reversal?

  1. The original cost of the machine without any depreciation
  2. The recoverable amount plus the original impairment
  3. The carrying amount that would have been determined had no impairment been recognised Correct answer.
  4. The fair value at the date of reversal

Explanation

A reversal of impairment cannot raise the carrying amount above the amount that would have resulted had the original impairment never occurred. That ceiling reflects subsequent depreciation that would have been charged.

Question 25Financial Accounting

An entity has profit before tax of 60,000 and an effective tax rate of 30 percent. It also has a taxable temporary difference of 20,000 that will reverse in future periods. What deferred tax liability arises?

  1. 18,000
  2. 6,000 Correct answer.
  3. 20,000
  4. 2,000

Explanation

A deferred tax liability is measured by applying the expected tax rate to the taxable temporary difference. Applying 30 percent to 20,000 gives 6,000, which will be settled in future periods when the difference reverses.

Question 26Financial Accounting

Which accounting concept requires that expenses be matched with the revenues they helped generate in the same reporting period?

  1. The prudence concept
  2. The going concern assumption
  3. The accrual basis assumption
  4. The matching principle Correct answer.

Explanation

The matching principle requires that expenses be recognised in the same period as the revenues to which they relate, regardless of when cash moves. This is why adjustments for accruals and prepayments are made at a period end. Going concern and prudence address different issues, and accrual basis is the broader idea of recording transactions when they occur.

Question 27Financial Accounting

A business pays 3,600 on 1 October for insurance covering the twelve months to 30 September of the following year. Its accounting year ends on 31 December. What amount is charged as insurance expense for the current year?

  1. 3,600
  2. 1,800
  3. 900 Correct answer.
  4. 2,700

Explanation

Only the portion of the premium relating to the current accounting period is expensed. Three months (October to December) of the 3,600 annual premium have expired, giving 3,600 x 3/12 = 900. The remaining 2,700 is a prepayment carried forward as an asset.

Question 28Financial Accounting

Which document is sent by a supplier to correct an overcharge on an earlier invoice?

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

Explanation

A credit note is issued by a supplier to reduce the amount owed by a customer, for example when goods are returned or an invoice was overstated. It records a credit to the customer's account in the supplier's books. Statements of account summarise transactions, and remittance advices accompany payments.

Question 29Financial Accounting

A trial balance extracted at the year end balances in total. Which error would still allow the trial balance to balance?

  1. A cash payment of 90 was credited to cash and debited to rent Correct answer.
  2. A purchase of 250 was entered in the purchases account as 520
  3. The balance of the bank account was omitted from the trial balance
  4. A sale of 500 was recorded only in the sales account

Explanation

A trial balance only proves that total debits equal total credits. Recording a payment as a debit to rent and a credit to cash is a correctly doubled entry, so the trial balance still balances even though the wrong expense was debited. Errors of omission of one side, or of transposition on one side only, disturb the equality.

Question 30Financial Accounting

Which of the following is a liability of a business?

  1. Amounts owed to suppliers for goods bought on credit Correct answer.
  2. Inventory held for resale
  3. Cash held at the bank
  4. Equipment used in the factory

Explanation

A liability is a present obligation to transfer economic benefits in the future. Amounts owed to suppliers arise from past purchases and represent an obligation to pay, so they are trade payables. Inventory, equipment and cash are resources controlled by the entity and are assets.

Question 31Financial Accounting

A business has opening capital of 40,000. During the year it makes a profit of 15,000 and the owner withdraws 6,000 in cash. What is the closing capital?

  1. 61,000
  2. 49,000 Correct answer.
  3. 34,000
  4. 55,000

Explanation

Closing capital equals opening capital plus profit less drawings. Here 40,000 + 15,000 - 6,000 = 49,000. Profit increases the owner's interest, while drawings reduce it.

Question 32Financial Accounting

Which basis of inventory valuation is required by IAS 2?

  1. Selling price less a normal profit margin
  2. The higher of cost and net realisable value
  3. The lower of cost and net realisable value Correct answer.
  4. Replacement cost at the reporting date

Explanation

IAS 2 requires inventories to be measured at the lower of cost and net realisable value. This applies prudence by ensuring inventory is not carried above the amount it can realistically realise. Net realisable value is estimated selling price less costs to complete and sell.

Question 33Financial Accounting

A company's statement of financial position shows total assets of 500,000 and total liabilities of 180,000. What is the amount of equity?

  1. 180,000
  2. 320,000 Correct answer.
  3. 500,000
  4. 680,000

Explanation

The accounting equation states that assets equal liabilities plus equity, so equity is assets less liabilities. Here 500,000 - 180,000 = 320,000. Equity represents the residual interest of the owners in the net assets of the entity.

Question 34Financial Accounting

Which of the following costs should be capitalised as part of the cost of a new delivery vehicle?

  1. The annual road tax paid after the vehicle is brought into use
  2. The non-refundable registration fee paid to licence the vehicle Correct answer.
  3. The cost of the first full service carried out six months later
  4. Fuel used on the first delivery run

Explanation

Under IAS 16, the cost of an item of property, plant and equipment includes its purchase price and any directly attributable costs of bringing the asset to the location and condition needed for its intended use. A non-refundable registration fee is directly attributable and is capitalised. Costs incurred after the asset is ready for use, such as road tax, servicing and fuel, are expensed.

Question 35Financial Accounting

A business receives an invoice for electricity covering the three months to the year end, but the invoice has not yet arrived and no entry has been made. What adjustment is required?

  1. Record it by debiting accruals and crediting electricity expense
  2. Record a prepayment by debiting prepayments and crediting electricity expense
  3. Record an accrual by debiting electricity expense and crediting accruals Correct answer.
  4. Ignore it because no invoice has been received

Explanation

The electricity has been consumed during the period, so the expense must be recognised even though no invoice has arrived. The double entry is a debit to electricity expense and a credit to accruals, creating a liability. This applies the accrual and matching principles.

Question 36Financial Accounting

Which method of accounting for bank interest and bank charges is correct?

  1. Bank charges are debited to the bank account and credited to expenses
  2. Interest received is credited to the bank account and credited to interest income
  3. Bank charges are debited to bank charges expense and credited to the bank account Correct answer.
  4. Interest received is debited to the bank account and credited to interest income

Explanation

Bank charges reduce the cash held at the bank, so the bank asset is credited. The corresponding debit goes to a bank charges expense account. Interest received works the other way: the bank asset is debited and interest income is credited.

Question 37Financial Accounting

A company's gross profit is 60,000 and its operating expenses are 35,000. It also has interest payable of 5,000. What is its profit before tax?

  1. 60,000
  2. 25,000
  3. 20,000 Correct answer.
  4. 30,000

Explanation

Profit before tax is gross profit less operating expenses less finance costs. Here 60,000 - 35,000 - 5,000 = 20,000. Interest payable is a finance cost shown after operating profit but before tax.

Question 38Financial Accounting

A company has 200,000 ordinary shares of 1.00 each in issue. It declares a final dividend of 0.15 per share and an interim dividend of 0.05 per share was already paid. What total dividend appears in the statement of changes in equity for the year?

  1. 10,000
  2. 30,000
  3. 20,000
  4. 40,000 Correct answer.

Explanation

Dividends recorded in equity for the year comprise both the interim dividend already paid and the final dividend declared. The total per share is 0.15 + 0.05 = 0.20, and 200,000 shares x 0.20 = 40,000. Dividends are distributions to owners and are not an expense.

Question 39Financial Accounting

Which of the following is an example of a transaction that does not affect the total of shareholders' equity?

  1. The payment of a cash dividend declared earlier
  2. A transfer from retained earnings to a general reserve Correct answer.
  3. The issue of shares for cash at a premium
  4. The recognition of profit for the year

Explanation

A transfer between reserves is an internal reclassification within equity, so total equity is unchanged. Issuing shares increases equity, paying a declared dividend reduces it, and recognising profit increases it.

Question 40Financial Accounting

Which of the following is treated as a non-adjusting event after the reporting period under IAS 10?

  1. The settlement of a court case after the year end that confirms a present obligation at the year end
  2. The sale of inventory after the year end that provides evidence of its net realisable value at the year end
  3. The announcement of a major restructuring plan after the year end Correct answer.
  4. The bankruptcy of a major customer whose receivable existed at the reporting date

Explanation

Non-adjusting events are those that arise after the reporting period and do not concern conditions existing at the reporting date. Announcing a restructuring plan after the year end is such an event and requires disclosure if material, but no adjustment. The other options provide evidence of conditions that existed at the reporting date and are adjusting events.

Question 41Financial Accounting

A company's profit for the year is 90,000. It has 60,000 ordinary shares in issue throughout the year and no other shares. What is its basic earnings per share?

  1. 0.67
  2. 1.50 Correct answer.
  3. 2.25
  4. 1.67

Explanation

Basic earnings per share is profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares. Here 90,000 / 60,000 = 1.50 per share. The weighted average is used because shares may be issued during the year.

Question 42Financial Accounting

Which of the following best describes the treatment of a contingent liability under IAS 37?

  1. Disclose it unless the possibility of outflow is remote Correct answer.
  2. Recognise it as a liability at the best estimate of the obligation
  3. Ignore it entirely until a claim is settled
  4. Recognise it only when the amount can be measured reliably

Explanation

A contingent liability is a possible obligation whose existence depends on uncertain future events, or a present obligation that fails the recognition criteria. It is not recognised in the statement of financial position but is disclosed unless the possibility of an outflow is remote.

Question 43Financial Accounting

An entity purchases equipment for 100,000 with an estimated useful life of five years and no residual value. Using the straight-line method, what is the carrying amount at the end of the third year?

  1. 60,000
  2. 80,000
  3. 40,000 Correct answer.
  4. 20,000

Explanation

Annual depreciation is 100,000 / 5 = 20,000. After three years accumulated depreciation is 60,000, so the carrying amount is 100,000 - 60,000 = 40,000. Straight-line spreads the depreciable amount evenly over the useful life.

Question 44Financial Accounting

A company's bank statement shows a balance of 12,000 at 31 December. Cheques issued but not yet presented total 1,500, and a customer's cheque for 800 deposited on 30 December has not yet been credited. What is the cash book balance before any corrections?

  1. 12,700
  2. 10,700 Correct answer.
  3. 13,300
  4. 11,300

Explanation

A bank reconciliation starts from the bank statement balance and adjusts for items not yet reflected. Unpresented cheques have already reduced the cash book, so deduct 1,500; the uncredited deposit has already increased the cash book, so add 800. This gives 12,000 - 1,500 + 800 = 11,300, meaning the cash book shows 11,300.

Question 45Financial Accounting

Which of the following is the correct double entry to record the issue of ordinary shares at a premium?

  1. Debit share capital and credit share premium
  2. Debit bank and credit share capital only
  3. Debit share premium and credit bank
  4. Debit bank and credit share capital and share premium Correct answer.

Explanation

When shares are issued at a premium the cash received equals nominal value plus premium. The bank account is debited with the total proceeds, while share capital is credited with the nominal amount and share premium with the excess. This keeps the share capital account at nominal value only.

Question 46Financial Accounting

A company has an operating profit of 50,000. Depreciation of 8,000 and a profit on disposal of equipment of 3,000 are included in this figure. Working capital changes are nil. What is the net cash from operating activities?

  1. 55,000 Correct answer.
  2. 61,000
  3. 39,000
  4. 45,000

Explanation

Under the indirect method, non-cash charges such as depreciation are added back and non-operating gains such as profit on disposal are deducted. Starting from 50,000, add 8,000 and deduct 3,000 to give 55,000. Working capital changes are stated to be nil.

Question 47Financial Accounting

Which of the following is the correct accounting treatment for a government grant related to an asset under IAS 20?

  1. Deduct the grant from the asset's cost without any subsequent release
  2. Recognise the grant as a liability until the asset is disposed of
  3. Recognise the grant as deferred income and release it over the asset's useful life Correct answer.
  4. Recognise the grant immediately in profit or loss in full

Explanation

IAS 20 allows a grant related to an asset to be presented either as deferred income released to profit or loss over the asset's useful life, or as a deduction from the asset's carrying amount. Either way, the benefit is recognised over the periods in which the related costs are incurred.

Question 48Financial Accounting

An entity uses a perpetual inventory system. Goods costing 2,000 are returned by a customer who had paid in cash. What is the correct double entry?

  1. Debit cash and credit sales returns; debit cost of sales and credit inventory
  2. Debit inventory and credit cash; debit sales returns and credit cost of sales
  3. Debit sales returns and credit inventory only
  4. Debit sales returns and credit cash; debit inventory and credit cost of sales Correct answer.

Explanation

A sales return requires two entries: the refund to the customer and the return of the goods to inventory. The refund is recorded by debiting sales returns and crediting cash, and the inventory is restored by debiting inventory and crediting cost of sales.

Question 49Financial Accounting

Which of the following best describes the purpose of the statement of changes in equity?

  1. To show the profit or loss for the period only
  2. To show the cash generated from operating, investing and financing activities
  3. To reconcile the opening and closing balances of each component of equity Correct answer.
  4. To present the assets, liabilities and equity at a single date

Explanation

The statement of changes in equity reconciles the opening and closing balances of each component of equity, such as share capital, reserves and retained earnings. It shows items such as profit for the year, dividends and transfers between reserves. Assets and liabilities appear in the statement of financial position.

Question 50Financial Accounting

A company has a current ratio of 1.5 and an acid-test ratio of 0.9. What does this combination most likely indicate?

  1. The company holds a significant amount of inventory relative to its liquid assets Correct answer.
  2. The company has a high level of long-term debt
  3. The company is unable to pay its current liabilities
  4. The company has no inventory and relies entirely on cash

Explanation

The acid-test ratio excludes inventory from current assets, so a large gap between the current and acid-test ratios suggests that inventory forms a substantial part of current assets. The company still has current assets exceeding current liabilities, so short-term solvency is not necessarily in doubt. Long-term debt is not measured by these ratios.