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Junior Assistant (Accounts) practice questions

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Question 1Financial Accounting Fundamentals

In double-entry bookkeeping, every transaction recorded in the books of account must result in which of the following?

  1. A net profit being recognised
  2. An increase in total assets
  3. Total debits equalling total credits Correct answer.
  4. A matching increase in cash and bank balances

Explanation

The double-entry principle requires that each transaction be recorded with equal debit and credit amounts, so the totals of the two sides always agree. This keeps the trial balance in agreement and preserves the accounting equation. Profit, cash movement, or asset growth are consequences of particular transactions, not requirements of every entry.

Question 2Financial Accounting Fundamentals

A firm buys office stationery for cash. Which pair of entries correctly records this transaction?

  1. Debit Cash; credit Stationery Expense
  2. Debit Stationery Expense; credit Accounts Payable
  3. Debit Purchases; credit Stationery Expense
  4. Debit Stationery Expense; credit Cash Correct answer.

Explanation

Stationery consumed in the office is an expense, and expenses are debited when they increase. Because payment is made immediately, cash (an asset) decreases and is therefore credited. The other pairings either reverse the direction of the entries or introduce a liability that does not exist.

Question 3Financial Accounting Fundamentals

Which of the following is classified as a current liability in the balance sheet of a trading business?

  1. Motor vehicles used for deliveries
  2. Trade payables due within three months Correct answer.
  3. A ten-year bank loan secured on the factory
  4. Retained earnings accumulated over the years

Explanation

A current liability is an obligation expected to be settled within the normal operating cycle or within twelve months of the reporting date. Trade payables falling due in three months meet that definition. Long-term borrowings, fixed assets, and equity balances do not.

Question 4Financial Accounting Fundamentals

Which document is sent by a supplier to inform a customer that the amount owed on an invoice has been reduced, for example because of returned goods?

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

Explanation

A credit note is issued by the seller to reduce the amount previously invoiced, typically for returned or faulty goods or an overcharge. It is recorded in the seller's sales returns account and in the buyer's returns outward account. The other documents serve entirely different purposes in the trading cycle.

Question 5Financial Accounting Fundamentals

Under the accrual basis of accounting, revenue is recognised when which condition is met?

  1. Cash has been received from the customer
  2. An invoice has been printed and filed
  3. The goods or services have been supplied, regardless of when cash is received Correct answer.
  4. The financial year in which the order was placed ends

Explanation

Accrual accounting recognises revenue when the performance obligation is satisfied, that is when control of the goods or services passes to the customer. The timing of cash receipt is irrelevant under this basis and is instead handled through receivables. This is what distinguishes accrual from cash accounting.

Question 6Financial Accounting Fundamentals

A trader's trial balance shows total debits of 84,300 and total credits of 83,900. What does this difference most likely indicate?

  1. A balancing figure to be posted to capital
  2. A normal result, since debits always exceed credits
  3. A net profit of 400 for the period
  4. An error in recording or posting that must be located before final accounts are prepared Correct answer.

Explanation

A trial balance should agree because each transaction is entered with equal debits and credits. A difference of 400 signals an arithmetic or posting error, such as a one-sided entry or a transposition, and must be traced before statements are finalised. It is not a profit figure and cannot simply be posted to capital.

Question 7Financial Accounting Fundamentals

Which of the following is a fundamental accounting assumption underlying the preparation of financial statements?

  1. Consistency of stock valuation methods
  2. Prudence in recognising gains
  3. Materiality of misstatements
  4. Going concern Correct answer.

Explanation

Going concern assumes the entity will continue in operation for the foreseeable future, so assets are not valued at break-up amounts. It is a fundamental assumption on which the other qualitative characteristics and measurement bases rest. Consistency, materiality, and prudence are qualitative characteristics or conventions rather than the fundamental assumption itself.

Question 8Financial Accounting Fundamentals

Which of the following best describes the purpose of a bank reconciliation statement?

  1. To record the firm's credit sales for the period
  2. To verify the arithmetic of the sales ledger
  3. To calculate the interest payable on an overdraft
  4. To explain the difference between the cash book bank balance and the bank statement balance Correct answer.

Explanation

A bank reconciliation identifies items causing the cash book and the bank statement to differ, such as unpresented cheques, deposits not yet credited, bank charges, and standing orders. It then reconciles the two balances and often leads to correcting entries in the cash book. It does not compute interest, record sales, or check the sales ledger.

Question 9Financial Accounting Fundamentals

A machine costing 120,000 is depreciated at 10% per year on the straight-line basis. What is the depreciation charge for the third year of use?

  1. 12,000 Correct answer.
  2. 36,000
  3. 8,000
  4. 10,800

Explanation

Under straight-line depreciation the charge is a fixed percentage of the original cost each year, so it is 10% of 120,000, that is 12,000, in every year including the third. The 36,000 figure is the cumulative charge over three years, not the annual charge. The charge does not fall as the asset ages under this method.

Question 10Financial Accounting Fundamentals

A firm's opening inventory was 18,000, purchases during the year were 92,000, and closing inventory was 21,000. What is the cost of goods sold?

  1. 89,000 Correct answer.
  2. 92,000
  3. 110,000
  4. 68,000

Explanation

Cost of goods sold equals opening inventory plus purchases less closing inventory: 18,000 + 92,000 - 21,000 = 89,000. Closing inventory is deducted because those goods remain unsold at year end. Adding closing inventory instead of deducting it gives 110,000, a common error.

Question 11Financial Accounting Fundamentals

Which error will cause the trial balance to disagree even though the individual accounts are arithmetically correct?

  1. The same wrong amount used in both the debit and credit entries
  2. A payment for repairs debited to the machinery account
  3. A debit entry of 540 posted to the account as 450 Correct answer.
  4. A credit sale completely omitted from the books

Explanation

A trial balance fails to agree only when unequal amounts are posted to the two sides. Posting 450 instead of 540 on the debit side leaves a 90 difference that the trial balance will reveal. The other errors are equal on both sides or one-sided in a way that leaves totals balanced.

Question 12Financial Accounting Fundamentals

A business receives a cheque from a credit customer in full settlement of an invoice. What is the effect on the accounting equation?

  1. Liabilities decrease and equity increases
  2. Assets decrease and equity decreases
  3. Assets increase and decrease by equal amounts, with no change in equity Correct answer.
  4. Assets increase and liabilities decrease

Explanation

Receiving a cheque increases the bank balance and reduces trade receivables by the same amount, so total assets are unchanged. No liability or equity item is affected because the customer is simply settling an existing debt. The equation therefore remains in balance without any net movement.

Question 13Financial Accounting Fundamentals

Which item would be entered on the debit side of a supplier's account in the books of the buyer?

  1. The opening balance owed to the supplier
  2. Goods returned to the supplier Correct answer.
  3. A discount refused by the buyer
  4. Goods purchased on credit

Explanation

A supplier's account is a liability account, and liabilities decrease on the debit side. Returning goods reduces what the buyer owes, so the return is debited to the supplier's account. Credit purchases and opening balances increase the liability and sit on the credit side.

Question 14Financial Accounting Fundamentals

Which of the following is a capital expenditure rather than revenue expenditure?

  1. Repainting the office interior
  2. Insurance of the factory building for one year
  3. Annual servicing of delivery vans
  4. Installation costs of a new production machine Correct answer.

Explanation

Capital expenditure is incurred to acquire, bring into use, or improve a non-current asset, and installation costs are necessary to make the machine operational. Such costs are added to the asset's carrying amount and depreciated. Repairs, servicing, and annual insurance are consumed within the period and are revenue expenditure.

Question 15Financial Accounting Fundamentals

A firm's cash book shows a debit balance of 4,600, but the bank statement shows a credit balance of 5,100. Cheques totalling 900 issued to suppliers have not yet been presented for payment. What is the balance shown on the bank statement before any other adjustments?

  1. 6,000 credit
  2. 4,600 credit
  3. 3,700 credit
  4. 5,500 credit Correct answer.

Explanation

Unpresented cheques have already been deducted in the cash book but not yet in the bank's records, so the bank statement balance is higher by that amount. Adding 900 to the cash book debit balance of 4,600 gives 5,500, which appears as a credit balance in the bank's books. The direction of the balance is reversed because the bank records the customer's funds as a liability.

Question 16Financial Accounting Fundamentals

Which of the following best describes the matching principle as applied to the income statement?

  1. Cash receipts are matched with cash payments of the same month
  2. Expenses incurred in earning revenue are recognised in the same period as that revenue Correct answer.
  3. Depreciation is matched to the market value of the asset
  4. Assets are matched against liabilities in the balance sheet

Explanation

The matching principle requires that costs be recognised in the same period as the revenue they helped to generate, which is why accruals, prepayments, and depreciation adjustments are made. It works alongside the accrual basis rather than a cash basis. It does not concern balance sheet offsetting or market values.

Question 17Financial Accounting Fundamentals

A trader provides for doubtful debts at 5% of trade receivables. Receivables at year end are 64,000 and the allowance brought forward was 2,800. What is the charge to the income statement for doubtful debts?

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

Explanation

The required allowance is 5% of 64,000, which is 3,200. Since 2,800 is already provided, only the increase of 400 is charged to the income statement. The closing allowance itself is not the charge when an opening allowance exists.

Question 18Financial Accounting Fundamentals

Which of the following would appear in the purchases ledger control account but not in the sales ledger control account?

  1. Interest charged to credit customers
  2. Cash received from credit customers
  3. Bad debts written off
  4. Discounts received from suppliers Correct answer.

Explanation

The purchases ledger control account summarises amounts owed to suppliers, so discounts received from them reduce that liability and are recorded there. Interest charged to customers, bad debts, and receipts from customers all relate to receivables and belong in the sales ledger control account. Keeping the two control accounts separate reflects the two distinct classes of counterparty.

Question 19Financial Accounting Fundamentals

Which statement about the treatment of a prepayment at the year end is correct?

  1. It is charged in full to the income statement of the current year
  2. It is deducted from the expense in the income statement and shown as a current asset Correct answer.
  3. It is added to the expense and shown as a current liability
  4. It is ignored because cash has already been paid

Explanation

A prepayment is an amount paid in one period that relates to a later period. The portion relating to the future is removed from the current year's expense and carried forward as a current asset until consumed. Charging it in full would overstate expenses and understate profit.

Question 20Financial Accounting Fundamentals

A sole trader's capital is 50,000 at the start of the year. During the year he introduces 8,000 and withdraws 15,000 for personal use, and profit for the year is 22,000. What is the closing capital?

  1. 57,000
  2. 65,000 Correct answer.
  3. 95,000
  4. 80,000

Explanation

Closing capital equals opening capital plus capital introduced plus profit for the year less drawings: 50,000 + 8,000 + 22,000 - 15,000 = 65,000. Drawings reduce the owner's interest because they are personal withdrawals. Each element must be applied with the correct sign.

Question 21Financial Accounting Fundamentals

Which of the following is the correct treatment of an accrued expense at the reporting date?

  1. Record it only when the payment is eventually made
  2. Add it to the relevant expense and show it as a current liability Correct answer.
  3. Charge it against retained earnings as an appropriation
  4. Deduct it from the expense and show it as a current asset

Explanation

An accrual represents a cost incurred in the period but not yet invoiced or paid. It is added to the expense so that profit reflects all costs of the period, and the unpaid amount is carried as a current liability. Recording it only on payment would breach the accrual basis.

Question 22Financial Accounting Fundamentals

A company issues goods on sale-or-return terms and the customer has an unconditional right to return them within 30 days. At the reporting date, which treatment is consistent with accrual accounting and prudence?

  1. Recognise revenue and reduce it only when goods are actually returned
  2. Recognise the full sale immediately because the goods have left the warehouse
  3. Recognise revenue only to the extent that return is not expected, with a refund liability for the rest Correct answer.
  4. Defer all revenue until the return period has expired in every case

Explanation

Where a right of return exists, revenue is recognised for the portion of goods not expected to be returned, and a refund liability plus a right-of-recovery asset are recognised for the expected returns. This reflects both the transfer of control and the uncertainty involved. Recognising nothing ignores the probable sale, while recognising everything ignores the return obligation.

Question 23Financial Accounting Fundamentals

A firm changes its depreciation method from reducing balance to straight line for existing machinery. How should this change be accounted for under standard practice?

  1. Treat it as a prior period error and restate the opening balance of retained earnings
  2. Ignore it until the asset is fully depreciated
  3. Treat it as a change in accounting estimate and apply it prospectively over the remaining useful life Correct answer.
  4. Apply it retrospectively to all prior years and present a restated comparative

Explanation

A change in the depreciation method is a change in accounting estimate because it reflects revised expectations about the pattern of consumption of benefits. It is applied prospectively, with the unamortised carrying amount depreciated over the remaining life. Retrospective restatement is reserved for changes in accounting policy and correction of prior period errors.

Question 24Financial Accounting Fundamentals

A trader's sales ledger control account shows a debit balance of 47,200. It is later found that a contra settlement of 1,500 with a supplier was omitted, and a customer's cheque for 2,300 was dishonoured. What is the corrected control account balance?

  1. 43,400 Correct answer.
  2. 48,700
  3. 46,000
  4. 50,900

Explanation

Both items reduce the amount owed by customers: the contra cancels a receivable against a payable, and a dishonoured cheque reverses an earlier receipt. The corrected balance is 47,200 - 1,500 - 2,300 = 43,400. Each adjustment must be posted on the credit side of the receivables control account.

Question 25Financial Accounting Fundamentals

An asset is bought for 80,000 with an estimated residual value of 8,000 and a useful life of six years. Using the straight-line method, what is the carrying amount at the end of the fourth year?

  1. 48,000
  2. 28,000
  3. 24,000
  4. 32,000 Correct answer.

Explanation

Depreciable amount is cost less residual value, that is 80,000 - 8,000 = 72,000, spread over six years at 12,000 per year. After four years, accumulated depreciation is 48,000, so carrying amount is 80,000 - 48,000 = 32,000. Residual value is not depreciated and remains in the carrying amount.

Question 26Financial Accounting Fundamentals

Which accounting concept requires that a business's financial statements report only transactions that can be measured in money terms?

  1. Money measurement concept Correct answer.
  2. Business entity concept
  3. Going concern concept
  4. Consistency concept

Explanation

The money measurement concept holds that only items capable of being expressed in monetary units are recorded in the books. Non-financial factors such as staff morale are excluded even when they affect the business. The other concepts deal with separate existence, continuity of operations, and uniform methods over time.

Question 27Financial Accounting Fundamentals

A business buys office stationery for 3,200 and pays by cheque. How is this recorded in the accounting equation?

  1. Assets decrease by 3,200 and liabilities decrease by 3,200
  2. Assets remain unchanged and liabilities increase by 3,200
  3. Assets decrease by 3,200 and capital decreases by 3,200 Correct answer.
  4. Assets increase by 3,200 and capital increases by 3,200

Explanation

Stationery is a revenue expense, so it reduces profit and therefore capital. Paying by cheque reduces the bank balance, which is an asset. Total assets and capital both fall by 3,200, so the equation stays balanced.

Question 28Financial Accounting Fundamentals

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

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

Explanation

A credit note issued to a customer records goods returned or an allowance, so it is entered in the sales returns day book. The sales day book records credit sales, while the purchases day book covers credit purchases. The general journal is reserved for adjustments and other transactions with no specialised book.

Question 29Financial Accounting Fundamentals

Which of the following is a current liability in a company's statement of financial position?

  1. Bank overdraft repayable on demand Correct answer.
  2. Debenture repayable in five years
  3. Motor vehicle used in the business
  4. Retained earnings

Explanation

A bank overdraft repayable on demand falls due within twelve months and is therefore a current liability. A debenture due in five years is a non-current liability, while a motor vehicle is a non-current asset. Retained earnings form part of equity, not a liability.

Question 30Financial Accounting Fundamentals

A trader's petty cash float is 500 and is operated on the imprest system. Vouchers for the period total 375. How much is reimbursed to restore the float?

  1. 500
  2. 375 Correct answer.
  3. 125
  4. 875

Explanation

Under the imprest system the float is restored to its original amount, so the reimbursement equals the total of the vouchers paid. Here the vouchers total 375, which is the amount needed to bring cash back to 500. The remaining 125 is the cash already in the box.

Question 31Financial Accounting Fundamentals

Goods costing 4,000 are sold on credit at a mark-up of 25% on cost. Which double entry records the sale?

  1. Debit receivables 5,000; credit inventory 5,000
  2. Debit receivables 4,000; credit sales 4,000
  3. Debit receivables 5,000; credit sales 5,000 Correct answer.
  4. Debit sales 5,000; credit receivables 5,000

Explanation

A 25% mark-up on cost of 4,000 gives a selling price of 5,000. The sale is recorded by debiting the customer's receivable account and crediting the sales account with 5,000. Inventory is relieved under the perpetual or periodic approach separately, not through the sales entry.

Question 32Financial Accounting Fundamentals

Which of the following errors is revealed by preparing a trial balance?

  1. A credit sale posted to the correct side of the wrong customer's account
  2. A transaction entered in the books twice
  3. A debit entry posted to the ledger without its matching credit Correct answer.
  4. A payment of 90 entered as 900 in both accounts

Explanation

The trial balance only tests whether total debits equal total credits. Omitting one side of a double entry leaves the totals unequal and is therefore detected. Errors of duplication, compensating transposition, and wrong personal account all keep the totals equal.

Question 33Financial Accounting Fundamentals

A firm's bank statement shows a balance of 6,400 credit. Unpresented cheques total 900 and deposits not yet credited total 1,300. What is the cash book balance?

  1. 6,800
  2. 6,000 Correct answer.
  3. 5,000
  4. 7,800

Explanation

Starting from the bank statement credit balance of 6,400, deduct deposits not yet credited of 1,300 and add back unpresented cheques of 900. The cash book balance is therefore 6,400 minus 1,300 plus 900, which equals 6,000. The cash book balance is a debit balance in the firm's own records.

Question 34Financial Accounting Fundamentals

Which of the following is the correct treatment of a prepayment made by a business at its year end?

  1. Add it to the expense in the income statement and show it as a current asset
  2. Deduct it from the expense in the income statement and show it as a current liability
  3. Deduct it from the expense in the income statement and show it as a current asset Correct answer.
  4. Add it to the expense in the income statement and show it as a current liability

Explanation

A prepayment is an amount paid in advance for a benefit not yet consumed, so it must be removed from this period's expense. The unexpired portion is carried forward as a current asset. Adding it to the expense would overstate the charge, and treating it as a liability confuses it with an accrual.

Question 35Financial Accounting Fundamentals

A trader's inventory at the year end has a cost of 28,000 but can now be sold for only 23,000 after incurring selling costs of 1,500. At what amount should inventory be reported?

  1. 28,000
  2. 26,500
  3. 23,000
  4. 21,500 Correct answer.

Explanation

Inventory is measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price less costs to complete and sell, so 23,000 less 1,500 equals 21,500. This is below cost of 28,000, so the write-down to 21,500 is required.

Question 36Financial Accounting Fundamentals

A firm receives a loan of 50,000 at 8% annual interest on 1 April and its year end is 31 December. No interest has yet been paid. What is the accrued interest at the year end and where does it appear?

  1. 4,000 shown as a reduction of the loan
  2. 3,000 shown as a current asset
  3. 4,000 shown as a current liability
  4. 3,000 shown as a current liability Correct answer.

Explanation

Interest for nine months is 50,000 multiplied by 8% multiplied by nine-twelfths, which equals 3,000. Because it is unpaid, the amount is an accrued expense and appears as a current liability. The corresponding charge is included in the income statement.

Question 37Financial Accounting Fundamentals

At the start of the year an allowance for doubtful debts was 2,400. Trade receivables at the year end are 70,000 and the allowance is to be 4% of receivables. What is the charge to the income statement for the year?

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

Explanation

The required allowance is 4% of 70,000, which equals 2,800. The increase from the existing 2,400 is 400, and only the increase is charged to the income statement. The closing allowance itself is shown as a deduction from receivables.

Question 38Financial Accounting Fundamentals

Which item appears on the debit side of the sales ledger control account?

  1. Discounts allowed to customers
  2. Interest charged on an overdue account Correct answer.
  3. Cash received from credit customers
  4. Credit notes issued to customers

Explanation

The sales ledger control account records total receivables, so credit sales and interest charged to customers increase the debit balance. Payments received, credit notes, and discounts allowed all reduce what customers owe and are entered on the credit side. Interest charged on an overdue account therefore belongs on the debit side.

Question 39Financial Accounting Fundamentals

A company's profit before tax is 90,000. It has charged depreciation of 12,000 and made a profit of 5,000 on disposal of equipment. Inventory rose by 7,000 and trade payables rose by 4,000. What is the net cash from operating activities using the indirect method?

  1. 100,000
  2. 94,000 Correct answer.
  3. 104,000
  4. 84,000

Explanation

Start with 90,000, add back depreciation of 12,000, and deduct the 5,000 profit on disposal because it is an investing item. The increase in inventory of 7,000 is deducted and the increase in payables of 4,000 is added, giving 90,000 plus 12,000 minus 5,000 minus 7,000 plus 4,000, which equals 94,000.

Question 40Financial Accounting Fundamentals

A business has opening net assets of 60,000 and closing net assets of 78,000. The owner introduced 10,000 and withdrew 6,000 during the year. What is the profit for the year?

  1. 18,000
  2. 14,000 Correct answer.
  3. 2,000
  4. 22,000

Explanation

Profit is found by adjusting the increase in net assets for owner transactions. The increase is 18,000, from which the capital introduced of 10,000 is deducted and to which drawings of 6,000 are added, giving 14,000. This follows the relationship that closing capital equals opening capital plus profit plus introductions less drawings.

Question 41Bookkeeping and Double-Entry System

In the double-entry system, every transaction recorded in the books must affect at least how many ledger accounts, and in what way?

  1. Two accounts, but only when cash is involved in the transaction
  2. At least three accounts, so that a trial balance can be prepared
  3. At least two accounts, with total debits equal to total credits Correct answer.
  4. One account only, provided the amount is entered twice on the same line

Explanation

The double-entry principle requires that each transaction be recorded with equal debits and credits across at least two accounts. This keeps the accounting equation (assets = liabilities + capital) in balance after every entry. A single-account entry would break the equality of debits and credits.

Question 42Bookkeeping and Double-Entry System

A firm purchases office stationery for cash. Which entry correctly records this transaction?

  1. Debit Stationery Expense, credit Accounts Payable
  2. Debit Cash, credit Stationery Expense
  3. Debit Purchases, credit Capital
  4. Debit Stationery Expense, credit Cash Correct answer.

Explanation

Stationery is a consumable expense, so it is debited when incurred. Because payment is immediate, the Cash account is credited to reflect the reduction in the asset. No liability arises since the purchase is settled at once.

Question 43Bookkeeping and Double-Entry System

Which of the following is classified as a liability in the books of account?

  1. Prepaid insurance
  2. Trade receivables
  3. Bank overdraft Correct answer.
  4. Motor vehicle

Explanation

A bank overdraft represents an amount owed to the bank, so it is a liability. Receivables, prepaid expenses and motor vehicles are all assets because they represent amounts due in or resources owned. Liabilities are obligations to pay or give up resources in future.

Question 44Bookkeeping and Double-Entry System

In a ledger account, a debit balance is normally expected on which type of account?

  1. Sales account
  2. Expense account Correct answer.
  3. Capital account
  4. Loan payable account

Explanation

Expenses reduce profit and are debited when incurred, so expense accounts normally carry debit balances. Capital, sales and liabilities normally carry credit balances because they increase equity or represent obligations. The normal balance of an account follows the side on which increases are recorded.

Question 45Bookkeeping and Double-Entry System

Which document is normally used as the source for recording a credit sale in the sales day book?

  1. Bank paying-in slip
  2. Sales invoice issued to the customer Correct answer.
  3. Petty cash voucher
  4. Purchase invoice received from a supplier

Explanation

A credit sale is evidenced by a sales invoice issued to the customer, which shows the goods supplied and the amount due. The sales day book is then written up from copies of these invoices. Purchase invoices relate to credit purchases, not sales.

Question 46Bookkeeping and Double-Entry System

A trial balance is extracted and the debit column totals 84,000 while the credit column totals 83,600. What does this difference most likely indicate?

  1. An arithmetical or posting error has occurred Correct answer.
  2. The business made a profit of 400
  3. The suspense account must be closed to profit and loss immediately
  4. All transactions have been recorded correctly

Explanation

A trial balance should have equal debit and credit totals because every transaction was recorded with equal debits and credits. A difference of 400 indicates an error such as a wrong amount posted, a one-sided entry, or an addition mistake. The difference is temporarily carried in a suspense account while the error is investigated.

Question 47Bookkeeping and Double-Entry System

What is the effect of a contra entry between the cash account and the bank account?

  1. It reduces cash and increases bank, or the reverse, without changing total assets Correct answer.
  2. It increases the total assets of the business
  3. It records an expense in the income statement
  4. It creates a liability in the balance sheet

Explanation

A contra entry transfers value between the cash and bank accounts of the same business, for example when cash is banked or cash is withdrawn for office use. One account is debited and the other credited, so total assets are unchanged. It is not an expense or a liability.

Question 48Bookkeeping and Double-Entry System

Which of these errors would still allow a trial balance to agree?

  1. Entering a receipt of cash on the debit side of the Cash account
  2. Debiting a purchase of 500 to the Purchases account and crediting 50 to Cash
  3. Posting a credit sale to the wrong customer's account but to the correct side Correct answer.
  4. Recording a sale of 200 only in the Sales account

Explanation

Posting to the wrong personal account on the correct side keeps total debits equal to total credits, so the trial balance still agrees. Such errors are errors of commission affecting only individual balances. Errors that cause unequal totals include one-sided postings and wrong amounts.

Question 49Bookkeeping and Double-Entry System

A trader starts business with capital of 50,000 paid into the bank. Which journal entry records this?

  1. Debit Drawings 50,000; credit Bank 50,000
  2. Debit Bank 50,000; credit Capital 50,000 Correct answer.
  3. Debit Bank 50,000; credit Loan 50,000
  4. Debit Capital 50,000; credit Bank 50,000

Explanation

The bank balance increases, so Bank is debited, and the owner's claim on the business increases, so Capital is credited. This reflects the accounting equation where an increase in assets is matched by an increase in equity. The two sides of the entry are equal.

Question 50Bookkeeping and Double-Entry System

Goods costing 800 are returned by a customer. In the seller's books, which entry is correct?

  1. Debit Sales Returns, credit the customer's account Correct answer.
  2. Debit Cash, credit Sales Returns
  3. Debit the customer's account, credit Sales Returns
  4. Debit Purchases Returns, credit the customer's account

Explanation

When a customer returns goods, the seller's sales are reduced, so Sales Returns (returns inwards) is debited. The customer no longer owes that amount, so the customer's account is credited. This reduces the receivable balance.