I85PREP
⌘ K
LGCSE Accounting (0187) study materials
LGCSE Accounting (0187) study resources

LGCSE Accounting (0187) practice questions

One question at a time. Build your LGCSE Accounting (0187) 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 1The fundamentals of accounting

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

  1. The money measurement concept Correct answer.
  2. The going concern concept
  3. The business entity concept
  4. The prudence concept

Explanation

The money measurement concept states that accounting records only items that have a monetary value and can be expressed in currency. Items such as employee skill or customer goodwill generated internally are excluded because they cannot be reliably measured in money.

Question 2The fundamentals of accounting

A trader takes goods from the business for personal use. Which double entry records this?

  1. Debit drawings, credit cash
  2. Debit purchases, credit drawings
  3. Debit capital, credit sales
  4. Debit drawings, credit purchases Correct answer.

Explanation

Goods withdrawn by the owner reduce the goods available for sale and increase the owner's drawings. Drawings is debited and purchases is credited to remove the cost of the goods taken.

Question 3The fundamentals of accounting

Which statement best describes the purpose of a trial balance?

  1. To prove that every transaction has been recorded
  2. To calculate the profit for the period
  3. To check the arithmetic accuracy of the double entry Correct answer.
  4. To show the market value of the assets

Explanation

A trial balance lists debit and credit balances and checks that total debits equal total credits. It detects arithmetic errors in the ledgers but cannot detect errors of principle, omission or compensating errors.

Question 4The fundamentals of accounting

Which of the following is a current asset?

  1. Motor vehicle
  2. Fixtures and fittings
  3. Bank loan repayable in five years
  4. Inventory held for resale Correct answer.

Explanation

A current asset is expected to be converted into cash or used within one year of the reporting date. Inventory is held for resale in the normal trading cycle, so it is a current asset.

Question 5The fundamentals of accounting

A business receives a bank loan of $10,000. What is the effect on the accounting equation?

  1. Assets increase by $10,000 and liabilities increase by $10,000 Correct answer.
  2. Assets increase by $10,000 and capital increases by $10,000
  3. Liabilities increase by $10,000 and capital decreases by $10,000
  4. Assets decrease by $10,000 and liabilities decrease by $10,000

Explanation

Cash received raises assets, and the obligation to repay the loan raises liabilities by the same amount. Capital is unaffected because the owner has not contributed or withdrawn resources.

Question 6The fundamentals of accounting

Which document is sent by a seller to a buyer to correct an overcharge on a previous invoice?

  1. Remittance advice
  2. Debit note
  3. Statement of account
  4. Credit note Correct answer.

Explanation

A credit note is issued by the seller to reduce the amount owed by the customer, for example after goods are returned or an overcharge is corrected. It is recorded in the seller's sales returns day book.

Question 7The fundamentals of accounting

Which book of prime entry records goods returned by a customer?

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

Explanation

Goods returned by a customer are recorded in the sales returns day book, also called the returns inwards book. Each entry is later posted to the credit of the customer's account.

Question 8The fundamentals of accounting

A sole trader's capital at the start of the year was $40,000. During the year the owner introduced $5,000 and made drawings of $8,000. Profit for the year was $12,000. What is the closing capital?

  1. $61,000
  2. $45,000
  3. $49,000 Correct answer.
  4. $52,000

Explanation

Closing capital equals opening capital plus additional capital introduced plus profit, less drawings. So $40,000 + $5,000 + $12,000 − $8,000 = $49,000.

Question 9The fundamentals of accounting

Which error would still allow a trial balance to agree?

  1. A purchase invoice of $200 not entered in the purchases account
  2. A debit balance of $75 omitted from the trial balance
  3. A payment of $54 entered as $45 in both accounts Correct answer.
  4. A sale of $90 entered in the sales account only

Explanation

Entering the same wrong amount in both the debit and credit accounts keeps total debits equal to total credits, so the trial balance still agrees. This is an error of original entry.

Question 10The fundamentals of accounting

A business pays a supplier's account by cheque. Which double entry is correct?

  1. Debit purchases, credit bank
  2. Debit supplier's account, credit bank Correct answer.
  3. Debit bank, credit supplier's account
  4. Debit bank, credit purchases

Explanation

Paying a supplier reduces the liability owed, so the supplier's account is debited. The bank balance falls, so bank is credited.

Question 11The fundamentals of accounting

Which of the following is capital expenditure?

  1. Replacing a broken window pane
  2. Paying the annual insurance premium
  3. Repainting the office interior
  4. Installing a new lift in the building Correct answer.

Explanation

Capital expenditure is spending that acquires or improves a non-current asset and increases its earning capacity. Installing a new lift adds a lasting asset to the building.

Question 12The fundamentals of accounting

Under the reducing balance method, an asset costing $8,000 is depreciated at 25% per year. What is the depreciation charge for the second year?

  1. $2,500
  2. $2,000
  3. $1,125
  4. $1,500 Correct answer.

Explanation

Year one depreciation is 25% of $8,000 = $2,000, leaving a carrying amount of $6,000. Year two depreciation is 25% of $6,000 = $1,500.

Question 13The fundamentals of accounting

Which statement about a bank reconciliation statement is correct?

  1. It explains the difference between the cash book bank balance and the bank statement balance Correct answer.
  2. It replaces the bank account in the general ledger
  3. It is prepared by the bank to show the customer's errors
  4. It records only transactions that appear in both records

Explanation

A bank reconciliation explains why the bank balance in the cash book differs from the balance on the bank statement. Differences arise from unpresented cheques, uncredited deposits, bank charges and errors.

Question 14The fundamentals of accounting

A firm has opening inventory of $6,000, purchases of $40,000 and closing inventory of $5,000. What is the cost of sales?

  1. $51,000
  2. $41,000 Correct answer.
  3. $39,000
  4. $45,000

Explanation

Cost of sales equals opening inventory plus purchases less closing inventory. So $6,000 + $40,000 − $5,000 = $41,000.

Question 15The fundamentals of accounting

Which item would be entered in the general journal rather than a specialist day book?

  1. A credit sale of goods to a customer
  2. The correction of an error in the nominal ledger Correct answer.
  3. A purchase of goods on credit from a supplier
  4. Cash received from a customer

Explanation

The general journal records transactions that do not belong in the sales, purchases, returns or cash books, including corrections of errors and adjustments. Day books handle routine credit sales, purchases and returns.

Question 16The fundamentals of accounting

Which concept requires that expenses be matched with the revenue they helped to generate in the same period?

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

Explanation

The accrual concept recognises income and expenses when they are earned or incurred, not when cash moves, so expenses are matched to the revenue of the same period. This underlies adjustments for accruals and prepayments.

Question 17The fundamentals of accounting

An electricity bill of $900 for the quarter ending 31 March was unpaid at the year end. What adjustment is required?

  1. Debit electricity, credit accruals Correct answer.
  2. Debit accruals, credit electricity
  3. Debit electricity, credit bank
  4. Debit prepayments, credit electricity

Explanation

An expense incurred but not yet paid must be recognised in the current period, so electricity is debited and an accrual liability is credited. The bank is not credited because no payment has been made.

Question 18The fundamentals of accounting

Which of the following is a liability of a business?

  1. Equipment used in production
  2. Cash in the bank
  3. Inventory awaiting sale
  4. Amounts owed to suppliers Correct answer.

Explanation

A liability is an obligation to pay or transfer resources to another party in the future. Amounts owed to suppliers, called trade payables, are such obligations.

Question 19The fundamentals of accounting

A trial balance has total debits of $84,300 and total credits of $84,000. Which error is most likely to explain the difference?

  1. A payment of $300 recorded twice in the cash book
  2. A purchase of $300 entered in the wrong account
  3. A credit sale of $300 completely omitted
  4. A debit balance of $300 omitted from the trial balance Correct answer.

Explanation

A difference of $300 on the debit side suggests that a debit balance of $300 was left out when the trial balance was extracted. Complete omission of a transaction would not affect the totals.

Question 20The fundamentals of accounting

A business makes a provision for doubtful debts of 5% on trade receivables of $60,000. Later $2,000 of debts are written off as bad before the provision is calculated. What is the provision?

  1. $2,900 Correct answer.
  2. $2,000
  3. $3,100
  4. $3,000

Explanation

Writing off bad debts reduces receivables to $58,000 before the provision is computed. The provision is 5% of $58,000 = $2,900.

Question 21The fundamentals of accounting

Why is a provision for doubtful debts created rather than deducting the amount directly from receivables?

  1. To record the exact debts known to be irrecoverable
  2. To comply with the money measurement concept
  3. To increase the reported profit for the period
  4. To apply the prudence concept by anticipating possible losses from receivables Correct answer.

Explanation

Prudence requires that expected losses be recognised as soon as they are foreseen. A provision estimates the doubtful portion of receivables rather than waiting for specific debts to be identified as bad.

Question 22The fundamentals of accounting

A machine costing $20,000 with accumulated depreciation of $7,500 is sold for $11,000. What is the profit or loss on disposal?

  1. Loss of $9,000
  2. Profit of $1,500
  3. Loss of $1,500 Correct answer.
  4. Profit of $3,500

Explanation

The carrying amount is $20,000 − $7,500 = $12,500. Selling for $11,000 gives a loss of $12,500 − $11,000 = $1,500.

Question 23The fundamentals of accounting

A business has current assets of $45,000 and current liabilities of $30,000. It then buys inventory of $6,000 on credit. What happens to the current ratio?

  1. It stays at 1.5
  2. It falls from 1.5 to 1.0
  3. It rises from 1.5 to 1.7
  4. It falls from 1.5 to 1.42 Correct answer.

Explanation

The original ratio is $45,000 ÷ $30,000 = 1.5. Buying inventory on credit raises both current assets to $51,000 and current liabilities to $36,000, giving 1.42, a fall.

Question 24The fundamentals of accounting

A trader records a purchase of fixtures as a purchase of goods. Which type of error is this?

  1. Error of original entry
  2. Compensating error
  3. Error of omission
  4. Error of principle Correct answer.

Explanation

An error of principle occurs when a transaction is entered in the wrong class of account, here treating a non-current asset as trading stock. The double entry still balances, so the trial balance agrees.

Question 25The fundamentals of accounting

A firm's gross profit is $60,000 and net profit is $24,000. Which conclusion is best supported?

  1. The firm's expenses are 60% of gross profit
  2. The firm's net profit margin is 24% of gross profit
  3. The firm's expenses are 40% of gross profit Correct answer.
  4. The firm's cost of sales is 40% of sales

Explanation

Expenses equal gross profit minus net profit, $60,000 − $24,000 = $36,000. As a proportion of gross profit this is 60%, so expenses absorb 60% and net profit is 40% of gross profit, making option 0 the correct statement.

Question 26The fundamentals of accounting

A business buys goods on credit from a supplier. Which accounting entry records this transaction?

  1. Debit cash, credit purchases
  2. Debit purchases, credit trade payable Correct answer.
  3. Debit trade payable, credit purchases
  4. Debit purchases, credit cash

Explanation

Purchases are an expense (or cost of goods bought for resale), so they are debited when goods are acquired. Because the goods are bought on credit, the liability to the supplier increases, so the trade payable account is credited.

Question 27The fundamentals of accounting

Which of the following best describes the purpose of the trial balance?

  1. To show the financial position of the business at a point in time
  2. To calculate the profit or loss for the period
  3. To provide a list of all assets and liabilities at their market values
  4. To prove the arithmetical accuracy of the double-entry records Correct answer.

Explanation

A trial balance lists the debit and credit balances from the ledger and checks that total debits equal total credits. It is a check on arithmetical accuracy, not a statement of financial position or a profit calculation.

Question 28The fundamentals of accounting

A sole trader's capital at the start of the year was $50,000. During the year the owner introduced $10,000 and made drawings of $8,000. The profit for the year was $15,000. What is the capital at the end of the year?

  1. $65,000
  2. $83,000
  3. $47,000
  4. $67,000 Correct answer.

Explanation

Closing capital equals opening capital plus additional capital introduced plus profit for the year minus drawings. So $50,000 + $10,000 + $15,000 − $8,000 = $67,000.

Question 29The fundamentals of accounting

A business receives an invoice for rent of $1,200 covering the three months ending 31 March. The invoice is paid in April. The year-end is 31 March. What adjustment is needed in the financial statements for the year ended 31 March?

  1. Record $1,200 as a prepayment and exclude it from expenses
  2. Record $1,200 as a liability only, with no effect on profit
  3. Accrue $1,200 rent and include it as an expense for the year Correct answer.
  4. Make no adjustment because the invoice has not been paid

Explanation

The accrual concept requires expenses to be recognised in the period to which they relate, not when paid. The rent covers the three months to 31 March, so the full $1,200 is an expense of the year and must be accrued as a liability at the year end.

Question 30The fundamentals of accounting

A business has opening inventory of $8,000, purchases of $50,000, and closing inventory of $6,000. Sales for the year were $80,000. What is the gross profit for the year?

  1. $28,000 Correct answer.
  2. $36,000
  3. $22,000
  4. $30,000

Explanation

Cost of sales = opening inventory + purchases − closing inventory = $8,000 + $50,000 − $6,000 = $52,000. Gross profit = sales − cost of sales = $80,000 − $52,000 = $28,000.

Question 31Sources and recording of data

A business buys office stationery for cash. Which double entry records this transaction?

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

Explanation

An expense increases with a debit, so Stationery is debited. Cash is an asset that decreases, and assets decrease with a credit.

Question 32Sources and recording of data

Which book of prime entry is used to record credit sales of goods?

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

Explanation

The sales journal (sales day book) lists credit sales of goods to customers. Cash sales go in the cash book, not the sales journal.

Question 33Sources and recording of data

A trader returns faulty goods to a supplier and receives a credit note. Which book records this?

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

Explanation

Goods returned to a supplier are purchases returns and are recorded in the purchases returns journal. The credit note from the supplier confirms the amount owed is reduced.

Question 34Sources and recording of data

Which document is sent by a seller to a customer to request payment and show details of the goods supplied?

  1. Delivery note
  2. Invoice Correct answer.
  3. Credit note
  4. Statement of account

Explanation

An invoice sets out the goods sold, their prices and the amount due for payment. It is the primary document used to record a credit sale.

Question 35Sources and recording of data

In a two-column cash book, a cheque received from a customer is recorded on which side?

  1. Debit side, cash column
  2. Credit side, bank column
  3. Debit side, bank column Correct answer.
  4. Credit side, cash column

Explanation

Money received increases the bank asset, and asset increases are debits. Receipts are therefore entered on the debit side, in the bank column for cheques.

Question 36Sources and recording of data

A trial balance totals debit 84,300 and credit 84,300, yet an error remains. Which error would still allow the trial balance to balance?

  1. A sale of 500 was completely omitted from the books Correct answer.
  2. A debit entry of 250 was posted as 520
  3. A payment of 900 was entered only on the credit side
  4. A purchase of 400 was credited to the supplier but not debited to Purchases

Explanation

A complete omission affects neither total, so the trial balance still agrees. Errors of one-sided entry, wrong amount on one side, or missing one side cause unequal totals.

Question 37Sources and recording of data

Which entry records the owner bringing a motor vehicle into the business?

  1. Debit Capital, credit Motor vehicle
  2. Debit Motor vehicle, credit Capital Correct answer.
  3. Debit Motor vehicle, credit Cash
  4. Debit Drawings, credit Motor vehicle

Explanation

The business gains an asset, so Motor vehicle is debited. The owner's stake in the business rises, so Capital is credited.

Question 38Sources and recording of data

What is the main purpose of preparing a trial balance?

  1. To show the market value of the assets
  2. To prove that no errors were made
  3. To calculate the profit for the period
  4. To check that total debits equal total credits Correct answer.

Explanation

A trial balance lists ledger balances and tests arithmetical equality of debits and credits. It cannot detect every error, such as errors of principle or complete omission.

Question 39Sources and recording of data

A trader pays a supplier by cheque. Which ledger accounts are affected?

  1. Debit supplier's account, credit bank Correct answer.
  2. Debit supplier's account, credit cash
  3. Debit bank, credit supplier's account
  4. Debit purchases, credit bank

Explanation

Paying a supplier reduces the liability, and liabilities decrease with a debit. The bank balance falls, and assets decrease with a credit.

Question 40Sources and recording of data

Goods bought on credit from a supplier are recorded first in which book?

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

Explanation

Credit purchases of goods are listed in the purchases journal before being posted to the ledger. The cash book deals only with cash and bank items.

Question 41Sources and recording of data

A contra entry appears in the cash book when money is transferred between the cash and bank columns. How is it shown?

  1. On the credit side only
  2. On both sides, in both columns Correct answer.
  3. On the debit side only
  4. In the general journal only

Explanation

A contra entry records a movement between cash and bank, so it appears as a receipt in one column and a payment in the other. Both the cash and bank columns are used on both sides.

Question 42Sources and recording of data

Which item would be recorded in the general journal rather than a specialised day book?

  1. Cash received from a customer
  2. A credit purchase of goods
  3. Correction of an error in the ledger Correct answer.
  4. A credit sale of goods

Explanation

The general journal records adjustments and corrections that do not arise from routine sales, purchases or cash transactions. Credit sales, credit purchases and cash receipts each have their own book.

Question 43Sources and recording of data

A customer returns goods previously sold on credit. What is the correct double entry?

  1. Debit Sales returns, credit bank
  2. Debit Sales, credit customer's account
  3. Debit customer's account, credit Sales returns
  4. Debit Sales returns, credit customer's account Correct answer.

Explanation

Goods returned by a customer increase sales returns, which is a debit. The amount owed by the customer falls, so the customer's account is credited.

Question 44Sources and recording of data

Which document does a business issue to reduce the amount owed by a customer after allowing a price reduction?

  1. Receipt
  2. Debit note
  3. Invoice
  4. Credit note Correct answer.

Explanation

A credit note informs the customer that their account has been reduced. It is used for returns or allowances and is recorded in the sales returns journal by the seller.

Question 45Sources and recording of data

A business records rent paid of 1,200 as 2,100 in both the rent account and the bank account. Which type of error is this?

  1. Compensating error
  2. Error of commission
  3. Error of principle
  4. Error of original entry Correct answer.

Explanation

The wrong amount was entered in the books and then posted consistently, which is an error of original entry. Both accounts receive the same incorrect figure, so the trial balance still agrees.

Question 46Sources and recording of data

Which account is debited when a bad debt is written off?

  1. Provision for doubtful debts
  2. Sales
  3. Bad debts expense Correct answer.
  4. Debtors control

Explanation

Writing off a bad debt is an expense, so Bad debts is debited. The customer's account is credited to remove the amount owed.

Question 47Sources and recording of data

A purchase of goods on credit for 300 was entered in the sales journal in error. Which type of error is this?

  1. Error of principle Correct answer.
  2. Error of commission
  3. Error of original entry
  4. Complete reversal of entries

Explanation

Recording a purchase as a sale breaks the accounting rule that purchases and sales are distinct, so it is an error of principle. Both sides were posted, so the trial balance still balances.

Question 48Sources and recording of data

Which item appears on the debit side of a sales ledger account for a customer?

  1. Cash received from the customer
  2. A credit note issued to the customer
  3. Goods sold on credit to the customer Correct answer.
  4. Discount allowed to the customer

Explanation

A credit sale increases what the customer owes, and asset increases are debits. Receipts, credit notes and discounts allowed all reduce the balance and are credited.

Question 49Sources and recording of data

What is the effect of a discount received from a supplier on the accounts of the buyer?

  1. Debit bank, credit discount received
  2. Debit discount received, credit supplier's account
  3. Debit supplier's account, credit discount received Correct answer.
  4. Debit purchases, credit discount received

Explanation

A discount received reduces the amount owed to the supplier, so the supplier's account is debited. Discount received is income, which is credited.

Question 50Sources and recording of data

Which of these is an internal source document created within the business?

  1. Bank statement
  2. Customer's credit note
  3. Supplier's invoice
  4. Petty cash voucher Correct answer.

Explanation

A petty cash voucher is prepared internally to support a small cash payment. Invoices, bank statements and credit notes from customers originate outside the business.