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BGCSE Accounting 0614 study materials
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BGCSE Accounting 0614 practice questions

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Question 1The accounting environment and accounting concepts

Which statement best describes the purpose of the accounting equation in a business?

  1. It records the cash received from customers during a period.
  2. It lists the expenses paid by the owner privately.
  3. It shows that the resources owned always equal the claims against them. Correct answer.
  4. It calculates the profit earned from selling goods.

Explanation

The accounting equation states that assets equal liabilities plus capital, so the resources a business owns are always matched by the claims of outsiders and the owner. It is a fundamental identity underlying the double-entry system rather than a record of cash flows, profit, or drawings.

Question 2The accounting environment and accounting concepts

A business buys equipment for cash. What is the effect on the accounting equation?

  1. Assets decrease and liabilities decrease.
  2. Liabilities increase and capital decreases.
  3. Assets increase and capital increases.
  4. One asset increases and another asset decreases, so total assets stay the same. Correct answer.

Explanation

Buying equipment with cash exchanges one asset for another: equipment rises while cash falls by the same amount. Total assets and total claims are unchanged, so the equation remains balanced.

Question 3The accounting environment and accounting concepts

Which of these is an example of an internal user of accounting information?

  1. A tax authority checking a tax return
  2. A supplier assessing creditworthiness
  3. The production manager planning next year's budget Correct answer.
  4. A bank deciding whether to grant a loan

Explanation

Internal users work within the organisation and use accounting data to plan, control and make operating decisions. A production manager preparing a budget is therefore an internal user, while lenders, suppliers and tax authorities are external parties.

Question 4The accounting environment and accounting concepts

Which concept requires that a business's transactions be kept separate from the owner's personal affairs?

  1. The going concern concept
  2. The accrual concept
  3. The business entity concept Correct answer.
  4. The consistency concept

Explanation

The business entity concept treats the business as separate from its owners, so only business transactions are recorded in its books. Personal spending by the owner is treated as drawings, not as a business expense.

Question 5The accounting environment and accounting concepts

A trader records sales at the amount agreed with the customer at the time of sale. Which concept is being applied?

  1. Materiality
  2. Prudence
  3. Historical cost
  4. Realisation Correct answer.

Explanation

The realisation concept recognises revenue when the sale is made and the amount is reasonably certain, not when cash is received. Recording sales at the agreed transaction value at the point of sale reflects this principle.

Question 6The accounting environment and accounting concepts

Which pair of financial statements is prepared primarily for external users at the end of an accounting period?

  1. The statement of financial position and the income statement Correct answer.
  2. The sales day book and the purchases day book
  3. The trial balance and the journal
  4. The cash book and the petty cash book

Explanation

The income statement and statement of financial position summarise performance and position for external reporting. Books of original entry and the trial balance are internal records used to prepare those statements.

Question 7The accounting environment and accounting concepts

A business pays a year's insurance premium in advance in December. Under the accrual concept, how should this be treated?

  1. Ignore the payment until the following year.
  2. Record the whole amount as a liability at the year end.
  3. Charge only the portion relating to the current period and carry the rest forward as a prepayment. Correct answer.
  4. Charge the whole amount as an expense in December.

Explanation

The accrual concept matches expenses to the period that benefits from them. Only the portion of the premium covering the current period is an expense, and the remainder is carried forward as a prepaid asset.

Question 8The accounting environment and accounting concepts

Which statement correctly describes the role of the International Accounting Standards Board?

  1. It develops and issues accounting standards used internationally. Correct answer.
  2. It audits the financial statements of multinational companies.
  3. It sets the interest rates charged by central banks.
  4. It collects taxes from companies operating across borders.

Explanation

The International Accounting Standards Board is a standard-setting body that develops and publishes International Financial Reporting Standards. It does not audit companies, collect tax or set monetary policy.

Question 9The accounting environment and accounting concepts

A trader keeps her personal household electricity bill among the shop's papers and pays it from the business bank account. Which concept has been breached?

  1. The prudence concept
  2. The realisation concept
  3. The consistency concept
  4. The business entity concept Correct answer.

Explanation

The business entity concept requires business records to contain only transactions of the business itself. Paying a private household bill from the business account mixes personal and business affairs, so it should be treated as drawings.

Question 10The accounting environment and accounting concepts

Which of these best explains the going concern assumption?

  1. The business will be sold within the next twelve months.
  2. All debts will be settled before the year end.
  3. Assets are valued at the amount they would fetch if sold today.
  4. The business is expected to continue trading for the foreseeable future. Correct answer.

Explanation

Going concern assumes the entity will remain in operation for the foreseeable future, so assets are recorded at cost rather than at break-up value. This justifies preparing normal financial statements rather than a liquidation statement.

Question 11The accounting environment and accounting concepts

A trader uses the reducing balance method for depreciation every year. Which concept does this best illustrate?

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

Explanation

Consistency requires a business to apply the same accounting methods and policies each period so that results are comparable. Using the same depreciation method year after year demonstrates this principle.

Question 12The accounting environment and accounting concepts

Which item is most likely to be considered immaterial and therefore not shown separately in the financial statements?

  1. The purchase of a new delivery van for the business
  2. A bank loan repayable in five years
  3. The sale of a building owned by the business
  4. A box of paper clips bought for office use Correct answer.

Explanation

Materiality allows small items that would not influence a user's decisions to be grouped or treated simply. A box of paper clips is trivial in value and need not be disclosed separately, unlike large asset purchases, property sales or loans.

Question 13The accounting environment and accounting concepts

A business has assets of $85,000 and liabilities of $32,000. What is the capital?

  1. $117,000
  2. $32,000
  3. $85,000
  4. $53,000 Correct answer.

Explanation

Rearranging the accounting equation gives capital equal to assets minus liabilities. Subtracting $32,000 from $85,000 produces capital of $53,000.

Question 14The accounting environment and accounting concepts

Which of the following is an example of a capital receipt rather than a revenue receipt?

  1. Interest received on a business bank deposit
  2. Rent received from letting part of the shop premises
  3. Cash received from the sale of goods to a customer
  4. Cash received from the owner introducing a new vehicle into the business Correct answer.

Explanation

Capital receipts arise from transactions involving the owner's capital or long-term finance, such as additional capital introduced. Revenue receipts arise from normal trading activities such as sales, interest and rent received.

Question 15The accounting environment and accounting concepts

A trader records a machine at its purchase price of $12,000 even though its current market value is $15,000. Which concept is being applied?

  1. The consistency concept
  2. The going concern concept
  3. The accrual concept
  4. The historical cost concept Correct answer.

Explanation

The historical cost concept records assets at the amount originally paid for them rather than at current market value. Recording the machine at $12,000 therefore reflects historical cost.

Question 16The accounting environment and accounting concepts

Which statement best explains why prudence is applied when valuing inventory?

  1. Inventory should be valued at the higher of cost and net realisable value to show the best position.
  2. Inventory should always be valued at selling price less a standard mark-up.
  3. Inventory should be valued at the price expected to be paid for replacements.
  4. Inventory should be valued at the lower of cost and net realisable value so that losses are not overstated as gains. Correct answer.

Explanation

Prudence requires that assets are not overstated and that foreseeable losses are recognised. Valuing inventory at the lower of cost and net realisable value prevents anticipated profits from being recorded before they are earned.

Question 17The accounting environment and accounting concepts

Which of these describes the dual aspect concept in double-entry bookkeeping?

  1. Every business has two owners who must both be recorded.
  2. Every transaction affects two or more accounts and keeps the equation balanced. Correct answer.
  3. Every asset must be recorded at two different values.
  4. Every transaction must be recorded twice in the same account.

Explanation

The dual aspect concept states that every transaction has two effects, which are recorded as debits and credits of equal value. This keeps total debits equal to total credits and preserves the accounting equation.

Question 18The accounting environment and accounting concepts

A business owner withdraws goods from stock for personal use. How should this be recorded?

  1. As drawings at cost, reducing purchases or stock and increasing drawings Correct answer.
  2. As a sale at selling price in the sales account
  3. As an expense in the income statement
  4. As a purchase return to the supplier

Explanation

Goods taken by the owner are drawings because they are a private benefit, and the business entity concept requires them to be separated from trading. They are recorded at cost, reducing purchases or stock and increasing the drawings account.

Question 19The accounting environment and accounting concepts

Which of the following best describes the purpose of an accounting standard?

  1. To guarantee that a business makes a profit each year
  2. To fix the selling prices charged by businesses
  3. To provide consistent rules so that financial statements are comparable and reliable Correct answer.
  4. To replace the need for an independent audit

Explanation

Accounting standards set out consistent rules for recording and reporting transactions, which improves comparability and reliability for users. They do not guarantee profit, replace audits or control prices.

Question 20The accounting environment and accounting concepts

A trader pays $2,400 for a one-year insurance policy on 1 October and prepares accounts to 31 December. Using the accrual concept, what is the insurance expense for the year?

  1. $1,800
  2. $2,400
  3. $600 Correct answer.
  4. $1,200

Explanation

Three months of cover (October to December) relate to the current period, so the expense is 3/12 of $2,400, which equals $600. The remaining $1,800 is a prepayment carried forward as an asset.

Question 21Source documents and books of original entry

A business receives a cheque from a customer in full settlement of an invoice. Which source document is prepared by the seller and issued to the customer to acknowledge the payment received?

  1. A receipt Correct answer.
  2. A credit note
  3. A debit note
  4. A purchase invoice

Explanation

A receipt is the document the seller issues to confirm that money has been received from the customer. It records the amount, date and method of payment and provides proof of settlement. It is issued after payment, unlike an invoice which requests payment.

Question 22Source documents and books of original entry

Which book of original entry is used to record the sale of goods on credit to a customer?

  1. The sales journal Correct answer.
  2. The general journal
  3. The purchases journal
  4. The cash book

Explanation

The sales journal, also called the sales day book, records credit sales in date order before they are posted to the ledger. Cash sales are not entered there because they go through the cash book. Each entry is supported by a copy of the sales invoice issued to the customer.

Question 23Source documents and books of original entry

A trader pays a supplier by cheque. Which two documents are most directly involved in recording this transaction?

  1. A debit note and a statement of account
  2. A cheque counterfoil and a receipt Correct answer.
  3. A sales invoice and a credit note
  4. A purchase order and a delivery note

Explanation

The cheque counterfoil is the trader's own record that a payment was made, and the receipt from the supplier confirms the money was accepted. Together they support the entry on the credit side of the cash book. The other documents listed belong to earlier stages of a credit transaction.

Question 24Source documents and books of original entry

Which document does a seller send to a customer who has returned faulty goods, so that the customer's account is reduced?

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

Explanation

A credit note is issued by the seller to reduce the amount owed by a customer, for example when goods are returned or an overcharge is corrected. It states the reason and value of the reduction. The seller records it in the returns inwards journal.

Question 25Source documents and books of original entry

What is the main purpose of a book of original entry?

  1. To list the balances remaining in the ledger accounts
  2. To record transactions in date order before posting to the ledger Correct answer.
  3. To prove that the double entry is arithmetically correct
  4. To calculate the profit earned in a period

Explanation

Books of original entry, such as the sales journal and cash book, provide the first written record of each transaction in date order. From these books the amounts are posted to the appropriate ledger accounts. This keeps the ledger free of clutter and provides an audit trail.

Question 26Source documents and books of original entry

Which document is completed by a buyer when placing an order for goods with a supplier?

  1. A purchase order Correct answer.
  2. A goods received note
  3. A delivery note
  4. A statement of account

Explanation

A purchase order is prepared by the buyer to state the goods required, quantities, prices and delivery terms. It is sent to the supplier and forms the basis of the eventual invoice. It is the first document in the credit purchase cycle.

Question 27Source documents and books of original entry

A business uses an imprest system for petty cash with a float of $200. At the end of the week the petty cash vouchers total $65. How much cash is needed to restore the imprest?

  1. $200
  2. $65 Correct answer.
  3. $265
  4. $135

Explanation

Under the imprest system the float is restored by reimbursing exactly the amount spent, as shown by the petty cash vouchers. Since $65 has been spent, $65 is drawn to bring the balance back to $200. The float itself is not replaced each period.

Question 28Source documents and books of original entry

Which book of original entry records the return of goods by a customer to the business?

  1. The returns outwards journal
  2. The returns inwards journal Correct answer.
  3. The purchases journal
  4. The sales journal

Explanation

Goods returned by a customer are returns inwards, also called sales returns, and are recorded in the returns inwards journal. Each entry is supported by a copy of the credit note issued to the customer. Returns outwards, by contrast, are goods the business sends back to its suppliers.

Question 29Source documents and books of original entry

A credit sale of $480 is recorded in the sales journal. What double entry is made when the transaction is posted to the ledger?

  1. Debit sales account, credit cash account
  2. Debit sales account, credit trade receivable account
  3. Debit cash account, credit sales account
  4. Debit trade receivable account, credit sales account Correct answer.

Explanation

A credit sale increases the amount owed by the customer, so the trade receivable account is debited. The income from the sale is credited to the sales account. Cash is not involved because payment has not yet been received.

Question 30Source documents and books of original entry

A business buys goods on credit from a supplier. Which document will the business receive that describes the goods, quantities and prices charged?

  1. A sales invoice
  2. A credit note
  3. A purchase invoice Correct answer.
  4. A petty cash voucher

Explanation

The supplier issues a purchase invoice to the buyer, showing the goods supplied, quantities, unit prices and total amount due. The buyer files it as the source document for the credit purchase. The buyer then records it in the purchases journal.

Question 31Source documents and books of original entry

Which of the following would be recorded in the general journal rather than in a specialised book of original entry?

  1. The payment of wages by cheque
  2. A credit sale of goods to a customer
  3. The correction of an error in the ledger Correct answer.
  4. The purchase of goods on credit

Explanation

The general journal records transactions that do not fit the sales, purchases, returns or cash books, such as corrections of errors, opening entries and asset disposals. A correction of an error requires a narrative and a double entry that no specialised book can accommodate. Routine trading and cash transactions go to the specialised books.

Question 32Source documents and books of original entry

A trader returns goods to a supplier and sends a debit note. What effect does this have on the trader's ledger?

  1. Debit the supplier's account and credit the purchases account
  2. Debit the purchases account and credit the supplier's account
  3. Debit the returns outwards account and credit the supplier's account
  4. Debit the supplier's account and credit the returns outwards account Correct answer.

Explanation

Returning goods to a supplier reduces the amount the trader owes, so the supplier's account is debited. The corresponding credit goes to the returns outwards account, which is a deduction from purchases. The debit note informs the supplier of the reduction claimed.

Question 33Source documents and books of original entry

A cheque received from a customer is dishonoured by the bank. Which entry is required in the cash book?

  1. No entry, because the original receipt stands
  2. A debit entry, reducing the bank balance
  3. A credit entry, increasing the bank balance
  4. A credit entry, reducing the bank balance Correct answer.

Explanation

When a cheque is dishonoured, the bank reverses the earlier deposit, so the bank balance falls. In the cash book this is recorded on the credit side, and the customer's account is debited again to restore the debt. The original receipt is effectively cancelled.

Question 34Source documents and books of original entry

A business receives a bank statement showing a direct debit payment of $90 made by a supplier on the business's behalf. How should this be treated?

  1. Record it in the petty cash book as a payment
  2. Record it only in the supplier's account
  3. Ignore it because no cheque was written
  4. Record it in the cash book as a payment and in the supplier's account Correct answer.

Explanation

A direct debit appears on the bank statement without any cheque having been written, so the business must enter it in its own cash book to keep the records in line with the bank. The credit entry in the cash book is matched by a debit to the supplier's account, reducing the amount owed. This is a common reconciling item.

Question 35Source documents and books of original entry

A petty cash voucher should contain which of the following sets of details?

  1. The customer's name and the invoice number
  2. Date, description of expense, amount and signature of the recipient Correct answer.
  3. The bank statement reference and the cheque number
  4. Only the amount spent

Explanation

A petty cash voucher is the source document for a small cash payment and must show the date, what the money was for, the amount and the signature of the person receiving it. These details allow the expense to be analysed and posted to the correct ledger account. Without them the payment cannot be verified.

Question 36Source documents and books of original entry

Which of the following is an advantage of maintaining separate books of original entry?

  1. They remove the need for a trial balance
  2. They replace the need for source documents
  3. They guarantee that no errors are made
  4. They allow work to be divided among several clerks Correct answer.

Explanation

Dividing the recording process into specialised books allows different clerks to handle sales, purchases and cash separately, which speeds up the work and improves accuracy through specialisation. The books are then posted to the ledger. They do not remove the need for a trial balance or for source documents.

Question 37Source documents and books of original entry

A supplier sends a statement of account to a customer. What is the main purpose of this document?

  1. To confirm that the customer's order has been accepted
  2. To request immediate payment of a single invoice
  3. To record the return of goods to the supplier
  4. To summarise transactions for the period and show the balance owed Correct answer.

Explanation

A statement of account lists the invoices, credit notes and payments for a period and ends with the balance owed by the customer. It allows the customer to check the supplier's records against their own. It is not a demand for payment of one invoice.

Question 38Source documents and books of original entry

A trader records a credit sale in the sales journal and posts it to the wrong customer's account. Which type of error is this?

  1. An error of commission Correct answer.
  2. An error of principle
  3. An error of original entry
  4. A compensating error

Explanation

An error of commission occurs when the correct type of account is used but the wrong personal account is selected, such as posting to the wrong customer. The double entry still balances, so the trial balance will not reveal it. It is found by checking the ledger against the source documents.

Question 39Source documents and books of original entry

Which of the following transactions would be recorded in the sales journal?

  1. Return of goods by a customer
  2. Cash sale of goods over the counter
  3. Sale of goods on credit to a trader Correct answer.
  4. Sale of an old delivery van on credit

Explanation

The sales journal records only credit sales of goods in which the business trades. The sale of a non-current asset on credit is not trading stock and goes to the general journal. Cash sales go to the cash book and returns go to the returns inwards journal.

Question 40Source documents and books of original entry

A business uses an imprest petty cash float of $150. Vouchers for the period total $112, but the cash counted in the box is only $34. What does this indicate?

  1. The float has been increased
  2. The vouchers have been overstated by $4
  3. The imprest has been restored correctly
  4. There is a cash shortage of $4 Correct answer.

Explanation

The cash remaining should equal the float less the vouchers, which is $150 minus $112, or $38. Only $34 is present, so there is a shortage of $4. The shortage is recorded as an expense or as a receivable from the petty cashier.

Question 41Source documents and books of original entry

A trader pays a supplier's invoice within the discount period and deducts a cash discount. Which document usually accompanies the payment and lists the invoices being settled?

  1. A purchase order
  2. A remittance advice Correct answer.
  3. A credit note
  4. A debit note

Explanation

A remittance advice is sent with the payment to tell the supplier which invoices are being settled and what discount has been deducted. It helps the supplier allocate the payment correctly. It is not itself a book of original entry but supports the entries in the cash book.

Question 42Source documents and books of original entry

A business records a purchase of office equipment as a purchase of goods for resale. Which type of error has occurred, and does the trial balance disclose it?

  1. A compensating error, which the trial balance does not disclose
  2. An error of principle, which the trial balance does not disclose Correct answer.
  3. An error of commission, which the trial balance discloses
  4. An error of original entry, which the trial balance discloses

Explanation

Treating a non-current asset as trading stock breaks the accounting rule that capital expenditure and revenue expenditure must be kept apart, so this is an error of principle. The double entry still balances because equal debits and credits were made, so the trial balance will not reveal it. It is found by reviewing the ledger accounts.

Question 43Source documents and books of original entry

A trader's cash book shows a debit balance of $520. The bank statement shows a credit balance of $640. Cheques paid but not yet presented total $150 and no other items differ. What is the balance shown on the bank statement before any adjustment?

  1. $370
  2. $670 Correct answer.
  3. $640
  4. $520

Explanation

Unpresented cheques have already been deducted in the cash book but not yet in the bank statement, so the bank statement balance is higher than the cash book balance by that amount. Adding $150 to the cash book balance of $520 gives $670. The stated $640 is the figure to be explained and is not consistent with these data.

Question 44Source documents and books of original entry

A business operates an imprest petty cash system. At the start of the month the float is $250. During the month vouchers are raised for $40 postage, $75 cleaning and $60 stationery. A reimbursement is then made. What is the balance in the petty cash book immediately after reimbursement?

  1. $250 Correct answer.
  2. $75
  3. $325
  4. $175

Explanation

The imprest system restores the float to its original level by reimbursing exactly the total spent, which is $40 plus $75 plus $60, or $175. Adding $175 to the $75 remaining in the box returns the balance to $250. The float therefore stays constant at the start of each period.

Question 45Source documents and books of original entry

A credit customer is also a credit supplier of the business. Which treatment is correct in the books of original entry?

  1. Record only the net difference in the sales journal
  2. Record the sales and purchases separately in their journals and settle the balances by a contra entry in the general journal Correct answer.
  3. Record both transactions in the petty cash book
  4. Record the net difference in the cash book as a receipt

Explanation

The credit sale and the credit purchase are genuine separate transactions, so each is recorded in its own journal from its own source document. When the two balances are offset, a contra entry is made through the general journal, debiting the supplier account and crediting the customer account. Netting the transactions at the outset would destroy the audit trail.

Question 46Source documents and books of original entry

A business receives a credit note from a supplier. In which book of original entry should this document be recorded?

  1. Purchases journal
  2. Sales returns journal
  3. Purchases returns journal Correct answer.
  4. General journal

Explanation

A credit note received from a supplier means the business is returning goods or being allowed a reduction, so it reduces purchases. Such documents are listed in the purchases returns journal (returns outwards journal). The sales returns journal deals only with credit notes the business issues to its own customers.

Question 47Source documents and books of original entry

A trader keeps an analysed cash book with columns for discount allowed and discount received. A customer settles an invoice of $500 by cheque less 4% cash discount. How is this entered in the cash book?

  1. Debit bank $480, credit discount allowed $20, credit customer $460
  2. Debit bank $480, debit discount allowed $20, credit customer $500 Correct answer.
  3. Debit bank $500, credit discount received $20, credit customer $480
  4. Debit bank $500, debit discount allowed $20, credit customer $520

Explanation

The discount is 4% of $500, which equals $20, so the cheque received is $480. The cash book records the money received on the debit side and the discount allowed in its own debit column. The customer's account is credited with the full $500 to clear the debt.

Question 48Source documents and books of original entry

Which document does a business issue to a customer as evidence that goods returned by the customer have been accepted and the customer's account reduced?

  1. Credit note Correct answer.
  2. Invoice
  3. Debit note
  4. Remittance advice

Explanation

When a customer returns goods, the seller accepts the return by issuing a credit note. The credit note states the value of goods returned and confirms that the customer's account will be reduced. It is the source document for the sales returns journal.

Question 49Source documents and books of original entry

A business pays wages of $600 by cheque. The cheque counterfoil is the source document. Which entry is made in the cash book?

  1. Credit bank column $600, debit wages account $600 Correct answer.
  2. Debit bank column $600, credit wages account $600
  3. Credit bank column $600, credit wages account $600
  4. Debit bank column $600, debit wages account $600

Explanation

A payment by cheque reduces the bank balance, so the bank column is credited. The expense of wages must be debited to the wages account. The cheque counterfoil supports this payment entry in the cash book.

Question 50Source documents and books of original entry

A purchase invoice for $900 has been entered in the purchases journal as $90. The error is discovered before any posting to the ledgers. What is the correct treatment?

  1. Post $90 to the supplier's account and ignore the difference
  2. Add $810 to the purchases journal total before posting Correct answer.
  3. Record $810 in the general journal as a purchase
  4. Alter the invoice to show $90 and file it

Explanation

The books must agree with the source document, which shows $900. Since nothing has yet been posted, the purchases journal total is simply corrected by adding the $810 understatement. The invoice itself is a source document and must never be altered.