I85PREP
⌘ K
Financial Accounting Technician Level 1 study materials
Financial Accounting Technician Level 1 study resources

Financial Accounting Technician Level 1 practice questions

One question at a time. Build your Financial Accounting Technician Level 1 understanding.

First 50 of 199 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

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

Question 1Accounting Fundamentals and the Accounting Equation

A business has total assets of 85,000 and total liabilities of 30,000. What is the owner's equity?

  1. 30,000
  2. 85,000
  3. 115,000
  4. 55,000 Correct answer.

Explanation

The accounting equation states that assets equal liabilities plus equity, so equity is derived by subtracting liabilities from assets. Here 85,000 minus 30,000 gives 55,000, which is the residual interest of the owner in the business.

Question 2Accounting Fundamentals and the Accounting Equation

Which statement best describes the dual aspect concept underlying double-entry bookkeeping?

  1. Every transaction must be recorded twice in the same ledger account
  2. Every transaction affects at least two accounts and keeps the equation balanced Correct answer.
  3. Every transaction must involve a cash receipt and a cash payment
  4. Every transaction reduces the total assets of the business by an equal amount

Explanation

The dual aspect concept holds that each transaction has two effects of equal value, so total debits always equal total credits and the accounting equation stays in balance. Recording is made in two or more separate accounts, not twice in one account.

Question 3Accounting Fundamentals and the Accounting Equation

Which of the following is classified as a current liability on a statement of financial position?

  1. Trade payables due in 45 days Correct answer.
  2. Motor vehicles used in the delivery fleet
  3. A bank loan repayable in five years
  4. Owner's capital contributed at formation

Explanation

Current liabilities are obligations expected to be settled within twelve months or the normal operating cycle. Trade payables due in 45 days meet that test, whereas a five-year loan is non-current.

Question 4Accounting Fundamentals and the Accounting Equation

A sole trader purchases office stationery for 400 on credit. What is the effect on the accounting equation?

  1. Assets decrease by 400 and equity decreases by 400
  2. Assets increase by 400 and equity increases by 400
  3. Liabilities increase by 400 and equity decreases by 400
  4. Assets increase by 400 and liabilities increase by 400 Correct answer.

Explanation

Buying stationery on credit creates an expense that is not yet paid, so trade payables (a liability) rise by 400. Because the stationery is a prepayment or the expense is charged against profit, the net effect recorded is an increase in assets matched by the liability, keeping the equation balanced.

Question 5Accounting Fundamentals and the Accounting Equation

Which item would normally appear as a non-current asset?

  1. Cash held in a business bank account
  2. A delivery van used for six years Correct answer.
  3. Prepaid insurance covering next month
  4. Inventory awaiting sale

Explanation

Non-current assets are held for use in the business over more than one accounting period rather than for resale. A delivery van used for several years fits this definition, while inventory and prepayments are current.

Question 6Accounting Fundamentals and the Accounting Equation

A business reports assets of 120,000, liabilities of 45,000 and capital of 60,000. What is the value of drawings?

  1. 30,000
  2. 45,000
  3. 75,000
  4. 15,000 Correct answer.

Explanation

Using the extended equation, assets minus liabilities equal capital plus profit minus drawings. Here equity is 75,000, so drawings equal capital of 60,000 plus profit of zero less the 75,000 equity, giving 15,000.

Question 7Accounting Fundamentals and the Accounting Equation

Which of the following best describes the accruals basis of accounting?

  1. Revenue is recognised only after the customer has paid in full
  2. Income and expenses are recognised when they are earned or incurred, not when cash moves Correct answer.
  3. Assets are valued at their original purchase price each year
  4. Income and expenses are recognised only when cash is received or paid

Explanation

The accruals basis matches income earned with the expenses incurred in generating it during the period, regardless of the timing of cash settlement. This gives a more faithful view of performance than the cash basis.

Question 8Accounting Fundamentals and the Accounting Equation

What is the effect on owner's equity when the owner introduces additional cash into the business?

  1. Equity is unchanged
  2. Equity increases Correct answer.
  3. Liabilities increase
  4. Equity decreases

Explanation

Capital introduced by the owner increases the owner's claim on the business, so equity rises by the same amount as the cash asset received. The accounting equation remains balanced because both sides increase.

Question 9Accounting Fundamentals and the Accounting Equation

Which pair of accounts is increased by a debit entry?

  1. Liabilities and income
  2. Liabilities and assets
  3. Capital and income
  4. Assets and expenses Correct answer.

Explanation

Under the debit and credit rules, debits increase assets and expenses, while credits increase liabilities, income and capital. This follows from the position of each element in the extended accounting equation.

Question 10Accounting Fundamentals and the Accounting Equation

A company pays 2,000 off a trade payable using a bank transfer. What is the effect on the accounting equation?

  1. Assets increase by 2,000 and liabilities decrease by 2,000
  2. Liabilities decrease by 2,000 and equity increases by 2,000
  3. Assets decrease by 2,000 and liabilities increase by 2,000
  4. Assets decrease by 2,000 and liabilities decrease by 2,000 Correct answer.

Explanation

Settling a payable reduces the bank balance, an asset, and simultaneously removes the obligation, a liability. Both sides of the equation fall by the same amount, so the equation remains in balance.

Question 11Accounting Fundamentals and the Accounting Equation

Which statement correctly describes the going concern assumption?

  1. The entity reports only cash transactions
  2. The entity's assets are always valued at market price
  3. The entity must be a separate legal person from its owners
  4. The entity is expected to continue operating for the foreseeable future Correct answer.

Explanation

Going concern assumes the business will continue in operation for the foreseeable future without the need to liquidate. This justifies preparing accounts on a historical cost basis rather than at break-up values.

Question 12Accounting Fundamentals and the Accounting Equation

A business has opening capital of 40,000, profit for the year of 18,000 and drawings of 7,000. What is the closing capital?

  1. 58,000
  2. 51,000 Correct answer.
  3. 65,000
  4. 47,000

Explanation

Closing capital equals opening capital plus profit less drawings. Here 40,000 plus 18,000 gives 58,000, and deducting drawings of 7,000 leaves 51,000.

Question 13Accounting Fundamentals and the Accounting Equation

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

  1. A bank loan received from a lender
  2. Proceeds from issuing share capital
  3. Sale of a delivery van used for five years
  4. Sales of goods in the ordinary course of trade Correct answer.

Explanation

Revenue income arises from the ordinary trading activities of the business, such as selling goods or services. Capital income comes from non-trading sources such as loans, share issues or disposal of non-current assets.

Question 14Accounting Fundamentals and the Accounting Equation

What does the business entity concept require when preparing the accounts of a sole trader?

  1. The business must use the cash basis of accounting
  2. The business must be incorporated as a limited company
  3. The owner's personal transactions are kept separate from the business transactions Correct answer.
  4. The owner's personal assets are added to business assets

Explanation

The business entity concept treats the business as distinct from its owner for accounting purposes, so personal spending must not be mixed with business records. It applies regardless of legal form.

Question 15Accounting Fundamentals and the Accounting Equation

A business buys equipment for 12,000, paying 3,000 in cash and agreeing to pay the balance next month. What is the effect on the equation?

  1. Assets fall by 3,000 and liabilities fall by 9,000
  2. Assets rise by 12,000 and equity rises by 12,000
  3. Assets rise by 12,000 and liabilities rise by 12,000
  4. Assets rise by 9,000 net and liabilities rise by 9,000 Correct answer.

Explanation

Equipment, a non-current asset, increases by 12,000 while cash falls by 3,000, giving a net asset increase of 9,000. A trade payable of 9,000 arises for the unpaid balance, so liabilities rise by the same 9,000 and the equation balances.

Question 16Accounting Fundamentals and the Accounting Equation

Which of these best defines a liability?

  1. A resource controlled by the entity from which future economic benefits are expected
  2. An amount spent during the period that has generated revenue
  3. A present obligation arising from past events, expected to result in an outflow of resources Correct answer.
  4. The residual interest in the assets after deducting all liabilities

Explanation

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of economic benefits. This definition distinguishes it from assets and equity.

Question 17Accounting Fundamentals and the Accounting Equation

A business records a sale of 5,000 on credit. Which pair of effects correctly reflects the transaction?

  1. Trade receivables increase and capital decreases
  2. Inventory increases and income decreases
  3. Trade receivables increase and income increases Correct answer.
  4. Cash increases and income increases

Explanation

A credit sale creates a receivable, an asset, and recognises revenue, which increases profit and therefore equity. The equation stays balanced because assets and equity rise by the same amount.

Question 18Accounting Fundamentals and the Accounting Equation

Which of the following would be classified as capital expenditure?

  1. Paying the monthly electricity bill
  2. Repainting the office after normal wear
  3. Purchasing fuel for the delivery van
  4. Installing a new loading bay at the warehouse Correct answer.

Explanation

Capital expenditure acquires or improves a non-current asset and brings future economic benefit over several periods. Installing a loading bay enhances the warehouse's capacity and is capitalised, whereas routine costs are revenue expenditure.

Question 19Accounting Fundamentals and the Accounting Equation

Total assets are 200,000 and total liabilities are 80,000. The owner then withdraws 25,000 in cash for personal use. What is equity immediately after the withdrawal?

  1. 145,000
  2. 70,000
  3. 120,000
  4. 95,000 Correct answer.

Explanation

Equity before drawings is 200,000 minus 80,000, which equals 120,000. Withdrawing 25,000 of cash reduces both assets and equity, leaving equity at 95,000.

Question 20Accounting Fundamentals and the Accounting Equation

What is the purpose of the trial balance?

  1. To calculate the profit for the period
  2. To check that total debit balances equal total credit balances Correct answer.
  3. To value the closing inventory of the business
  4. To prove that no transaction has been recorded incorrectly

Explanation

A trial balance lists ledger balances and confirms arithmetical equality of debits and credits. It detects certain errors but cannot reveal errors of principle, omission or compensating mistakes.

Question 21Accounting Fundamentals and the Accounting Equation

Which of the following transactions leaves total assets unchanged?

  1. Receiving cash from a credit customer
  2. The owner introducing cash into the business
  3. Paying a supplier by bank transfer
  4. Buying inventory for cash Correct answer.

Explanation

Buying inventory for cash swaps one current asset for another of equal value, so total assets remain the same. The composition of assets changes but the total is unaffected.

Question 22Accounting Fundamentals and the Accounting Equation

Which of these is an example of an intangible non-current asset?

  1. A prepayment for next quarter's rent
  2. A factory building owned by the business
  3. Inventory of finished goods
  4. A purchased patent with a ten-year legal life Correct answer.

Explanation

Intangible non-current assets lack physical substance but are identifiable and controlled, such as patents, licences and goodwill. A patent with a ten-year life meets this description.

Question 23Accounting Fundamentals and the Accounting Equation

A business has equity of 90,000 and liabilities of 35,000. It then borrows 20,000 from a bank. What are total assets after the loan?

  1. 125,000
  2. 110,000
  3. 145,000 Correct answer.
  4. 165,000

Explanation

Assets initially equal 90,000 plus 35,000, which is 125,000. The loan adds 20,000 of cash and 20,000 of liabilities, so total assets become 145,000.

Question 24Accounting Fundamentals and the Accounting Equation

Which statement about the prudence concept is correct?

  1. It requires assets to be valued at the highest reliable amount
  2. It permits deliberate understatement of assets to be safe
  3. It requires caution so that assets and income are not overstated Correct answer.
  4. It requires that all future losses be recorded immediately in full

Explanation

Prudence exercises caution in conditions of uncertainty so that assets and income are not overstated and liabilities and expenses are not understated. It does not justify deliberate understatement, which would itself be misleading.

Question 25Double-Entry Bookkeeping and Journal Entries

A business pays a supplier's invoice by bank transfer. In double-entry terms, what is the effect of this transaction?

  1. Debit bank; credit accounts payable
  2. Debit accounts payable; credit bank Correct answer.
  3. Debit bank; credit capital
  4. Debit purchases; credit bank

Explanation

Settling a supplier balance reduces the liability, and a liability is reduced by a debit. The bank account (an asset) falls, and assets fall on the credit side, so bank is credited.

Question 26Double-Entry Bookkeeping and Journal Entries

A sole trader takes cash of 500 from the business bank account for personal use. Which journal entry records this?

  1. Dr Bank 500; Cr Drawings 500
  2. Dr Drawings 500; Cr Bank 500 Correct answer.
  3. Dr Capital 500; Cr Drawings 500
  4. Dr Wages expense 500; Cr Bank 500

Explanation

Cash withdrawn by the owner is not a business expense; it is recorded in the drawings account, which increases on the debit side. The bank asset falls, so bank is credited.

Question 27Double-Entry Bookkeeping and Journal Entries

Which statement best describes the purpose of the double-entry system?

  1. Every transaction is recorded once and verified later by the trial balance
  2. Every transaction is recorded with equal debits and credits so the ledger stays in balance Correct answer.
  3. Every transaction is first recorded in the cash book and then in the sales ledger
  4. Every transaction is recorded twice in the same account to reduce errors

Explanation

Double entry means each transaction affects at least two accounts, with total debits equal to total credits. That equality is what allows the trial balance to be extracted and checked for arithmetic accuracy.

Question 28Double-Entry Bookkeeping and Journal Entries

A business buys office equipment for 2,000 on credit. Which entry is correct?

  1. Dr Office equipment 2,000; Cr Accounts payable 2,000 Correct answer.
  2. Dr Accounts payable 2,000; Cr Office equipment 2,000
  3. Dr Purchases 2,000; Cr Accounts payable 2,000
  4. Dr Office equipment 2,000; Cr Cash 2,000

Explanation

Equipment is a non-current asset, so it is debited when acquired. Because the purchase is on credit, the obligation to the supplier is a liability that increases on the credit side.

Question 29Double-Entry Bookkeeping and Journal Entries

In the ledger, which side of an account normally carries the balance for a revenue account?

  1. Credit Correct answer.
  2. Debit
  3. It carries no balance until year end
  4. Whichever side is larger

Explanation

Income increases on the credit side, so a revenue account normally has a credit balance. Debit entries in that account represent returns, discounts allowed or transfers to the income statement.

Question 30Double-Entry Bookkeeping and Journal Entries

A business records a credit sale of 800. Which accounts are affected and in which direction?

  1. Debit sales 800 and credit cash 800
  2. Debit sales 800 and credit receivables 800
  3. Debit cash 800 and credit sales 800
  4. Debit receivables 800 and credit sales 800 Correct answer.

Explanation

A credit sale creates a right to receive money, so the asset receivables is debited. The income from the sale is credited to the sales account in the same amount.

Question 31Double-Entry Bookkeeping and Journal Entries

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

  1. A sale of 300 was completely omitted from the books Correct answer.
  2. A debit of 200 was posted to the credit side
  3. A debit entry of 450 was posted as 540
  4. Only the debit side of a transaction was posted

Explanation

An error of complete omission removes both sides of an entry, so total debits and credits remain equal and the trial balance still balances. The other errors unbalance one side only.

Question 32Double-Entry Bookkeeping and Journal Entries

A company receives a bank loan of 10,000 repayable in three years. Which entry records the receipt?

  1. Dr Bank 10,000; Cr Loan payable 10,000 Correct answer.
  2. Dr Loan payable 10,000; Cr Bank 10,000
  3. Dr Bank 10,000; Cr Capital 10,000
  4. Dr Loan payable 10,000; Cr Interest expense 10,000

Explanation

The bank balance rises, so the asset is debited. The obligation to repay is a liability that increases on the credit side, recorded in a loan payable account.

Question 33Double-Entry Bookkeeping and Journal Entries

A customer returns goods originally sold on credit for 240. The cost of those goods was 150. Using a perpetual inventory system, which journal entries are required?

  1. Dr Sales returns 240; Cr Receivables 240 only
  2. Dr Receivables 240; Cr Sales returns 240 and Dr Cost of sales 150; Cr Inventory 150
  3. Dr Sales returns 240; Cr Receivables 240 and Dr Inventory 150; Cr Cost of sales 150 Correct answer.
  4. Dr Inventory 240; Cr Receivables 240 and Dr Cost of sales 150; Cr Sales 150

Explanation

A sales return reverses the original sale, so sales returns is debited and receivables credited. Under perpetual inventory the goods re-enter stock, so inventory is debited and cost of sales credited with the cost price.

Question 34Double-Entry Bookkeeping and Journal Entries

A business pays 1,200 in advance for one year's insurance on 1 April. What is the correct entry on 1 April, and what adjustment is needed at 31 December?

  1. Dr Insurance expense 1,200; Cr Bank 1,200, then no adjustment is needed
  2. Dr Insurance expense 900; Cr Bank 900, with the remaining 300 posted next year
  3. Dr Prepaid insurance 1,200; Cr Bank 1,200, then Dr Insurance expense 900; Cr Prepaid insurance 900 Correct answer.
  4. Dr Prepaid insurance 1,200; Cr Bank 1,200, then Dr Insurance expense 1,200; Cr Prepaid insurance 1,200

Explanation

The payment is initially an asset because the cover has not yet been consumed. By 31 December nine months have expired, so 900 is transferred from prepayments to expense, leaving 300 as a prepayment.

Question 35Double-Entry Bookkeeping and Journal Entries

An electricity bill for 640 covering the three months to 31 March arrives after the year end and is unpaid. What adjusting entry is required at 31 March?

  1. Dr Prepaid electricity 640; Cr Accruals 640
  2. Dr Electricity expense 640; Cr Accruals 640 Correct answer.
  3. Dr Accruals 640; Cr Electricity expense 640
  4. Dr Electricity expense 640; Cr Bank 640

Explanation

The cost relates to the period just ended, so the expense must be recognised now even though no invoice has been paid. The matching credit is an accrual, a current liability, which is settled when payment is made.

Question 36Double-Entry Bookkeeping and Journal Entries

A trader's trial balance has total debits of 48,730 and total credits of 48,290. A transposition error in a single account is suspected. Which amount is most likely to have been transposed?

  1. 880
  2. 48,290
  3. 440 Correct answer.
  4. 220

Explanation

A transposition error produces a difference divisible by 9. The difference here is 440, which is divisible by 9, and 440 divided by 9 gives 48.9, indicating a transposition such as 49 recorded as 94 in an account of that size.

Question 37Double-Entry Bookkeeping and Journal Entries

A purchase of goods for resale is recorded as a debit to office equipment and a credit to payables. The trial balance still agrees. What type of error is this?

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

Explanation

The entry is arithmetically balanced but breaks the rule that revenue purchases belong in purchases, not in a non-current asset account. Misposting between different classes of account in this way is an error of principle.

Question 38Double-Entry Bookkeeping and Journal Entries

A supplier's statement shows a balance of 3,150 while the payables ledger control account shows 3,400. Which item would explain part of the difference from the buyer's perspective?

  1. Goods returned to the supplier recorded by the buyer but not yet processed by the supplier Correct answer.
  2. A payment made by the buyer that the supplier has already received and recorded
  3. An invoice from the supplier that the buyer has already entered in the ledger
  4. A discount allowed by the buyer to its own customer

Explanation

Returns are recorded by the buyer when the goods are sent back, but the supplier only credits the account when the return is received. The buyer's balance is therefore lower than the statement until the supplier processes it.

Question 39Double-Entry Bookkeeping and Journal Entries

Which journal correctly records a contra entry of 600 between a customer who is also a supplier?

  1. Dr Bank 600; Cr Receivables control 600
  2. Dr Payables control 600; Cr Receivables control 600 Correct answer.
  3. Dr Receivables control 600; Cr Payables control 600
  4. Dr Sales 600; Cr Purchases 600

Explanation

A contra offsets a balance owed by the same party in both directions. The payable is reduced by a debit and the receivable is reduced by a credit, with no cash changing hands.

Question 40Double-Entry Bookkeeping and Journal Entries

A business writes off an irrecoverable debt of 750. Later, the customer unexpectedly pays the full amount. Which entry records the later recovery under the usual treatment?

  1. Dr Bank 750; Cr Receivables 750
  2. Dr Receivables 750; Cr Irrecoverable debts recovered 750
  3. Dr Bank 750; Cr Irrecoverable debts recovered 750 Correct answer.
  4. Dr Irrecoverable debts 750; Cr Bank 750

Explanation

The debt was already removed from receivables when written off, so reinstating the receivable is unnecessary. The cash received is credited to an income account for recovered bad debts.

Question 41Double-Entry Bookkeeping and Journal Entries

A machine costing 12,000 with accumulated depreciation of 7,200 is sold for 4,000. What is the entry for the disposal and what is the resulting profit or loss?

  1. Dr Disposal 4,800; Cr Machinery 4,800 and Dr Bank 4,000; Cr Disposal 4,000, giving a loss of 800 Correct answer.
  2. Dr Bank 4,000; Cr Disposal 4,000 and Dr Disposal 7,200; Cr Accumulated depreciation 7,200, giving a profit of 800
  3. Dr Disposal 12,000; Cr Machinery 12,000 and Dr Bank 4,000; Cr Disposal 4,000, giving a loss of 8,000
  4. Dr Bank 4,000; Cr Machinery 4,000, giving a profit of 4,000

Explanation

The carrying amount is 12,000 less 7,200, which equals 4,800, and this is transferred to the disposal account. Sale proceeds of 4,000 are less than the carrying amount, so the disposal account shows a loss of 800.

Question 42Double-Entry Bookkeeping and Journal Entries

A trader keeps a petty cash imprest of 200. Vouchers for 146 are reimbursed at the end of the month. Which entry restores the float?

  1. Dr Petty cash 200; Cr Bank 200
  2. Dr Petty cash 146; Cr Bank 146 Correct answer.
  3. Dr Expenses 146; Cr Petty cash 146
  4. Dr Bank 146; Cr Petty cash 146

Explanation

Expenses were already recorded when each voucher was analysed, so the reimbursement only tops up the cash. Petty cash is debited and the bank account credited with the amount spent.

Question 43Double-Entry Bookkeeping and Journal Entries

Which journal entry records a bank charges of 35 shown on the bank statement but not yet in the cash book?

  1. Dr Bank 35; Cr Bank charges 35
  2. Dr Suspense 35; Cr Bank 35
  3. Dr Bank charges 35; Cr Cash 35
  4. Dr Bank charges 35; Cr Bank 35 Correct answer.

Explanation

Bank charges are an expense, so they are debited to the charges account. The bank balance in the cash book falls, and a fall in the asset is recorded as a credit.

Question 44Double-Entry Bookkeeping and Journal Entries

A business receives rent of 9,000 on 1 October for the twelve months to 30 September following. Its year end is 31 December. What is the correct treatment at the year end?

  1. Recognise 9,000 as income and make no adjustment
  2. Recognise the whole 9,000 as income in the current year
  3. Credit rent received with 6,750 and carry 2,250 as deferred income Correct answer.
  4. Recognise 2,250 as income and carry 6,750 as deferred income

Explanation

Only the three months from October to December relate to the current period, which is 2,250 of the 9,000. The remaining 6,750 relates to the next year and is carried forward as deferred income.

Question 45Double-Entry Bookkeeping and Journal Entries

A trader's sales day book total of 5,460 was posted to the sales account as 4,560. Which journal corrects the error?

  1. Dr Receivables control 900; Cr Sales 900 Correct answer.
  2. Dr Suspense 900; Cr Sales 900
  3. Dr Sales 900; Cr Receivables control 900
  4. Dr Receivables control 900; Cr Suspense 900

Explanation

Sales and receivables are both understated by 900, and both need increasing. Debiting receivables and crediting sales raises each account by the missing amount without involving a suspense account.

Question 46Double-Entry Bookkeeping and Journal Entries

A trader's draft profit is 18,000. It is then discovered that closing inventory was overstated by 1,500 and that a accrued rent of 700 had been omitted. What is the corrected profit?

  1. 17,200
  2. 15,800 Correct answer.
  3. 15,100
  4. 18,800

Explanation

Overstating closing inventory understates cost of sales and so overstates profit by 1,500, which must be deducted. Omitting an accrual understates expenses by 700, which must also be deducted, giving 18,000 less 2,200, which equals 15,800.

Question 47Double-Entry Bookkeeping and Journal Entries

A suspense account has a credit balance of 270. It is found that a discount received of 270 was entered only in the discount received account as a credit. Which journal clears the suspense balance?

  1. Dr Discount received 270; Cr Suspense 270
  2. Dr Payables control 270; Cr Discount received 270
  3. Dr Suspense 270; Cr Discount received 270
  4. Dr Discount received 540; Cr Suspense 270; Cr Payables control 270 Correct answer.

Explanation

Discount received should have been credited to discount received and debited to payables. As only the credit was made, the missing debit of 270 to payables must be supplied, and the duplicate credit must be removed by debiting discount received 540 in total.

Question 48Double-Entry Bookkeeping and Journal Entries

A company issues 10,000 ordinary shares of 1 each at a premium of 0.50 per share, fully paid in cash. Which entry is correct?

  1. Dr Share capital 10,000; Dr Share premium 5,000; Cr Bank 15,000
  2. Dr Bank 15,000; Cr Share capital 15,000
  3. Dr Bank 15,000; Cr Share capital 10,000; Cr Share premium 5,000 Correct answer.
  4. Dr Bank 10,000; Cr Share capital 10,000

Explanation

The cash received is 10,000 shares at 1.50 each, which is 15,000. The nominal value of 10,000 goes to share capital and the excess of 5,000 is credited to share premium, which is a capital reserve.

Question 49Double-Entry Bookkeeping and Journal Entries

A business buys office stationery for cash of 90. Applying the rules of double-entry, which entry correctly records this transaction?

  1. Debit payables 90; credit stationery expense 90
  2. Debit stationery expense 90; credit cash 90 Correct answer.
  3. Debit stationery expense 90; credit payables 90
  4. Debit cash 90; credit stationery expense 90

Explanation

An expense increases on the debit side, and cash paid out reduces an asset that carries a debit balance, so cash must be credited. The transaction is settled immediately in cash, so no payable arises.

Question 50Double-Entry Bookkeeping and Journal Entries

Which statement correctly describes the effect of a debit entry in the accounting equation?

  1. A debit increases assets and liabilities, and decreases expenses and income
  2. A debit increases liabilities and income, and decreases assets and expenses
  3. A debit increases capital and income, and decreases assets and liabilities
  4. A debit increases assets and expenses, and decreases liabilities, capital and income Correct answer.

Explanation

Debits record increases in assets and expenses and decreases in liabilities, capital and income. Credits do the reverse. This convention follows from the equation assets = liabilities + capital, with income increasing capital and expenses reducing it.