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NSSCO Accounting (6143) study materials
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NSSCO Accounting (6143) practice questions

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Question 1Accounting concepts, principles and the accounting equation

A business buys equipment for N$20 000, paying N$8 000 by cheque and agreeing to pay the balance later. What is the effect of this transaction on the accounting equation?

  1. Assets increase by N$12 000; liabilities increase by N$12 000; capital unchanged.
  2. Assets increase by N$20 000; liabilities increase by N$12 000; capital unchanged. Correct answer.
  3. Assets increase by N$20 000; capital increases by N$12 000; liabilities unchanged.
  4. Assets increase by N$8 000; liabilities increase by N$12 000; capital decreases by N$4 000.

Explanation

The equipment adds N$20 000 to assets, but the cheque payment reduces the bank asset by N$8 000, giving a net asset increase of N$12 000 financed by a N$12 000 creditor. The full asset value is recorded while the unpaid portion is a liability, so capital is unaffected because this is an asset purchase, not income.

Question 2Accounting concepts, principles and the accounting equation

Which accounting concept requires that a business's financial statements report only transactions of the business itself, separate from the owner's private affairs?

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

Explanation

The business entity concept treats the business as an entity separate from its owner, so only business transactions are recorded in its books. The owner's personal spending is therefore excluded from the business records even in a sole trader.

Question 3Accounting concepts, principles and the accounting equation

A trader records a motor vehicle bought for resale as a non-current asset. Which accounting principle has been violated?

  1. Matching Correct answer.
  2. Accrual
  3. Going concern
  4. Business entity

Explanation

The matching principle requires expenses to be matched with the revenues they help generate, so goods bought for resale are inventory and their cost is matched against sales. Treating them as a non-current asset delays the expense and misstates both profit and asset classification.

Question 4Accounting concepts, principles and the accounting equation

Which of the following best describes the dual aspect concept in accounting?

  1. Every transaction must be recorded in two different journals.
  2. Every business must keep two sets of books for tax and management.
  3. Every asset must be depreciated over two accounting periods.
  4. Every transaction has two equal effects on the accounting equation. Correct answer.

Explanation

The dual aspect concept states that every transaction affects at least two items and keeps the accounting equation in balance. This is why every debit entry has a corresponding credit of equal value.

Question 5Accounting concepts, principles and the accounting equation

A business has assets of N$150 000 and liabilities of N$60 000. The owner then withdraws N$10 000 cash for personal use. What is capital immediately after the withdrawal?

  1. N$100 000
  2. N$80 000 Correct answer.
  3. N$70 000
  4. N$90 000

Explanation

Capital equals assets minus liabilities, so before the withdrawal it is N$150 000 minus N$60 000, which is N$90 000. Drawings reduce capital, so after the N$10 000 withdrawal capital becomes N$80 000.

Question 6Accounting concepts, principles and the accounting equation

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

  1. A loan received from a bank Correct answer.
  2. Commission received from a supplier
  3. Cash received from a credit customer
  4. Rent received from a tenant

Explanation

A loan received from a bank increases a liability and brings in finance for the long term, so it is a capital receipt and is not treated as income. Receipts from customers, rent and commission arise from normal trading and are revenue receipts.

Question 7Accounting concepts, principles and the accounting equation

A business pays N$3 000 for a one-year insurance policy that covers the next twelve months. Under the accrual basis, how should this be treated at the year end, three months after payment?

  1. N$750 is an expense and N$2 250 is a prepayment. Correct answer.
  2. N$3 000 is an expense of the current year.
  3. N$2 250 is an expense and N$750 is an accrual.
  4. N$3 000 is recorded as a liability.

Explanation

Under the accrual basis, only the insurance relating to the period is charged as an expense. Three months of cover has been used at N$750, leaving N$2 250 as a prepaid asset carried forward to the next period.

Question 8Accounting concepts, principles and the accounting equation

A trader includes his private electricity bill in the business electricity account. Which concept is breached, and what is the correction?

  1. Consistency; apply the same treatment every year.
  2. Prudence; reduce the amount to a lower estimate.
  3. Materiality; ignore the amount if it is small.
  4. Business entity; record the amount as drawings instead. Correct answer.

Explanation

The business entity concept requires personal expenses to be kept out of the business records. The private bill should be treated as drawings, reducing capital, rather than as a business expense.

Question 9Accounting concepts, principles and the accounting equation

Which statement correctly describes the going concern assumption?

  1. The owner's capital must be repaid within one year.
  2. All expenses must be paid in the same period in which they are incurred.
  3. The business is expected to continue operating for the foreseeable future. Correct answer.
  4. Assets are valued at the amount they would fetch if the business were closed.

Explanation

The going concern assumption is that the business will continue in operation for the foreseeable future. This justifies recording non-current assets at cost and depreciating them over their useful lives rather than valuing them at break-up values.

Question 10Accounting concepts, principles and the accounting equation

A business reports inventory at the lower of cost and net realisable value. Which accounting principle is being applied?

  1. Business entity
  2. Prudence Correct answer.
  3. Dual aspect
  4. Consistency

Explanation

Prudence requires that assets are not overstated, so inventory is reduced when its net realisable value falls below cost. This prevents anticipated losses from being hidden and gives a more cautious profit figure.

Question 11Accounting concepts, principles and the accounting equation

A firm changes from straight-line to reducing-balance depreciation without disclosing the change. Which qualitative characteristic is most directly affected?

  1. Understandability
  2. Timeliness
  3. Comparability Correct answer.
  4. Relevance

Explanation

Comparability requires that financial statements can be compared between periods, which is achieved by applying consistent methods and disclosing any change. An undisclosed change in depreciation method makes the current year's figures difficult to compare with the previous year.

Question 12Accounting concepts, principles and the accounting equation

Assets total N$80 000 and capital is N$50 000. What are the liabilities?

  1. N$30 000 Correct answer.
  2. N$50 000
  3. N$80 000
  4. N$130 000

Explanation

The accounting equation is assets equals capital plus liabilities, so liabilities equal assets minus capital. Subtracting N$50 000 from N$80 000 gives N$30 000.

Question 13Accounting concepts, principles and the accounting equation

Which item would be classified as a current liability in a sole trader's statement of financial position?

  1. Owner's capital
  2. Bank loan repayable in five years
  3. Trade payables Correct answer.
  4. Motor vehicles at cost

Explanation

Current liabilities are short-term obligations expected to be settled within one year, such as trade payables owed to suppliers. Motor vehicles are non-current assets, a long-term loan is a non-current liability, and capital is the owner's equity.

Question 14Accounting concepts, principles and the accounting equation

A business sells goods on credit for N$5 000 that cost N$3 000. What is the effect on the accounting equation?

  1. Assets increase by N$5 000 and liabilities increase by N$5 000.
  2. Assets decrease by N$3 000 and capital decreases by N$3 000.
  3. Assets increase by N$5 000 and capital increases by N$5 000.
  4. Assets increase by N$2 000 and capital increases by N$2 000. Correct answer.

Explanation

The trade receivable rises by N$5 000 but inventory falls by N$3 000, giving a net asset increase of N$2 000. Profit, and therefore capital, rises by the N$2 000 margin because revenue exceeds the cost of the goods sold.

Question 15Accounting concepts, principles and the accounting equation

Which of the following is the correct definition of an asset?

  1. The owner's residual interest in the business after deducting drawings.
  2. An amount spent during the year that has already been consumed.
  3. An obligation to transfer resources to another party in future.
  4. A resource controlled by the business from which future economic benefits are expected. Correct answer.

Explanation

An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow. Control and expected future benefit are the key elements of the definition.

Question 16Accounting concepts, principles and the accounting equation

A business has opening capital of N$40 000. During the year it makes a profit of N$15 000 and the owner withdraws N$6 000. What is closing capital?

  1. N$49 000 Correct answer.
  2. N$31 000
  3. N$55 000
  4. N$61 000

Explanation

Closing capital equals opening capital plus profit less drawings. Adding the N$15 000 profit to N$40 000 gives N$55 000, and deducting N$6 000 drawings gives N$49 000.

Question 17Accounting concepts, principles and the accounting equation

A trader records a N$500 purchase of stationery as N$50. Which qualitative characteristic is most directly affected?

  1. Comparability
  2. Going concern
  3. Prudence
  4. Accuracy Correct answer.

Explanation

Accuracy, often described as faithful representation, requires information to be complete and free from material error. Recording N$500 as N$50 misstates the expense and the resulting profit.

Question 18Accounting concepts, principles and the accounting equation

Which of the following transactions does not change the total of owner's capital?

  1. The owner introduces additional cash into the business.
  2. The owner takes goods for personal use.
  3. The business earns a net profit for the period.
  4. The business receives cash from a credit customer. Correct answer.

Explanation

Receiving cash from a credit customer increases bank and reduces trade receivables by the same amount, so total assets and capital are unchanged. Capital changes only with owner contributions, drawings, profits and losses.

Question 19Accounting concepts, principles and the accounting equation

A business pays a supplier N$4 000 owed from a previous purchase. What is the effect on the accounting equation?

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

Explanation

Paying a creditor reduces the bank balance and also settles the trade payable, so assets and liabilities fall by equal amounts. Capital is unaffected because settling a debt is not an expense.

Question 20Accounting concepts, principles and the accounting equation

A firm's year-end inventory has a cost of N$12 000 but can now be sold for only N$9 000 after selling costs of N$1 000. At what amount should the inventory be reported?

  1. N$9 000
  2. N$8 000 Correct answer.
  3. N$12 000
  4. N$11 000

Explanation

Net realisable value is the expected selling price less costs to complete and sell, which is N$9 000 minus N$1 000, giving N$8 000. Prudence requires inventory to be reported at the lower of cost and net realisable value, so N$8 000 is used.

Question 21Accounting concepts, principles and the accounting equation

Which pair of accounts is increased by a debit entry?

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

Explanation

Debit entries increase assets and expenses, while credit entries increase liabilities, income and capital. This follows from the accounting equation and the rules of double entry.

Question 22Accounting concepts, principles and the accounting equation

A business receives a bank loan of N$25 000. How does this affect the elements of the financial statements?

  1. Assets increase by N$25 000 and capital increases by N$25 000.
  2. Liabilities increase by N$25 000 and capital decreases by N$25 000.
  3. Assets increase by N$25 000 and liabilities increase by N$25 000. Correct answer.
  4. Income increases by N$25 000 and assets increase by N$25 000.

Explanation

The bank balance rises by N$25 000, and at the same time the business owes the bank N$25 000, which is a liability. A loan is capital finance, not income, so capital is unaffected at the time of receipt.

Question 23Accounting concepts, principles and the accounting equation

Which statement best explains why the matching principle supports charging depreciation on equipment each year?

  1. Depreciation provides cash for replacing the equipment when it wears out.
  2. Depreciation ensures the equipment is shown at its market value each year.
  3. Depreciation records the fall in the price of new equipment on the market.
  4. Depreciation spreads the cost of the equipment over the periods that benefit from its use. Correct answer.

Explanation

The matching principle requires the cost of an asset to be charged against the revenues it helps to generate. Depreciation therefore allocates the equipment's cost over its useful life rather than charging it all in the year of purchase.

Question 24Accounting concepts, principles and the accounting equation

An owner brings a personal vehicle into the business for business use. The vehicle is valued at N$45 000. What is the correct accounting treatment?

  1. Debit capital N$45 000; credit motor vehicle N$45 000.
  2. Debit motor vehicle N$45 000; credit bank N$45 000.
  3. Debit motor vehicle N$45 000; credit capital N$45 000. Correct answer.
  4. Debit motor vehicle N$45 000; credit drawings N$45 000.

Explanation

Bringing a personal asset into the business is a capital contribution, so the motor vehicle account is debited and capital is credited with the same amount. No cash changes hands, so the bank account is not involved.

Question 25Accounting concepts, principles and the accounting equation

Which of the following best describes the realisation concept?

  1. Revenue is recognised when the goods are purchased from the supplier.
  2. Revenue is recognised when goods or services are supplied and the customer becomes liable to pay. Correct answer.
  3. Revenue is recognised when cash is finally received from the customer.
  4. Revenue is recognised when the customer places the order.

Explanation

The realisation concept recognises revenue when the sale is made, that is, when goods or services are transferred and the customer becomes liable to pay. It does not wait for cash to be received, which is why credit sales are recorded at the date of sale.

Question 26Accounting concepts, principles and the accounting equation

A sole trader keeps a separate record for money taken out of the business for family expenses. Which accounting concept most directly supports this separation?

  1. The business entity concept Correct answer.
  2. The prudence concept
  3. The accrual concept
  4. The consistency concept

Explanation

The business entity concept treats the business as separate from its owner, so private transactions must not be mixed with business transactions in the accounting records. Accrual, consistency and prudence deal with timing of income and expenses, uniform methods, and caution in measurement, not with separating owner and business.

Question 27Accounting concepts, principles and the accounting equation

A trader buys a delivery vehicle for N$120 000, paying N$40 000 by cheque and agreeing to pay the balance later. Using the accounting equation, what is the effect of this transaction?

  1. Assets increase by N$40 000 and liabilities decrease by N$80 000
  2. Assets increase by N$120 000 and liabilities increase by N$80 000, with capital unchanged Correct answer.
  3. Assets increase by N$120 000 and capital increases by N$120 000
  4. Assets increase by N$80 000 and liabilities increase by N$80 000

Explanation

The vehicle adds N$120 000 to assets, but the cheque payment reduces bank by N$40 000, so net assets rise by N$80 000. The unpaid balance creates a liability of N$80 000, and since capital is not affected, the equation stays balanced.

Question 28Accounting concepts, principles and the accounting equation

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

  1. Repainting the shop front to restore its original appearance Correct answer.
  2. Installing a new lift in a two-storey shop building
  3. Buying a delivery van for the business
  4. Building an extension to the warehouse

Explanation

Revenue expenditure is spending that maintains an existing asset in working order without adding to its earning capacity, such as repainting to restore appearance. Capital expenditure acquires or improves a non-current asset, so a new lift, an extension and a van are all capitalised.

Question 29Accounting concepts, principles and the accounting equation

An owner starts a business by transferring N$30 000 of personal savings into the business bank account. Which entry correctly records this in the books?

  1. Debit cash N$30 000; credit loan N$30 000
  2. Debit bank N$30 000; credit drawings N$30 000
  3. Debit bank N$30 000; credit capital N$30 000 Correct answer.
  4. Debit capital N$30 000; credit bank N$30 000

Explanation

The business receives an asset, bank, which is debited, and the owner's claim on the business rises, so capital is credited. Capital has a credit balance because it represents the owner's equity in the business.

Question 30Accounting concepts, principles and the accounting equation

A business has assets of N$150 000 and liabilities of N$60 000. It then pays a trade payable of N$20 000 by cheque. What are the totals of assets, liabilities and capital immediately after this payment?

  1. Assets N$130 000; liabilities N$60 000; capital N$70 000
  2. Assets N$130 000; liabilities N$40 000; capital N$90 000 Correct answer.
  3. Assets N$130 000; liabilities N$40 000; capital N$70 000
  4. Assets N$150 000; liabilities N$40 000; capital N$110 000

Explanation

Paying a payable reduces bank by N$20 000 and reduces liabilities by the same amount, so assets fall to N$130 000 and liabilities to N$40 000. Capital is unaffected by settling a liability and remains N$150 000 − N$60 000 = N$90 000, and N$130 000 − N$40 000 confirms this.

Question 31Books of original entry, ledgers and the trial balance

A business buys goods on credit from Nangolo Traders. In which book of original entry is this transaction first recorded?

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

Explanation

Credit purchases of goods for resale are first entered in the purchases journal, which lists invoices received from suppliers. The sales journal records credit sales, the cash book records cash movements, and the general journal handles items with no specialised book.

Question 32Books of original entry, ledgers and the trial balance

Which source document supports an entry in the sales returns journal?

  1. Invoice received
  2. Debit note issued
  3. Cheque counterfoil
  4. Credit note issued Correct answer.

Explanation

When a customer returns goods, the seller issues a credit note, which is the document used to record the return in the sales returns journal. An invoice received relates to purchases, and a debit note issued is used when the business itself returns goods to a supplier.

Question 33Books of original entry, ledgers and the trial balance

A trader pays a creditor by cheque. The entry in the trader's cash book is a credit entry because the cash book bank column is treated as which type of account?

  1. An asset account Correct answer.
  2. A liability account
  3. A capital account
  4. An expense account

Explanation

The bank column of the cash book is treated as an asset account, since money in the bank is a resource owned by the business. Increases in an asset are debited and decreases are credited, so a payment by cheque is credited.

Question 34Books of original entry, ledgers and the trial balance

Which of the following is recorded in the general journal rather than in a specialised book of original entry?

  1. Credit purchase of goods from a supplier
  2. Goods taken by the owner for personal use Correct answer.
  3. Cash received from a debtor
  4. Credit sale of goods to a customer

Explanation

Drawings of goods by the owner is not a trading transaction with a third party, so it has no invoice or cash document and is entered in the general journal. Credit sales, credit purchases and cash receipts each have a specialised book.

Question 35Books of original entry, ledgers and the trial balance

In the three-column cash book, a cheque received from a customer is entered in which columns?

  1. Discount allowed and bank columns
  2. Bank column only Correct answer.
  3. Discount received and bank columns
  4. Cash column only

Explanation

A cheque received increases the bank balance and is entered on the debit side in the bank column. No discount arises unless the customer is allowed a reduction, so the discount columns remain untouched.

Question 36Books of original entry, ledgers and the trial balance

Which statement best describes the purpose of the trial balance?

  1. To check the arithmetical accuracy of the double entry Correct answer.
  2. To calculate the profit for the period
  3. To prove that no fraud has occurred in the ledger
  4. To show the financial position at a date

Explanation

The trial balance lists debit and credit balances and confirms that total debits equal total credits, which tests arithmetical accuracy of the double entry. It cannot detect errors of principle, omission or compensating errors, and it is not a statement of profit or position.

Question 37Books of original entry, ledgers and the trial balance

Which ledger contains the accounts of the business's customers?

  1. Sales ledger Correct answer.
  2. Nominal ledger
  3. General ledger
  4. Purchases ledger

Explanation

The sales ledger, also called the debtors ledger, contains the personal accounts of customers who owe the business money. The purchases ledger holds supplier accounts, and the nominal ledger holds nominal accounts such as expenses and income.

Question 38Books of original entry, ledgers and the trial balance

A debit balance brought down on a customer's account in the sales ledger means that the customer owes the business money. This balance represents which type of account?

  1. A payable
  2. A liability
  3. A receivable Correct answer.
  4. An expense

Explanation

A debit balance on a customer's personal account shows the customer owes money, which is a receivable, an asset of the business. A payable would arise from a credit balance on a supplier's account.

Question 39Books of original entry, ledgers and the trial balance

A business records a credit sale of 800 in the sales journal but posts only 80 to the customer's account in the sales ledger. Which type of error is this?

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

Explanation

An error of original entry occurs when the wrong amount is entered in the book of original entry and the same wrong figure is posted to the ledger. Here the sales journal itself would carry the wrong amount, so the error is one of original entry.

Question 40Books of original entry, ledgers and the trial balance

A trial balance has total debits of 45 200 and total credits of 44 900. The difference is placed in a suspense account. On which side is the suspense account opened?

  1. Debit side with 44 900
  2. Credit side with 45 200
  3. Credit side with 300 Correct answer.
  4. Debit side with 300

Explanation

Debits exceed credits by 300, so a credit entry of 300 in the suspense account is needed to make the two sides agree. The suspense account is opened on the side of the trial balance that is short.

Question 41Books of original entry, ledgers and the trial balance

Which error would cause the trial balance totals to disagree?

  1. A sale to J Banda posted to J Banda's account correctly but to the sales account as 90 instead of 900
  2. An error of principle recording a motor van as a motor expense
  3. A payment of rent of 500 entered only in the rent account Correct answer.
  4. A credit sale completely omitted from the books

Explanation

Entering a transaction on one side only, a one-sided entry, makes the debit and credit totals unequal and so the trial balance fails to agree. Errors of principle, complete omission and posting the same wrong amount to both accounts all leave the totals equal.

Question 42Books of original entry, ledgers and the trial balance

A cheque for 250 paid to a supplier was entered in the cash book but no entry was made in the supplier's account. Which journal entry corrects this?

  1. Debit supplier's account 250, credit suspense account 250
  2. Debit cash book 250, credit supplier's account 250
  3. Debit suspense account 250, credit supplier's account 250 Correct answer.
  4. Debit supplier's account 250, credit cash book 250

Explanation

The cash book credit of 250 has no matching debit, so the trial balance is out by 250 and a suspense account was opened. The missing debit belongs in the supplier's account, so the correction debits the supplier and credits suspense.

Question 43Books of original entry, ledgers and the trial balance

Goods bought for resale were debited to the equipment account instead of the purchases account. Which type of error has occurred?

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

Explanation

Recording a revenue purchase as a capital item breaches the distinction between capital and revenue expenditure, which is an error of principle. The trial balance still agrees because equal debits and credits were made.

Question 44Books of original entry, ledgers and the trial balance

A trader allows a customer a discount of 30 when the customer settles a debt of 630 by cheque. How is this recorded in the three-column cash book?

  1. Credit bank 600 and credit discount allowed 30
  2. Debit bank 600 and credit discount received 30
  3. Debit bank 630 and debit discount allowed 30
  4. Debit bank 600 and debit discount allowed 30 Correct answer.

Explanation

The trader receives 600 into the bank and gives a discount of 30, so the debit side records bank 600 and discount allowed 30. The total of 630 then matches the credit in the customer's account.

Question 45Books of original entry, ledgers and the trial balance

Which item would appear in the purchases journal?

  1. Goods bought on credit from a manufacturer Correct answer.
  2. Goods returned to a supplier
  3. A motor vehicle bought on credit
  4. Office stationery bought on credit

Explanation

The purchases journal records credit purchases of goods intended for resale. Stationery and motor vehicles are not goods for resale, and goods returned to a supplier belong in the purchases returns journal.

Question 46Books of original entry, ledgers and the trial balance

A business uses control accounts. The total of the sales ledger balances should equal which figure?

  1. The balance on the purchases ledger control account
  2. The balance on the sales ledger control account Correct answer.
  3. The balance on the sales account in the nominal ledger
  4. The total of the cash book bank column

Explanation

The sales ledger control account summarises all the personal accounts in the sales ledger, so its balance must equal the total of the individual customer balances. Any difference indicates an error in posting or in the list of balances.

Question 47Books of original entry, ledgers and the trial balance

The following balances appear in a trial balance: equipment 12 000 (debit), accumulated depreciation on equipment 3 000 (?), bank overdraft 1 500 (?). On which side of the trial balance does each of the last two items appear?

  1. Accumulated depreciation debit, bank overdraft credit
  2. Accumulated depreciation debit, bank overdraft debit
  3. Accumulated depreciation credit, bank overdraft credit Correct answer.
  4. Accumulated depreciation credit, bank overdraft debit

Explanation

Accumulated depreciation is a provision that reduces the asset and carries a credit balance. A bank overdraft is a liability owed to the bank, so it also appears on the credit side of the trial balance.

Question 48Books of original entry, ledgers and the trial balance

A debit note is issued by a business. Which book of original entry does it support?

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

Explanation

A debit note is sent by a buyer to a supplier when goods are returned, so it supports an entry in the purchases returns journal. The sales returns journal is supported by credit notes issued by the seller.

Question 49Books of original entry, ledgers and the trial balance

A business pays wages of 1 200 by cheque but the bookkeeper records the amount as 2 100 in both the wages account and the cash book. Which journal entry corrects the error?

  1. Debit suspense account 900, credit wages account 900
  2. Debit cash book 900, credit wages account 900 Correct answer.
  3. Debit wages account 900, credit cash book 900
  4. Debit wages account 900, credit suspense account 900

Explanation

The payment was overstated by 900 in both accounts, so the correction must reduce the wages expense and restore 900 to the bank. This is done by debiting the cash book and crediting the wages account.

Question 50Books of original entry, ledgers and the trial balance

A trader's cash book shows a debit balance of 420 on the bank column, while the bank statement shows a credit balance of 790. Which item could explain the difference?

  1. A direct debit paid by the bank not yet entered in the cash book
  2. A cheque received from a customer entered twice in the cash book
  3. Cheques paid to suppliers not yet presented at the bank Correct answer.
  4. Interest charged by the bank not yet entered in the cash book

Explanation

Unpresented cheques have been credited in the cash book but not yet deducted by the bank, so the bank statement shows a higher balance. Items already on the statement but missing from the cash book would widen the gap in the other direction.