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BGCSE Accounting 1442 study materials
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BGCSE Accounting 1442 practice questions

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Question 1Accounting principles, concepts and conventions

A sole trader pays his daughter's school fees from the business bank account. He records the payment as drawings rather than as a business expense. Which accounting concept supports this treatment?

  1. Business entity Correct answer.
  2. Going concern
  3. Consistency
  4. Prudence

Explanation

The business entity concept treats the owner and the business as separate reporting units, so money the owner takes for private use is drawings, not an expense of the business. Recording it as an expense would understate profit and overstate the owner's capital in the accounts.

Question 2Accounting principles, concepts and conventions

A company has traded profitably for twelve years and has no plans to close. Its financial statements are prepared on the basis that its non-current assets will be used in normal operations rather than sold off. Which concept is being applied?

  1. Realisation
  2. Consistency
  3. Accruals
  4. Going concern Correct answer.

Explanation

Going concern assumes the entity will continue in operation for the foreseeable future, so assets are carried at amounts based on continuing use rather than on break-up values. If that assumption failed, assets would instead be measured at what they would fetch on immediate sale.

Question 3Accounting principles, concepts and conventions

Which item is left out of the statement of financial position because the money measurement concept prevents it from being recorded reliably in monetary terms?

  1. A delivery van bought on credit
  2. Inventory held for resale
  3. The skill of a trained workforce Correct answer.
  4. A bank loan received in cash

Explanation

Money measurement records only items that can be measured reliably in monetary terms. A trained workforce has real value to the business, but that value cannot be measured objectively, so it is not recognised as an asset in the statement of financial position.

Question 4Accounting principles, concepts and conventions

In December a business pays $1,200 for insurance covering January to March of the following year. How should this be treated under the accruals concept?

  1. Recorded as revenue in December
  2. Ignored until the policy expires in March
  3. Treated as a prepayment and expensed over the three months covered Correct answer.
  4. Charged in full as an expense of December

Explanation

Accruals matches expenses with the periods that benefit from them. The insurance covers January to March, so at the year end the unused part is a prepayment, an asset, and it is charged as an expense in the later months when the cover is used.

Question 5Accounting principles, concepts and conventions

Closing inventory cost $8,000. It can now be sold for $7,200. Which valuation follows the prudence convention?

  1. $8,000, with a note disclosing the fall in value
  2. $7,200, with the $800 loss recognised Correct answer.
  3. $7,600, the average of the two figures
  4. $8,000, the original cost

Explanation

Prudence requires inventory to be valued at the lower of cost and net realisable value, so the fall in value is recognised immediately. This stops assets and profit from being overstated when the price the goods will actually fetch has dropped below their cost.

Question 6Accounting principles, concepts and conventions

A business switches from straight-line to reducing-balance depreciation without explanation, making this year's figures hard to compare with last year's. Which convention has been breached?

  1. Business entity
  2. Consistency Correct answer.
  3. Prudence
  4. Materiality

Explanation

Consistency requires a business to apply the same accounting methods each period so that users can compare results over time. A change of depreciation method is acceptable only if it is disclosed with reasons and its effect on the figures is quantified.

Question 7Accounting principles, concepts and conventions

Goods are sold on credit and delivered to the customer in March; the invoice is dated March and the customer pays in May. Under the realisation concept, in which period is the sale recorded?

  1. May, when the cash is received
  2. Equally over March, April and May
  3. March, when the goods are delivered Correct answer.
  4. When the customer places the order

Explanation

Revenue is recognised when the goods are delivered and the seller has earned the right to payment, not when the cash finally arrives. Recording the sale in March also matches it with the cost of the goods sold in the same period.

Question 8Accounting principles, concepts and conventions

A company sells machinery to a bank for cash and at the same time agrees to buy it back at a fixed price in six months. The company keeps using the machinery. How should the transaction be reported?

  1. As a secured loan, with the machinery still an asset Correct answer.
  2. As a sale, with the machinery removed from assets
  3. As a gain equal to the difference between cost and sale price
  4. As revenue, because cash has been received

Explanation

Substance over form looks at the commercial reality rather than the legal label. Because the company must repurchase the machinery at a fixed price and continues to use it, the arrangement is really borrowing secured on the asset, so the machinery stays on the statement of financial position and a liability is recorded.

Question 9Accounting principles, concepts and conventions

A business buys a $40 waste-paper bin that will last five years. It charges the whole amount as an expense of the current year rather than depreciating it. Which concept justifies this?

  1. Prudence
  2. Going concern
  3. Accruals
  4. Materiality Correct answer.

Explanation

Materiality allows items too small to influence the decisions of users to be treated in the simplest practical way. The cost of the bin is trivial beside the totals in the financial statements, so expensing it at once does not mislead anyone, even though strict matching would spread it over five years.

Question 10Accounting principles, concepts and conventions

Land was bought for $50,000 and is now worth $180,000. Under the historical cost convention, at what amount is it carried in the statement of financial position?

  1. $115,000, the average of cost and value
  2. $180,000, the current market value
  3. $50,000 plus annual revaluation increments
  4. $50,000, its original cost Correct answer.

Explanation

Historical cost records assets at the amount paid when they were acquired, a figure that can be verified from documents. Unless the business adopts a policy of revaluation, the land remains at $50,000 even though its market value has risen, so the increase is not reported as profit.

Question 11Accounting principles, concepts and conventions

A business borrows $20,000 from a bank, repayable in three years. Which concept requires that both the cash received and the loan liability be recorded?

  1. Consistency
  2. Dual aspect Correct answer.
  3. Going concern
  4. Prudence

Explanation

The dual aspect concept, which underlies double entry, holds that every transaction has two equal effects. Here the increase in the bank balance is matched by an equal increase in a liability, so the accounting equation stays in balance.

Question 12Accounting principles, concepts and conventions

A company prepares a set of financial statements every twelve months, even though it intends to trade indefinitely. Which concept justifies this practice?

  1. Money measurement
  2. Business entity
  3. Accounting period Correct answer.
  4. Realisation

Explanation

Because the life of a business is indefinite, it is divided into equal artificial periods so that performance and position can be reported regularly. This is the periodicity or accounting period concept, and it is why profit is measured for a defined span of time.

Question 13Accounting principles, concepts and conventions

A purchased machine is entered in the books at the exact amount shown on the supplier's invoice. Which concept best explains this?

  1. Materiality
  2. Going concern
  3. Objectivity Correct answer.
  4. Prudence

Explanation

Objectivity requires that entries rest on evidence an independent person could verify, such as an invoice or a receipt. This is why assets are first measured at a documented transaction amount rather than at an estimate or opinion.

Question 14Accounting principles, concepts and conventions

A delivery van costs $30,000, is expected to be used for five years and will then be sold for $5,000. The accountant charges $5,000 of depreciation each year. Which concept does this best illustrate?

  1. Matching Correct answer.
  2. Objectivity
  3. Money measurement
  4. Business entity

Explanation

Matching requires the cost of the resource used to earn revenue to be charged against the revenue of the periods that benefit from it. Spreading the $25,000 depreciable amount over five years sets part of the cost against each year's income instead of charging it all at once.

Question 15Accounting principles, concepts and conventions

A company is defending a legal claim. Its lawyers advise that a loss is only possible, not probable, and the amount cannot be measured reliably. How should the claim be treated in the financial statements?

  1. Record the claim as a gain in the income statement
  2. Recognise a liability for the estimated amount
  3. Disclose it as a contingent liability in the notes Correct answer.
  4. Make no reference to the claim at all

Explanation

Full disclosure requires material information that could influence users' decisions to be presented even when it cannot be recognised in the statements. A possible obligation that is not probable and cannot be measured reliably is therefore described in the notes as a contingent liability.

Question 16Accounting principles, concepts and conventions

A shop pays $12,000 to build an extension to its sales area and $800 to repaint the existing walls. How should the two payments be classified?

  1. Both items are capital expenditure
  2. Both items are revenue expenditure
  3. Extension revenue; repainting capital
  4. Extension capital; repainting revenue Correct answer.

Explanation

Capital expenditure acquires or improves a non-current asset and yields benefit beyond the current year, so the extension is capitalised. Repainting merely restores the existing condition and benefits only the current period, so it is treated as revenue expenditure and charged to the income statement.

Question 17Accounting principles, concepts and conventions

A country experiences high inflation for a year. The company's statements still show each asset at the amount originally paid, with no adjustment for the changing value of money. Which assumption explains this?

  1. Prudence
  2. Consistency
  3. Realisation
  4. Stable monetary unit Correct answer.

Explanation

The stable monetary unit assumption treats the currency as constant in value, so accounts are not restated for price-level changes. Users are expected to remember that inflation can distort comparisons between figures of different years.

Question 18Accounting principles, concepts and conventions

At the year end a business has receivables of $50,000. Past experience shows that roughly 4% of debts are never collected, so the accountant records a provision of $2,000. Which concept is being applied?

  1. Materiality
  2. Dual aspect
  3. Objectivity
  4. Prudence Correct answer.

Explanation

Prudence requires that losses be recognised as soon as they are reasonably foreseeable, while gains wait until they are realised. Anticipating the expected irrecoverable amount stops profit and receivables from being overstated in the statement of financial position.

Question 19Accounting principles, concepts and conventions

Which statement best describes depreciation in the accounts of a business?

  1. It allocates cost over the periods that benefit from use Correct answer.
  2. It reduces the asset to scrap value when it is bought
  3. It measures the annual fall in the asset's market value
  4. It sets cash aside each year to replace the asset

Explanation

Depreciation is an application of matching: the depreciable amount, being cost less residual value, is spread over the useful life of the asset. It is an allocation of cost, not a valuation, and it does not accumulate a cash fund because the cash was spent when the asset was acquired.

Question 20Accounting principles, concepts and conventions

Financial information is complete, neutral and free from material error. Which qualitative characteristic does this describe?

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

Explanation

Faithful representation means the reported information depicts the substance of the transactions completely, neutrally and without material error. Relevance, comparability and timeliness are separate qualities, so they do not describe the completeness and neutrality of the depiction itself.

Question 21Double-entry bookkeeping and books of original entry

A trader sells goods on credit to a customer. Which double entry correctly records this transaction in the trader's books?

  1. Debit the cash account and credit the sales account
  2. Debit the customer's account and credit the sales account Correct answer.
  3. Debit the sales account and credit the customer's account
  4. Debit the customer's account and credit the purchases account

Explanation

A credit sale increases the amount the customer owes, and a receivable is an asset, so the customer's account is debited. Sales income has increased, and income accounts are credited. Cash is untouched because no money has yet been received, and the purchases account plays no part in a sale.

Question 22Double-entry bookkeeping and books of original entry

A supplier's credit note is received for goods returned to that supplier. In which book of original entry is it recorded?

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

Explanation

Goods returned to a supplier are purchases returns, also called return outwards. Each such return is first entered in the purchases returns day book, using the supplier's credit note as the source document. The general journal is reserved for transactions, such as corrections and opening entries, for which no specialised day book exists.

Question 23Double-entry bookkeeping and books of original entry

Which pair of accounts is increased by a debit entry?

  1. A liability account and an expense account
  2. An asset account and an income account
  3. An asset account and an expense account Correct answer.
  4. A capital account and a liability account

Explanation

Debit entries increase assets, expenses and drawings, while credits increase liabilities, capital and income. The accounting equation explains why: assets and expenses sit on the debit side of the ledger. Remembering that the two sides of an account move in opposite directions is the key to recording every transaction.

Question 24Double-entry bookkeeping and books of original entry

A trader pays $400 cash from the cash till into the business bank account. How is this recorded in the two-column cash book?

  1. As a credit in the cash column and a debit in the bank Correct answer.
  2. As a debit in both the cash column and the bank column
  3. As a debit in the cash column and a credit in the bank column
  4. As a credit in both the cash column and the bank column

Explanation

Money leaves the till, so the cash column is credited, and money enters the bank, so the bank column is debited. Because both halves of the double entry sit inside the same cash book, the item is called a contra entry. It is marked with a C in the folio column to show that no separate ledger posting is needed.

Question 25Double-entry bookkeeping and books of original entry

Which transaction is recorded in the general journal rather than in a specialised day book?

  1. A credit customer returns faulty goods
  2. Goods are sold on credit to a regular customer
  3. The owner takes goods for personal use Correct answer.
  4. The business buys goods on credit from a supplier

Explanation

Goods taken by the owner are drawings; the transaction is neither a sale, a purchase nor a cash movement, so no day book suits it. The general journal is used for such non-routine items, including opening entries, corrections of error and period-end adjustments. The other options are routine credit transactions that each have their own day book.

Question 26Double-entry bookkeeping and books of original entry

Which error would still allow a trial balance to balance even though the ledger is wrong?

  1. A cash sale of $60 entered in the sales account but omitted from the cash book
  2. A credit purchase from J. Bell posted to the account of J. Bull Correct answer.
  3. A $40 telephone bill debited to the telephone account as $400
  4. A $250 credit sale entered in the sales day book total but omitted from the customer's account

Explanation

An error of commission arises when the correct amount is entered on the correct side but in the wrong account of the same class, so total debits still equal total credits. The trial balance therefore agrees and the mistake stays hidden until the individual accounts are checked. A missing one-sided entry or a wrong figure on one side will always make the totals disagree.

Question 27Double-entry bookkeeping and books of original entry

A petty cashier works on an imprest of $150. Vouchers for the period total $96 and the cash in hand is $54. How is the imprest restored?

  1. No transfer is needed because the float is already correct
  2. A transfer of $54 from the bank to petty cash
  3. A transfer of $150 from the bank to petty cash
  4. A transfer of $96 from the bank to petty cash Correct answer.

Explanation

Under the imprest system the float is topped up at the end of each period by the amount spent, as proved by the vouchers. Here $96 has been spent, which is also the difference between the $150 float and the $54 still in the tin. The cash book records the top-up as a credit in the bank column and a debit in the petty cash column.

Question 28Double-entry bookkeeping and books of original entry

A business settles a supplier's invoice of $800 and is allowed a 5% cash discount. Which double entry records the settlement?

  1. Debit supplier $800; credit bank $800
  2. Debit supplier $800; debit discount received $40; credit bank $760
  3. Debit supplier $800; credit bank $760 and discount received $40 Correct answer.
  4. Debit supplier $760; credit bank $760 and discount received $40

Explanation

Paying the account clears the whole $800 liability, so the supplier's account is debited with $800. Only $760 actually leaves the bank, and the $40 saved is income, which is credited to discount received. Total debits of $800 therefore equal total credits of $760 plus $40.

Question 29Double-entry bookkeeping and books of original entry

A purchase of office machinery for $9 000 cash was debited to the purchases account. Which journal entry corrects this error?

  1. Dr Purchases $9 000; Cr Office machinery $9 000
  2. Dr Office machinery $9 000; Cr Purchases $9 000 Correct answer.
  3. Dr Office machinery $18 000; Cr Purchases $18 000
  4. Dr Office machinery $9 000; Cr Cash $9 000

Explanation

The credit to cash was correct, so only the two accounts wrongly affected need adjusting. Purchases has been overstated by $9 000 and must be credited, while office machinery has been understated and must be debited. This is an error of principle because capital expenditure was treated as a revenue expense.

Question 30Double-entry bookkeeping and books of original entry

The sales day book total for the month is $6 400. The bookkeeper posted this total to the debit side of the sales account. What is the effect of this error on the trial balance?

  1. The trial balance agrees, but sales are understated by $12 800
  2. The trial balance agrees, but sales are overstated by $6 400
  3. Debit totals exceed credit totals by $12 800 Correct answer.
  4. Credit totals exceed debit totals by $6 400

Explanation

The total should have been credited to sales, so the wrong entry places $6 400 on the wrong side of the ledger. Instead of a $6 400 credit there is now a $6 400 debit, so the debit total is $6 400 too high and the credit total $6 400 too low. The combined difference shown on the trial balance is therefore $12 800.

Question 31Double-entry bookkeeping and books of original entry

A business receives an invoice from a credit supplier for goods bought on credit. Which book of original entry is used to record this transaction?

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

Explanation

A credit purchase of goods is recorded in the purchases day book using the supplier's invoice, and the total is later posted to the purchases account and the supplier's account. The sales day book records credit sales, while returns and non-routine entries use other books.

Question 32Double-entry bookkeeping and books of original entry

Which of the following balances is entered in the credit column of a trial balance?

  1. Motor vehicles at cost
  2. Trade receivables
  3. Inventory at the year end
  4. Loan from bank repayable in three years Correct answer.

Explanation

Liabilities and income carry credit balances, so a bank loan is entered in the credit column. Assets such as motor vehicles, inventory and trade receivables are debit balances and belong in the debit column.

Question 33Double-entry bookkeeping and books of original entry

In a two-column cash book the bank column shows a credit balance of $250. What does this balance represent?

  1. A bank overdraft owed to the bank Correct answer.
  2. Cash held in the bank account available for use
  3. Interest earned on the bank account
  4. A bank loan received and not yet repaid

Explanation

The cash book is written from the business's viewpoint: money paid into the bank is a debit and money paid out is a credit. A credit balance on the bank column therefore means the business has withdrawn more than it holds, which is an overdraft.

Question 34Double-entry bookkeeping and books of original entry

A customer returns goods previously sold on credit, $180. Which double entry records this in the seller's books?

  1. Debit sales, credit trade receivables
  2. Debit sales returns, credit cash
  3. Debit sales returns, credit trade receivables Correct answer.
  4. Debit trade receivables, credit sales returns

Explanation

A sales return reduces the amount the customer owes, so trade receivables is credited, and the sales returns account is debited to record the reduction in sales revenue. Cash is unaffected because the original sale was on credit.

Question 35Double-entry bookkeeping and books of original entry

A trader allows a customer a cash discount of $30 when settling an invoice. In which column of the three-column cash book is this recorded?

  1. Discount allowed column on the debit side Correct answer.
  2. Discount received column on the credit side
  3. Discount allowed column on the credit side
  4. Discount received column on the debit side

Explanation

A discount allowed to a customer is an expense to the business, so it is entered in the discount allowed column on the debit side of the cash book. Discount received from a supplier is recorded in the credit column.

Question 36Double-entry bookkeeping and books of original entry

The purchases day book total for the month is $7,500. Which ledger account is credited with this total?

  1. Trade payables control account Correct answer.
  2. Trade receivables control account
  3. Cash account
  4. Purchases account

Explanation

The double entry for the purchases day book total is a debit to the purchases account and a credit to the trade payables control account. The individual supplier accounts are credited separately from the analysed entries in the day book.

Question 37Double-entry bookkeeping and books of original entry

A trader starts business with a vehicle worth $12,000 and a bank loan of $3,000. Which journal entry records the opening position?

  1. Debit vehicle $12,000; credit bank loan $3,000; credit capital $9,000 Correct answer.
  2. Debit vehicle $12,000; credit bank loan $12,000; debit capital $3,000
  3. Debit capital $12,000; debit bank loan $3,000; credit vehicle $15,000
  4. Debit vehicle $12,000; credit capital $12,000

Explanation

Opening entries bring in assets at their debit value and record liabilities and the owner's capital as credits. Capital is the balancing figure: assets of $12,000 less the $3,000 liability gives $9,000.

Question 38Double-entry bookkeeping and books of original entry

A ledger account has total debits of $4,600 and total credits of $3,900 before balancing. Which entry is made to balance the account?

  1. Debit balance carried down $700
  2. Credit balance c/d $700 Correct answer.
  3. Credit balance carried down $3,900
  4. Debit balance c/d $3,900

Explanation

The account is balanced by inserting the difference on the side with the smaller total, which is the credit side, so balance c/d of $700 is credited. This balance is then brought down as a debit at the start of the next period.

Question 39Double-entry bookkeeping and books of original entry

A business owes a supplier $600 in the purchases ledger, and the supplier also owes the business $600 in the sales ledger. What is the correct journal entry to set off the balances?

  1. Debit trade payables control $600; credit trade receivables control $600 Correct answer.
  2. Debit purchases $600; credit sales $600
  3. Debit cash $600; credit cash $600
  4. Debit trade receivables control $600; credit trade payables control $600

Explanation

A contra or set-off reduces both balances by cancelling the amount owed in each direction. The payable is removed by debiting trade payables, and the receivable is removed by crediting trade receivables.

Question 40Double-entry bookkeeping and books of original entry

A sale of goods on credit for $500 was entered as a debit to sales and a credit to the customer's account. Which journal entry corrects this complete reversal of the double entry?

  1. Debit trade receivables $1,000; credit sales $1,000 Correct answer.
  2. Debit sales $500; credit trade receivables $500
  3. Debit sales $1,000; credit trade receivables $1,000
  4. Debit trade receivables $500; credit sales $500

Explanation

The original entry reversed the correct double entry, so the correction must put through the correct entry twice: debit trade receivables and credit sales, each $1,000. A single $500 correction would merely cancel the wrong entry and leave the sale unrecorded.

Question 41Double-entry bookkeeping and books of original entry

A trader sells goods on credit to a customer. Which document does the trader issue to the customer as evidence of the sale?

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

Explanation

An invoice is prepared by the seller when goods are sold on credit and becomes the source document for the sales day book. It lists the goods, quantities and prices and shows any trade discount. A credit note is used for returned goods, a statement of account is a periodic summary, and a remittance advice travels with a payment.

Question 42Double-entry bookkeeping and books of original entry

A shopkeeper makes cash sales of $250 over the counter. In which book of original entry is this transaction recorded?

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

Explanation

Cash sales bring in money immediately, so the receipt is entered in the cash book, which is the book of original entry for cash and bank transactions. The double entry is a debit in the cash column and a credit in the sales account. The sales day book records credit sales only.

Question 43Double-entry bookkeeping and books of original entry

A supplier allows a trade discount of 10% on goods with a list price of $2 000 sold on credit. How is the trade discount treated in the supplier's books?

  1. It is recorded in the general journal as a reduction of capital
  2. It is entered in the discount received account as income
  3. It is deducted from the list price and only the net $1 800 is recorded Correct answer.
  4. It is entered in the discount allowed account as an expense

Explanation

A trade discount is a reduction on the list price given for trade or bulk buying, and it is never recorded as a separate item in the ledger. Only the net amount is entered in the sales day book and posted to the ledger. Discounts entered in the discount allowed and discount received accounts are cash discounts for early payment.

Question 44Double-entry bookkeeping and books of original entry

The owner of a business takes goods costing $200 from the shop for personal use. Which double entry records this?

  1. Debit drawings $200; credit cash $200
  2. Debit drawings $200; credit purchases $200 Correct answer.
  3. Debit purchases $200; credit cash $200
  4. Debit purchases $200; credit drawings $200

Explanation

Goods removed by the owner are treated as drawings because they are taken for personal use rather than sold. Purchases are credited to reduce the cost of goods available for sale, and drawings are debited to record the owner's withdrawal from the business.

Question 45Double-entry bookkeeping and books of original entry

A petty cash book has analysis columns, one of which is for postage. At the end of the month the postage column totals $84. How is this total posted to the ledger?

  1. Debit the postage account with $84 Correct answer.
  2. Debit the cash account with $84
  3. Credit the postage account with $84
  4. Debit the petty cash account with $84

Explanation

A petty cash book is a book of original entry, so the total of each analysis column is posted to the debit of the relevant expense account. The postage column total is therefore debited to the postage account, while the total payments for the period are credited in the petty cash book.

Question 46Double-entry bookkeeping and books of original entry

A debt of $120 owed by J. Smith had been written off as a bad debt in the previous year. J. Smith now pays the $120 by cheque. Which double entry records the receipt?

  1. Debit bank $120; credit bad debts recovered $120 Correct answer.
  2. Debit bad debts recovered $120; credit bank $120
  3. Debit bad debts $120; credit bank $120
  4. Debit bank $120; credit J. Smith $120

Explanation

A debt written off earlier is no longer carried as an asset, so the later receipt is recorded as income rather than as a reduction of the customer's balance. The bank account is debited with the money received and the bad debts recovered account is credited.

Question 47Double-entry bookkeeping and books of original entry

Goods bought for resale, $500, were debited to the motor expenses account. What is the effect of this error on the financial statements?

  1. Gross profit is unaffected and net profit is understated by $500
  2. Gross profit is overstated by $500 and net profit is unaffected Correct answer.
  3. Gross profit is overstated by $500 and net profit is overstated by $500
  4. Gross profit is understated by $500 and net profit is understated by $500

Explanation

Debiting motor expenses instead of purchases understates the purchases figure used in the cost of sales, so gross profit is overstated by $500. Total expenses are also overstated by $500 because motor expenses now contain the goods, so the two effects cancel and net profit is correct.

Question 48Double-entry bookkeeping and books of original entry

A cheque for $320 paid to a supplier was entered correctly in the cash book but was not posted to the supplier's account. Which journal entry corrects this error?

  1. Debit the suspense account $320 and credit the supplier's account $320
  2. Debit the supplier's account $320 and credit the suspense account $320 Correct answer.
  3. Debit the purchases account $320 and credit the suspense account $320
  4. Debit the supplier's account $320 and credit the bank account $320

Explanation

The cash book debit is correct because the cheque was actually paid. The supplier's account was never credited, so the trial balance is out by $320 and a suspense account is opened; the supplier's account is debited to record the payment and the suspense account is credited until the missing posting is traced.

Question 49Double-entry bookkeeping and books of original entry

A credit sale of $600 to A. Brown was correctly entered in the sales day book but was posted to the account of A. Green. Which journal entry corrects the error?

  1. Debit A. Green $600 and credit A. Brown $600 Correct answer.
  2. Debit A. Green $600 and credit the sales account $600
  3. Debit the suspense account $600 and credit A. Green $600
  4. Debit A. Brown $600 and credit A. Green $600

Explanation

A sales invoice debits the customer's account, so A. Green was wrongly debited and A. Brown was never debited. The correction credits A. Green to cancel the wrong entry and debits A. Brown, and because the error stays within one side of the original entry the trial balance still agrees, so no suspense account is needed.

Question 50Double-entry bookkeeping and books of original entry

A business buys a delivery van on credit for $12 000 from a motor dealer. Which double entry records this transaction?

  1. Debit motor vehicles $12 000; credit the motor dealer $12 000 Correct answer.
  2. Debit the motor dealer $12 000; credit motor vehicles $12 000
  3. Debit motor vehicles $12 000; credit cash $12 000
  4. Debit purchases $12 000; credit the motor dealer $12 000

Explanation

A delivery van is a non-current asset, so it is debited to the motor vehicles account rather than to purchases. Because the van was bought on credit from the dealer, the dealer's account is credited to record the liability created.