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SPM Accounting (3756) study materials
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SPM Accounting (3756) practice questions

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Question 1Introduction to Accounting and the Accounting Equation

A business owner takes goods from inventory for personal use. Which accounting concept requires this to be recorded as drawings rather than a business expense?

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

Explanation

The business entity concept treats the owner and the business as separate accounting entities, so resources withdrawn by the owner are recorded as drawings and not as an operating expense of the business. This keeps the profit figure measuring business performance only.

Question 2Introduction to Accounting and the Accounting Equation

Which pairing of financial statement with its purpose is correct?

  1. Statement of financial position: shows income and expenses for the period
  2. Statement of profit or loss: shows the cash balance at the year end
  3. Statement of financial position: shows assets, liabilities and capital at a point in time Correct answer.
  4. Statement of cash flows: shows the capital introduced by the owner

Explanation

The statement of financial position is a snapshot at a specific date listing assets, liabilities and capital. The statement of profit or loss reports income and expenses over a period, and the statement of cash flows reports cash receipts and payments.

Question 3Introduction to Accounting and the Accounting Equation

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

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

Explanation

The accounting equation states assets equal capital plus liabilities, so capital equals assets minus liabilities. Here $85,000 minus $32,000 gives capital of $53,000.

Question 4Introduction to Accounting and the Accounting Equation

Which of the following is a current liability?

  1. Motor vehicles used for deliveries
  2. Inventory held for resale
  3. Trade payables due in 45 days Correct answer.
  4. A bank loan repayable in five years

Explanation

A current liability is an obligation expected to be settled within the normal operating cycle or within twelve months. Trade payables due in 45 days meet that definition, whereas a five-year loan is non-current.

Question 5Introduction to Accounting and the Accounting Equation

Which statement best describes the purpose of bookkeeping as distinct from accounting?

  1. Bookkeeping records routine transactions, while accounting interprets and reports the information Correct answer.
  2. Bookkeeping audits the accounts, while accounting designs the accounting system
  3. Bookkeeping analyses ratios, while accounting posts entries to the ledger
  4. Bookkeeping prepares the final financial statements, while accounting only records cash receipts

Explanation

Bookkeeping is the mechanical recording of day-to-day transactions in the books of account. Accounting builds on those records by summarising, interpreting and reporting information used for decisions.

Question 6Introduction to Accounting and the Accounting Equation

A business purchases equipment for $12,000 paying $5,000 cash with the balance on credit. What is the effect on the accounting equation?

  1. Assets increase by $7,000 and liabilities increase by $7,000 Correct answer.
  2. Assets increase by $5,000 and capital increases by $5,000
  3. Assets increase by $12,000 and liabilities increase by $12,000
  4. Assets remain unchanged and liabilities increase by $7,000

Explanation

Equipment rises by $12,000 while cash falls by $5,000, giving a net asset increase of $7,000. The unpaid balance creates a liability of $7,000, so both sides of the equation rise equally and it stays balanced.

Question 7Introduction to Accounting and the Accounting Equation

Which item would be classified as capital expenditure rather than revenue expenditure?

  1. Replacing a broken window in the store
  2. Installation costs for a new machine that extends its operating capacity Correct answer.
  3. Repainting the office interior after normal wear
  4. Paying the monthly electricity bill

Explanation

Capital expenditure is spending that acquires or improves a non-current asset and provides benefit over several periods. Installation costs that extend capacity are added to the asset's cost, whereas repairs and running costs are revenue expenditure.

Question 8Introduction to Accounting and the Accounting Equation

An owner introduces a vehicle valued at $18,000 into the business. How is this recorded in the accounting equation?

  1. Assets increase by $18,000 and drawings increase by $18,000
  2. Assets increase by $18,000 and capital increases by $18,000 Correct answer.
  3. Assets are unchanged and capital increases by $18,000
  4. Assets increase by $18,000 and liabilities increase by $18,000

Explanation

Goods or assets brought in by the owner are a form of capital introduced. The business gains an asset of $18,000 and the owner's capital claim rises by the same amount, keeping the equation in balance.

Question 9Introduction to Accounting and the Accounting Equation

Which pair correctly matches a user of financial statements with their main information need?

  1. A supplier: assessing whether the business can pay for goods supplied on credit Correct answer.
  2. An employee: deciding the selling price of the business's products
  3. A competitor: calculating the owner's personal income tax
  4. A customer: determining the amount of tax payable by the business

Explanation

Suppliers extend trade credit and need assurance that the business can settle its payables, so they focus on liquidity and solvency. Each user group has a distinct interest, and pricing, tax and personal income are not the supplier's concern.

Question 10Introduction to Accounting and the Accounting Equation

Which qualitative characteristic is satisfied when information is free from bias and faithfully represents the transactions it purports to represent?

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

Explanation

Faithful representation means information depicts the substance of transactions completely, neutrally and without material error. Comparability, timeliness and verifiability are different enhancing characteristics.

Question 11Introduction to Accounting and the Accounting Equation

A business has capital of $40,000 and liabilities of $15,000. It then uses $6,000 cash to repay part of a bank loan. What are total assets immediately after this transaction?

  1. $49,000 Correct answer.
  2. $61,000
  3. $55,000
  4. $43,000

Explanation

Before the repayment assets were $40,000 plus $15,000, equal to $55,000. Paying $6,000 cash reduces both assets and liabilities by $6,000, leaving assets of $49,000 and liabilities of $9,000 against unchanged capital of $40,000.

Question 12Introduction to Accounting and the Accounting Equation

A trader records a sale of goods on credit. Which effect does this transaction have on the accounting equation?

  1. Assets decrease and capital decreases
  2. Assets increase and capital increases through profit Correct answer.
  3. Liabilities decrease and capital increases
  4. Assets increase and liabilities increase

Explanation

A credit sale creates a receivable, increasing assets, and the profit element increases capital because income exceeds the cost of the goods sold. No liability arises from the sale itself.

Question 13Introduction to Accounting and the Accounting Equation

Which statement about the statement of cash flows is correct?

  1. It shows the profit earned from trading during the period
  2. It lists the non-current assets owned at the year end
  3. It explains movements in cash and cash equivalents over a period Correct answer.
  4. It records the owner's capital balance at the start of the year

Explanation

The statement of cash flows classifies receipts and payments into operating, investing and financing activities to explain the change in cash and cash equivalents. Profit is reported separately in the statement of profit or loss.

Question 14Introduction to Accounting and the Accounting Equation

An entity's assets increase by $9,000 while its liabilities decrease by $4,000 during a period with no owner drawings or introductions. What is the change in capital?

  1. An increase of $9,000
  2. A decrease of $13,000
  3. An increase of $5,000
  4. An increase of $13,000 Correct answer.

Explanation

Rearranging the equation gives capital equal to assets minus liabilities. Assets rising by $9,000 and liabilities falling by $4,000 together raise capital by $13,000, which represents profit for the period.

Question 15Introduction to Accounting and the Accounting Equation

Which situation is the clearest example of a conflict between the accruals concept and the prudence concept?

  1. Recording the owner's private electricity payment as drawings
  2. Treating a small stapler purchase as an expense rather than an asset
  3. Recording depreciation on a straight-line basis each year
  4. Recognising revenue that is probable but not yet confirmed while providing for a doubtful debt on the same balance Correct answer.

Explanation

Accruals recognises income when earned even if unconfirmed, while prudence requires caution where uncertainty exists, such as providing for a doubtful debt. Applying both to the same balance requires judgement about how much revenue to recognise.

Question 16Introduction to Accounting and the Accounting Equation

A business reports capital of $62,000 at the start of the year. During the year the owner withdrew $15,000 and the business earned a profit of $9,000. What is the capital at the end of the year?

  1. $68,000
  2. $38,000
  3. $56,000 Correct answer.
  4. $86,000

Explanation

Closing capital equals opening capital plus profit less drawings. Adding the $9,000 profit to $62,000 gives $71,000, and deducting the $15,000 drawings leaves $56,000.

Question 17Accounting Concepts, Principles and Assumptions

Under the going concern assumption, which basis of measurement is normally applied to the assets of a reporting entity?

  1. Replacement cost, because the entity intends to replace its assets as they wear out
  2. Fair value only, because IFRS requires all assets to be remeasured annually
  3. Liquidation value, because assets would be sold piecemeal if the entity ceased trading
  4. Historical cost, because the entity is expected to continue operating long enough to realise assets in the ordinary course of business Correct answer.

Explanation

Going concern means the financial statements are prepared on the assumption that the entity will continue in operation for the foreseeable future, so assets are measured on a historical cost or other going-concern basis rather than break-up values. Liquidation values become relevant only where the assumption is no longer appropriate.

Question 18Accounting Concepts, Principles and Assumptions

An entity recognises revenue when control of goods passes to the customer, not when cash is received. Which accounting assumption does this most directly reflect?

  1. Monetary unit
  2. Business entity
  3. Going concern
  4. Accrual basis Correct answer.

Explanation

The accrual basis requires transactions to be recognised when they occur, not when cash changes hands, so revenue is recorded as control transfers. The going concern, entity and monetary unit assumptions address continuity, the separation of owner and business, and the unit of measurement respectively.

Question 19Accounting Concepts, Principles and Assumptions

A sole trader pays his personal household electricity bill from the business bank account. Which accounting assumption is breached, and what is the correct treatment?

  1. The consistency assumption; the payment should be recorded as an expense in the same way as prior years
  2. The accrual assumption; the payment should be deferred to the next reporting period
  3. The going concern assumption; the payment should be capitalised as an intangible asset
  4. The business entity assumption; the payment should be recorded as drawings, not as a business expense Correct answer.

Explanation

The business entity assumption treats the owner and the business as separate reporting entities, so private expenditure is not a business expense. It is recorded as drawings, reducing the owner's equity rather than profit.

Question 20Accounting Concepts, Principles and Assumptions

Which statement best describes the prudence concept as applied under current IFRS financial reporting?

  1. It requires assets to be carried at the lowest possible value and liabilities at the highest possible value in every period
  2. It permits the creation of hidden reserves so that reported profit can be smoothed between periods
  3. It supports caution in judgements under uncertainty, without permitting deliberate understatement of assets or overstatement of liabilities Correct answer.
  4. It requires all estimated gains to be recognised immediately while estimated losses are deferred

Explanation

Prudence is the exercise of caution when making judgements under conditions of uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated. It does not permit intentional bias, hidden reserves or asymmetric recognition of gains and losses.

Question 21Accounting Concepts, Principles and Assumptions

An entity changes the depreciation method for its plant from reducing balance to straight line because the pattern of consumption of economic benefits has changed. How should this be treated?

  1. As a change in accounting policy, applied retrospectively with restatement of comparatives
  2. As a change in reporting entity, requiring full restatement of all prior periods
  3. As a prior period error, corrected by restating opening retained earnings
  4. As a change in accounting estimate, applied prospectively and disclosed Correct answer.

Explanation

Changing a depreciation method reflects a revised estimate of the pattern of consumption, so it is a change in accounting estimate applied prospectively. The depreciation method is not itself an accounting policy choice that triggers retrospective restatement.

Question 22Accounting Concepts, Principles and Assumptions

Which pair of qualitative characteristics is described as fundamental in the IASB Conceptual Framework?

  1. Verifiability and understandability
  2. Comparability and timeliness
  3. Prudence and consistency
  4. Relevance and faithful representation Correct answer.

Explanation

The Conceptual Framework identifies relevance and faithful representation as the two fundamental qualitative characteristics that make financial information useful. Comparability, verifiability, timeliness and understandability are enhancing characteristics.

Question 23Accounting Concepts, Principles and Assumptions

A machine is purchased for 100,000 with an estimated useful life of five years and a residual value of 10,000. Using the straight-line method, what is the depreciation charge for the first year?

  1. 20,000
  2. 18,000 Correct answer.
  3. 10,000
  4. 22,000

Explanation

Straight-line depreciation is the depreciable amount divided by useful life: (100,000 minus 10,000) divided by 5 equals 18,000. The residual value is excluded from the depreciable amount because it is expected to be recovered on disposal.

Question 24Accounting Concepts, Principles and Assumptions

An entity recognises a provision for a court case where a present obligation exists and a reliable estimate can be made, but the outcome is uncertain. Which concept most directly justifies recognising the provision rather than waiting for the ruling?

  1. The monetary unit assumption, because the claim is denominated in currency
  2. The business entity assumption, because the claim belongs to the entity rather than its owners
  3. Going concern, because the entity is expected to continue trading
  4. Accrual basis combined with prudence in measuring the obligation Correct answer.

Explanation

The accrual basis requires obligations arising from past events to be recognised when they occur, and prudence supports measuring the obligation with caution under uncertainty. Together they justify recognising a provision rather than deferring recognition until the case is decided.

Question 25Accounting Concepts, Principles and Assumptions

Which of the following best describes the materiality concept in preparing financial statements?

  1. Materiality applies only to the statement of financial position and not to the notes
  2. An item is material only if it exceeds a fixed percentage of revenue set by the standard-setter
  3. Information is material if omitting or misstating it could influence decisions that users make on the basis of the financial statements Correct answer.
  4. Materiality requires every transaction, however small, to be disclosed separately

Explanation

Materiality is entity-specific and depends on whether omission or misstatement could influence the economic decisions of users. It is not a fixed numerical threshold prescribed by standards, and it applies to the financial statements as a whole, including the notes.

Question 26Accounting Concepts, Principles and Assumptions

In a period of rising prices, an entity switches from FIFO to weighted average cost for inventory, which reduces reported profit. Which concept is most directly relevant to explaining the effect of this policy choice?

  1. Consistency, because a change in accounting policy affects comparability between periods and must be applied retrospectively Correct answer.
  2. The monetary unit assumption, because prices are rising
  3. Prudence, because lower profit is always preferable in rising price conditions
  4. Going concern, because inventory must be valued at replacement cost

Explanation

Consistency requires the same accounting policies to be applied each period so that comparability is maintained; a change in policy such as FIFO to weighted average is applied retrospectively with disclosure. Prudence does not justify choosing a policy simply because it produces lower profit.

Question 27Accounting Concepts, Principles and Assumptions

Which of the following is the best example of an asset meeting the definition in the Conceptual Framework?

  1. A resource that the entity expects to acquire in a future transaction
  2. An item that the entity owns but which has no potential to produce economic benefits
  3. A right controlled by the entity as a result of a past event that has the potential to produce economic benefits Correct answer.
  4. A resource controlled by a competitor that the entity hopes to purchase

Explanation

An asset is a present economic resource controlled by the entity as a result of past events, where an economic resource is a right with the potential to produce economic benefits. Future transactions, items with no benefit potential, and resources controlled by others do not meet the definition.

Question 28Accounting Concepts, Principles and Assumptions

An entity receives a government grant of 60,000 on 1 January to purchase equipment costing 240,000 with a four-year useful life and no residual value. Using the deferred income approach, what amount of grant income is recognised in the first year?

  1. 0
  2. 15,000 Correct answer.
  3. 30,000
  4. 60,000

Explanation

Under the deferred income approach the grant is recognised in profit or loss over the periods in which the related asset's depreciation is recognised. The annual amount is 60,000 divided by 4 years, equal to 15,000, matching the depreciation charge.

Question 29Accounting Concepts, Principles and Assumptions

Which measurement basis is described in the Conceptual Framework as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date?

  1. Current cost
  2. Historical cost
  3. Value in use
  4. Fair value Correct answer.

Explanation

Fair value is an exit price in an orderly transaction between market participants at the measurement date. Value in use is entity-specific, current cost reflects replacement, and historical cost reflects the original transaction price.

Question 30Accounting Concepts, Principles and Assumptions

An entity sells goods on credit and estimates that 3% of credit sales will be uncollectible. It records a loss allowance even though no specific customer has defaulted. Which concept best explains this treatment?

  1. The monetary unit assumption, because the allowance is denominated in currency
  2. Going concern, because the entity expects to keep selling on credit
  3. Accrual basis, supported by prudence, because the expected credit loss relates to sales already recognised Correct answer.
  4. The business entity assumption, because receivables belong to the entity

Explanation

The expected credit loss arises from revenue already recognised on the accrual basis, so matching the related expense to the same period is required. Prudence supports recognising the expected loss even before a specific default occurs.

Question 31Accounting Concepts, Principles and Assumptions

An entity's financial statements are prepared on a going concern basis. Which condition would most appropriately lead the directors to conclude that the assumption is no longer appropriate?

  1. The entity's sales have declined compared with the prior year
  2. The entity has reported a loss for the current year
  3. A court order has been issued placing the entity into compulsory liquidation Correct answer.
  4. The entity has a bank loan repayable in three years

Explanation

Going concern ceases to be appropriate when management intends to liquidate the entity, cease trading, or has no realistic alternative but to do so. A compulsory liquidation order removes the alternative, so the financial statements should be prepared on a break-up basis.

Question 32Accounting Concepts, Principles and Assumptions

Which of the following best describes the enhancing qualitative characteristic of comparability?

  1. Different knowledgeable observers could reach consensus that the information is a faithful representation
  2. Information is available to decision-makers before it loses its capacity to influence decisions
  3. Information is free from material error and represents faithfully what it purports to represent
  4. Users can identify similarities and differences between items and across entities and periods Correct answer.

Explanation

Comparability enables users to identify similarities in and differences between items, and it requires consistency within an entity and common measurement approaches across entities. Freedom from error describes faithful representation, timeliness describes availability, and verifiability describes consensus among observers.

Question 33Source Documents, Books of Original Entry and Journals

A business receives a cheque from a credit customer in full settlement of an invoice. Which source document is prepared by the seller and issued to the customer as evidence of the receipt?

  1. A remittance advice slip issued by the customer
  2. A credit note issued by the seller
  3. A receipt issued by the seller Correct answer.
  4. A bank paying-in slip stamped by the bank

Explanation

A receipt is the document the seller issues to acknowledge that money has been received, and it is the source document for recording the cash book entry and the reduction of the customer's debt. Remittance advices and paying-in slips are created by the payer, and a credit note relates to returned goods or overcharges rather than money received.

Question 34Source Documents, Books of Original Entry and Journals

Which book of original entry is used to record the purchase of a delivery van on credit from a motor dealer?

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

Explanation

A van bought for use in the business is a non-current asset, not goods for resale, so the transaction does not belong in the purchases journal. Because it is a credit transaction that is not a trade purchase or sale, it is recorded in the general journal using the purchase invoice as the source document.

Question 35Source Documents, Books of Original Entry and Journals

A trader returns faulty goods to a supplier and later receives a document from the supplier acknowledging the return. What is this document called and how is it recorded?

  1. A purchase invoice, recorded in the purchases journal
  2. A credit note, recorded in the returns outwards journal Correct answer.
  3. A credit note, recorded in the returns inwards journal
  4. A debit note, recorded in the returns inwards journal

Explanation

Goods returned to a supplier are returns outwards, and the supplier issues a credit note to confirm the reduction in what the trader owes. The credit note is therefore the source document entered in the returns outwards journal, which is posted to the debit of the supplier's account.

Question 36Source Documents, Books of Original Entry and Journals

Which item is entered on the debit side of a two-column cash book?

  1. Cash paid to a supplier
  2. Discount allowed to a customer
  3. Bank charges charged by the bank
  4. Discount received from a supplier Correct answer.

Explanation

Discount received reduces the amount a business pays a supplier, so it is a gain recorded in the discount received column on the debit side of the cash book. Discount allowed is a loss recorded on the credit side, while payments and bank charges are credit entries.

Question 37Source Documents, Books of Original Entry and Journals

A petty cashier operates an imprest of $300. Vouchers for the period total $186, and the petty cash float is reimbursed. What amount is restored to the petty cash box?

  1. $114
  2. $186 Correct answer.
  3. $300
  4. $486

Explanation

Under the imprest system the amount reimbursed equals the total of the petty cash vouchers for the period, so the float returns to its original level. Here the vouchers total $186, so $186 is drawn from the main cash book to restore the $300 imprest.

Question 38Source Documents, Books of Original Entry and Journals

Which statement best describes the purpose of a book of original entry?

  1. It proves that the ledger accounts are free from error
  2. It summarises the financial position of the business at a given date
  3. It provides the first written record of a transaction before it is posted to the ledger Correct answer.
  4. It replaces the trial balance at the year end

Explanation

Books of original entry, such as the sales journal and cash book, record transactions from source documents in date order before the totals and individual items are posted to the ledger. They do not replace the trial balance, present a statement of financial position, or guarantee accuracy.

Question 39Source Documents, Books of Original Entry and Journals

A credit note received from a supplier is filed and used as the source document for which entry?

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

Explanation

A credit note received reduces the amount owed to a supplier, so the supplier's account is debited. The corresponding credit goes to the returns outwards account, which is a deduction from purchases in the trading account.

Question 40Source Documents, Books of Original Entry and Journals

A trader pays a supplier by cheque after deducting a settlement discount. Which combination of entries correctly records this in the books?

  1. Debit the supplier's account with the full invoice amount; credit bank and credit discount received Correct answer.
  2. Debit bank and discount received; credit the supplier's account
  3. Debit the supplier's account with the cheque amount; credit discount allowed and credit bank
  4. Debit the supplier's account with the cheque amount; credit bank only

Explanation

The supplier's account must be cleared with the gross amount owed, so it is debited in full. The bank is credited with the cash actually paid and the discount received account is credited with the discount obtained, keeping the double entry in balance.

Question 41Source Documents, Books of Original Entry and Journals

Which of these transactions is recorded in the general journal rather than in a special journal?

  1. Cash withdrawn from the bank for office use
  2. A credit sale of goods to a new customer
  3. A credit purchase of trading stock
  4. A correction of an error where a payment for rent was debited to insurance Correct answer.

Explanation

Corrections of errors, opening entries and other adjustments that do not arise from a routine source document are recorded in the general journal. Credit sales and credit purchases of stock go to the sales and purchases journals, and cash withdrawals go to the cash book.

Question 42Source Documents, Books of Original Entry and Journals

A business uses the imprest system with a $250 float. At the end of the month the petty cash box contains $63 and the vouchers total $187. During the month the petty cashier had also lent $20 to an employee without a voucher. How should this be treated?

  1. Record the $20 as a receivable from the employee and reimburse only the vouchered $187 Correct answer.
  2. Include the $20 in the reimbursement as a normal expense
  3. Ignore the $20 because no voucher exists
  4. Reduce the imprest by $20 permanently

Explanation

The imprest is reimbursed only for properly vouchered payments, so $187 is restored from the main cash book. The unvouchered loan must be recorded separately as an amount owed by the employee, otherwise the float will not reconcile to $250.

Question 43Source Documents, Books of Original Entry and Journals

Which statement about the sales journal is correct?

  1. It is written up from purchase invoices received from suppliers
  2. It is written up from copies of sales invoices issued to credit customers Correct answer.
  3. It records all sales, whether for cash or on credit
  4. Its total is posted to the debit of the sales account

Explanation

The sales journal is a book of original entry for credit sales of goods only, and each entry is supported by a copy of the sales invoice sent to the customer. The total of the journal is posted to the credit of the sales account, with individual amounts debited to customers' accounts.

Question 44Source Documents, Books of Original Entry and Journals

A trader's purchases journal shows a total of $4,800 for the month. It is later discovered that an invoice for $350 was entered as $530. What is the corrected total of the purchases journal?

  1. $4,970
  2. $4,620 Correct answer.
  3. $4,980
  4. $4,800

Explanation

The invoice was overstated by $180 ($530 − $350), so the journal total must be reduced by that amount. Subtracting $180 from $4,800 gives the corrected total of $4,620, which is then posted to the purchases account.

Question 45Source Documents, Books of Original Entry and Journals

A cheque paid to a supplier is dishonoured by the bank. In whose books and in which book is the dishonour recorded first?

  1. The customer's cash book, as a receipt on the debit side Correct answer.
  2. The customer's cash book, as a payment on the credit side
  3. The supplier's cash book, as a receipt
  4. The customer's sales journal, as a credit sale

Explanation

When the trader's own cheque is dishonoured, the bank reverses the earlier payment, so the trader treats it as money coming back in. It is entered as a receipt on the debit side of the cash book and the supplier's account is credited again.

Question 46Source Documents, Books of Original Entry and Journals

A business receives a bank statement showing a direct debit for insurance that it has not yet recorded. Which book should the transaction be entered in?

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

Explanation

A direct debit paid by the bank reduces the bank balance and must be recorded in the bank column of the cash book on the credit side. The bank statement is the source document for this entry, which is then posted to the insurance account.

Question 47Source Documents, Books of Original Entry and Journals

Which item would appear in the returns inwards journal?

  1. A discount granted to a customer for prompt payment
  2. A bad debt written off
  3. Goods returned by the business to a supplier
  4. Goods returned by a customer to the business Correct answer.

Explanation

Returns inwards records goods sent back to the business by its customers, supported by credit notes issued. Returns to suppliers are returns outwards, while discounts allowed and bad debts are recorded elsewhere.

Question 48Source Documents, Books of Original Entry and Journals

A trader keeps a three-column cash book. Which transaction increases the bank column balance?

  1. Receiving a cheque from a debtor and banking it Correct answer.
  2. Bank charges debited by the bank
  3. Paying a creditor by standing order
  4. Dishonour of a customer's cheque

Explanation

A cheque received from a debtor and paid into the bank increases the bank balance, so it is entered on the debit side of the bank column. Payments, bank charges and dishonoured cheques all reduce the bank balance and appear on the credit side.

Question 49Source Documents, Books of Original Entry and Journals

Which document supports the entry in the general journal for goods taken by the owner for personal use?

  1. A credit note
  2. A petty cash voucher
  3. A sales invoice
  4. An internal journal voucher or memo prepared by the business Correct answer.

Explanation

Goods withdrawn by the owner are not a sale or a purchase, so no external document exists. The business prepares an internal journal voucher or memo as evidence, and the entry debits drawings and credits purchases.

Question 50Source Documents, Books of Original Entry and Journals

A trader's cash book shows a debit balance of $1,250 in the bank column. A cheque for $210 received from a customer is later dishonoured. What is the revised bank balance?

  1. $1,250 debit
  2. $1,040 credit
  3. $1,040 debit Correct answer.
  4. $1,460 debit

Explanation

A dishonoured cheque reverses the earlier receipt, so the bank balance falls by $210. The revised balance is $1,250 − $210 = $1,040, still a debit balance because the original balance was larger.