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SAL1 practice questions

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Question 1Domain 1 - placeholder, unverified

A business reports total assets of £52,000 and total liabilities of £19,000. What is the owner's equity?

  1. £19,000
  2. £33,000 Correct answer.
  3. £71,000
  4. £52,000

Explanation

The accounting equation is assets = liabilities + equity, so equity is the balancing figure. £52,000 − £19,000 = £33,000.

Question 2Domain 1 - placeholder, unverified

A business buys equipment for £3,000 cash. Which double entry records the transaction?

  1. Debit equipment £3,000; credit bank £3,000 Correct answer.
  2. Debit bank £3,000; credit equipment £3,000
  3. Debit equipment £3,000; credit capital £3,000
  4. Debit purchases £3,000; credit bank £3,000

Explanation

Equipment is an asset that has increased, so it is debited; the bank balance has fallen, so it is credited. Assets bought for use in the business are never charged to the purchases account.

Question 3Domain 1 - placeholder, unverified

What does a trial balance primarily demonstrate?

  1. That every transaction has been recorded in the correct period
  2. That the bank balance agrees with the bank statement
  3. That the profit for the year has been calculated correctly
  4. That total debit balances equal total credit balances Correct answer.

Explanation

A trial balance extracts ledger balances and confirms that the debit totals equal the credit totals. Agreement proves only arithmetic consistency, so errors of omission or principle can still be present.

Question 4Domain 1 - placeholder, unverified

Sales for the period were £80,000 and cost of sales was £50,000. What is the gross profit?

  1. £80,000
  2. £130,000
  3. £30,000 Correct answer.
  4. £50,000

Explanation

Gross profit is sales revenue less the cost of the goods sold. £80,000 − £50,000 = £30,000.

Question 5Domain 1 - placeholder, unverified

Which of these is capital expenditure?

  1. Repainting the exterior of a delivery van
  2. Purchase of a new delivery van Correct answer.
  3. Fuel used by a delivery van
  4. Annual insurance of a delivery van

Explanation

Capital expenditure acquires or improves a non-current asset that will be used over several periods. Repainting, fuel and insurance are running costs charged to profit or loss.

Question 6Domain 1 - placeholder, unverified

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

  1. When cash is received from the customer, whenever that occurs
  2. When the customer's written order is first received by the business
  3. When the sale is made, whether or not cash is received Correct answer.
  4. When the invoice has been posted to the sales ledger account

Explanation

The accrual basis recognises revenue when the goods or services are supplied, not when cash moves. Cash received in advance is a liability until performance has occurred.

Question 7Domain 1 - placeholder, unverified

Net profit is found by deducting which items from gross profit?

  1. Operating expenses such as rent and depreciation Correct answer.
  2. Purchases for the year less any purchase returns received
  3. Drawings taken by the owner during the accounting period
  4. The cost of sales together with carriage inwards on purchases

Explanation

Gross profit covers the direct trading margin, so the remaining operating expenses such as rent, wages and depreciation are deducted to reach net profit. Purchases and cost of sales have already been dealt with in arriving at gross profit.

Question 8Domain 1 - placeholder, unverified

Goods bought on credit are returned to the supplier. Which double entry records the return?

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

Explanation

The amount owed to the supplier falls, which is recorded by a debit to the supplier's account. The return itself is recorded by a credit to the purchases returns account.

Question 9Domain 1 - placeholder, unverified

On 1 April a business paid £4,800 for twelve months' insurance cover starting that day. Its year end is 31 December. What is the prepayment carried forward at 31 December?

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

Explanation

Cover ran for nine months to 31 December, leaving three months unexpired. Three-twelfths of £4,800 gives £1,200 carried forward as a prepayment.

Question 10Domain 1 - placeholder, unverified

Electricity bills paid during the year totalled £3,200. At the year end a further £450 of electricity used had not been billed. What expense is charged to profit or loss?

  1. £3,200
  2. £2,750
  3. £450
  4. £3,650 Correct answer.

Explanation

The accrual concept charges electricity used in the period whether or not it has been billed. The amounts paid and accrued are added: £3,200 + £450 = £3,650.

Question 11Domain 1 - placeholder, unverified

A machine costs £24,000, has an estimated residual value of £4,000 and a useful life of five years. What is the annual straight-line depreciation charge?

  1. £4,000 Correct answer.
  2. £5,600
  3. £4,800
  4. £4,400

Explanation

Straight-line depreciation spreads the depreciable amount, being cost less residual value, evenly over the useful life. (£24,000 − £4,000) ÷ 5 = £4,000.

Question 12Domain 1 - placeholder, unverified

Inventory costing £9,000 has a net realisable value of £7,600 at the year end. At what amount should it appear in the statement of financial position?

  1. £7,600 Correct answer.
  2. £8,300
  3. £1,400
  4. £9,000

Explanation

Inventory is measured at the lower of cost and net realisable value. Here net realisable value is lower, so the £1,400 write-down is charged to profit or loss.

Question 13Domain 1 - placeholder, unverified

A bank statement shows a credit balance of £5,400. The only difference from the cash book is unpresented cheques totalling £800. What is the balance in the cash book?

  1. £6,200
  2. £5,400
  3. £800
  4. £4,600 Correct answer.

Explanation

Cheques already issued have reduced the cash book but are not yet shown on the bank statement, so the statement balance is the higher figure. £5,400 − £800 = £4,600.

Question 14Domain 1 - placeholder, unverified

A business buys office equipment and records the purchase in the repairs account. Which type of error is this?

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

Explanation

An error of principle breaks a fundamental accounting rule by placing an item in the wrong class of account. Buying equipment is capital expenditure and belongs in a non-current asset account, not in repairs.

Question 15Domain 1 - placeholder, unverified

Which error would leave the trial balance totals still agreeing?

  1. A payment of £250 entered only in the cash book
  2. A purchase of £400 entered as a credit to purchases
  3. A sale to A Ltd posted to the account of B Ltd Correct answer.
  4. A sale of £90 posted to the sales account as £900

Explanation

Posting to the wrong customer's account keeps the debit and credit totals equal because the amount is still posted twice. Errors affecting only one side of the double entry disturb the trial balance.

Question 16Domain 1 - placeholder, unverified

A stationery payment of £90 was entered only as a credit in the cash book, and a suspense account was opened for the difference. Which entry corrects the error?

  1. Debit suspense £90; credit stationery £90
  2. Debit stationery £90; credit suspense £90 Correct answer.
  3. Debit stationery £90; credit cash book £90
  4. Debit cash book £90; credit suspense £90

Explanation

The debit half of the entry is missing, so stationery must be debited to complete it. The suspense account was opened with a debit to make the trial balance agree and is now cleared by a credit.

Question 17Domain 1 - placeholder, unverified

Receivables are £60,000 and a provision for doubtful debts of 3% is required. The existing provision is £1,500. What is the charge to profit or loss for the year?

  1. £300 Correct answer.
  2. £2,100
  3. £1,800
  4. £1,500

Explanation

The required provision is 3% of £60,000, which is £1,800. Only the £300 increase over the existing £1,500 provision is charged to profit or loss.

Question 18Domain 1 - placeholder, unverified

How is a trade discount treated in the accounting records?

  1. It is recorded as a discount allowed in the nominal ledger
  2. It is posted to the purchase returns account as a credit
  3. It is deducted from list price before the sale is recorded Correct answer.
  4. It is recorded as a discount received in the nominal ledger

Explanation

A trade discount is a reduction off list price that is netted off before any entry is made. Only the net amount reaches the ledger, so no discount account is opened.

Question 19Domain 1 - placeholder, unverified

A business banks £500 of cash that it was holding. Which double entry records this?

  1. Debit bank £500; credit sales £500
  2. Debit cash £500; credit capital £500
  3. Debit bank £500; credit cash £500 Correct answer.
  4. Debit cash £500; credit bank £500

Explanation

Banking cash increases the bank balance, which is debited, and reduces the cash balance, which is credited. Both accounts sit in the same ledger, so the transfer is a contra entry.

Question 20Domain 1 - placeholder, unverified

Opening inventory was 100 units at £5 each. During the period 200 units were bought at £6 each and 150 units were sold. Using FIFO, what is the cost of sales?

  1. £800 Correct answer.
  2. £750
  3. £850
  4. £900

Explanation

FIFO charges the earliest costs to cost of sales first. 100 units at £5 plus 50 units at £6 gives £500 + £300 = £800.

Question 21Domain 1 - placeholder, unverified

An asset costing £20,000 is depreciated at 20% per year on the reducing balance basis. What is the depreciation charge for the second year?

  1. £3,600
  2. £3,200 Correct answer.
  3. £4,000
  4. £2,560

Explanation

The first-year charge is 20% of £20,000, which is £4,000, leaving a carrying amount of £16,000. The second-year charge is 20% of £16,000, which is £3,200.

Question 22Domain 1 - placeholder, unverified

The payables ledger control account shows a credit balance of £14,200. A contra entry of £600 with the receivables ledger has not been entered in the control account, and a credit purchase of £250 has been omitted from it. What is the corrected balance?

  1. £15,050
  2. £13,850 Correct answer.
  3. £13,350
  4. £14,550

Explanation

The contra reduces the amount owed to suppliers, so the control account is debited by £600, while the omitted purchase increases it by £250. £14,200 − £600 + £250 = £13,850.

Question 23Domain 1 - placeholder, unverified

Under IAS 37, a provision is recognised when a present obligation exists and which other conditions are met?

  1. The entity has already settled the amount in cash
  2. The obligation is expected to be settled within twelve months
  3. The amount can be measured only as a range of possible outcomes
  4. An outflow is probable and a reliable estimate can be made Correct answer.

Explanation

IAS 37 requires a present obligation arising from a past event, a probable outflow of resources and a reliable estimate of the amount. Where the outflow is merely possible, a contingent liability is disclosed rather than provided for.

Question 24Domain 1 - placeholder, unverified

A business reports a profit of £40,000. During the year inventory rose by £6,000 and receivables rose by £9,000, with no other changes. What cash was generated from operations?

  1. £43,000
  2. £37,000
  3. £55,000
  4. £25,000 Correct answer.

Explanation

Increases in inventory and receivables absorb cash that would otherwise be reported as profit. £40,000 − £6,000 − £9,000 = £25,000.

Question 25Domain 1 - placeholder, unverified

Which statement best describes the effect of prudence in financial reporting?

  1. Expenses are recognised in the period in which they are paid
  2. Every asset is carried at its current market selling price at the year end
  3. Revenue and expenses are recorded only when cash changes hands
  4. Losses are recognised as soon as foreseen, gains only when realised Correct answer.

Explanation

Prudence requires caution when judgements are made under uncertainty, so foreseeable losses are recognised while unrealised gains are not. It does not permit the deliberate understatement of assets or overstatement of liabilities.

Question 26Domain 1 - placeholder, unverified

A business has total assets of £85,000 and capital of £52,000. What is the amount of its liabilities?

  1. £85,000
  2. £52,000
  3. £33,000 Correct answer.
  4. £137,000

Explanation

The accounting equation states that assets equal capital plus liabilities, so liabilities are found by deducting capital from assets. Here £85,000 − £52,000 = £33,000.

Question 27Domain 1 - placeholder, unverified

In which book of prime entry are credit sales to customers first recorded?

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

Explanation

Each day book collects one type of transaction before it is posted to the ledger. Credit sales are listed in the sales day book, which is totalled and posted to the sales account and the receivables ledger.

Question 28Domain 1 - placeholder, unverified

Which of the following is capital expenditure?

  1. A new delivery van Correct answer.
  2. Replacing a broken window pane
  3. Repainting the office building
  4. The monthly rent of the warehouse

Explanation

Capital expenditure is spending that acquires or improves a non-current asset whose benefit extends beyond the current period. A delivery van is a non-current asset recorded in the statement of financial position and depreciated over its life.

Question 29Domain 1 - placeholder, unverified

The owner takes inventory costing £400 for personal use. What is the effect of this transaction on the business?

  1. It increases profit
  2. It increases capital
  3. It reduces capital Correct answer.
  4. It has no effect on capital

Explanation

Goods taken by the owner are drawings, which are a reduction of the owner's claim on the business. The double entry is to debit drawings and credit purchases (or inventory), so capital falls by £400.

Question 30Domain 1 - placeholder, unverified

What is the main purpose of preparing a trial balance?

  1. To list the assets and liabilities of the business
  2. To detect every error made in the ledger accounts
  3. To calculate the profit for the period
  4. To check that total debits equal total credits Correct answer.

Explanation

A trial balance extracts every ledger balance and tests whether the arithmetical rule of double entry has been kept. It proves only that debit totals equal credit totals, so it is the starting point for the financial statements rather than a statement of profit or position.

Question 31Domain 1 - placeholder, unverified

Which of the following is a current asset?

  1. Freehold premises
  2. Inventory held for resale Correct answer.
  3. A delivery van
  4. A bank loan repayable in five years

Explanation

A current asset is held for use or sale within the normal operating cycle, usually twelve months. Inventory is held for resale in the ordinary course of business, so it is a current asset.

Question 32Domain 1 - placeholder, unverified

The owner pays £10,000 of personal money into the business bank account. What is the double entry?

  1. Dr bank, Cr capital Correct answer.
  2. Dr bank, Cr sales
  3. Dr capital, Cr cash
  4. Dr capital, Cr bank

Explanation

The business receives an increase in its bank balance, which is an asset, and the owner's claim on the business increases by the same amount. Assets are debited when they increase, so bank is debited and capital is credited.

Question 33Domain 1 - placeholder, unverified

A petty cash float is kept on the imprest system at £200. Vouchers totalling £145 have been paid and £55 remains in the box. How much cash is needed to restore the imprest?

  1. £200
  2. £345
  3. £55
  4. £145 Correct answer.

Explanation

Under the imprest system the float is restored to its fixed amount by reimbursing exactly the value of the vouchers paid. The cash in hand of £55 plus a reimbursement of £145 returns the box to £200.

Question 34Domain 1 - placeholder, unverified

A business pays a supplier's invoice early and receives a settlement discount. What is the double entry for the discount received?

  1. Dr purchases, Cr discount received
  2. Dr discount allowed, Cr payables control
  3. Dr discount received, Cr payables control
  4. Dr payables control, Cr discount received Correct answer.

Explanation

Discount received is income to the buyer and reduces the amount owed to the supplier. The liability is therefore debited and an income account, discount received, is credited.

Question 35Domain 1 - placeholder, unverified

In a period a business makes sales of £40,000 plus sales tax at 20% and purchases of £25,000 plus sales tax at 20%. All figures are inclusive of the tax charged. What amount is payable to the tax authority?

  1. £8,000
  2. £13,000
  3. £3,000 Correct answer.
  4. £5,000

Explanation

The business collects output tax of 20% × £40,000 = £8,000 and pays input tax of 20% × £25,000 = £5,000. Only the difference, £3,000, is remitted to the tax authority.

Question 36Domain 1 - placeholder, unverified

A business pays a carrier to deliver goods that it has purchased. How is this carriage inward treated?

  1. Deducted from purchases
  2. Charged to selling expenses
  3. Added to the cost of purchases Correct answer.
  4. Treated as capital expenditure

Explanation

Carriage inward is part of the cost of bringing purchased goods into the business and ready for sale. It is therefore added to purchases (or to the cost of inventory) rather than expensed as a distribution cost.

Question 37Domain 1 - placeholder, unverified

How should a bank overdraft be presented in a statement of financial position?

  1. As a current liability Correct answer.
  2. As a non-current liability
  3. As a deduction from capital
  4. As a current asset

Explanation

An overdraft is a balance owed to the bank that is normally repayable on demand. It is therefore shown within current liabilities rather than as a negative asset or a reduction of capital.

Question 38Domain 1 - placeholder, unverified

Opening inventory is £12,000, purchases for the period are £48,000 and closing inventory is £15,000. What is the cost of goods sold?

  1. £33,000
  2. £75,000
  3. £45,000 Correct answer.
  4. £51,000

Explanation

Cost of goods sold equals opening inventory plus purchases less closing inventory. So £12,000 + £48,000 − £15,000 = £45,000.

Question 39Domain 1 - placeholder, unverified

Goods costing £60,000 are sold at a mark-up of 25% on cost. What is the sales revenue?

  1. £75,000 Correct answer.
  2. £80,000
  3. £45,000
  4. £72,000

Explanation

A mark-up is calculated on cost, so profit is 25% of £60,000 = £15,000. Sales revenue is therefore cost plus mark-up, £75,000.

Question 40Domain 1 - placeholder, unverified

Current assets are £64,000 and current liabilities are £32,000. What is the working capital?

  1. £50,000
  2. £64,000
  3. £32,000 Correct answer.
  4. £96,000

Explanation

Working capital is the excess of current assets over current liabilities and measures short-term liquidity. Here £64,000 − £32,000 = £32,000.

Question 41Domain 1 - placeholder, unverified

A customer returns goods that were sold on credit. What is the double entry in the seller's books?

  1. Dr receivables, Cr sales returns
  2. Dr sales, Cr receivables
  3. Dr purchases returns, Cr payables
  4. Dr sales returns, Cr receivables Correct answer.

Explanation

A sales return reduces the income already recognised and reduces the amount the customer owes. Sales returns is therefore debited and the receivables balance is credited.

Question 42Domain 1 - placeholder, unverified

Which document is used as the source for entries in the purchases returns day book?

  1. A credit note received from a supplier Correct answer.
  2. A debit note issued to a customer
  3. A credit note issued to a customer
  4. An invoice received from a supplier

Explanation

The purchases returns day book lists goods returned to suppliers. Each return is supported by a credit note received from the supplier, confirming that the account will be credited.

Question 43Domain 1 - placeholder, unverified

An employee has gross pay of £2,400. PAYE tax of £320, national insurance of £210 and pension contributions of £90 are deducted. What is the net pay?

  1. £2,400
  2. £1,780 Correct answer.
  3. £1,870
  4. £2,080

Explanation

Net pay is gross pay less all deductions made from the employee. Deductions total £320 + £210 + £90 = £620, so net pay is £2,400 − £620 = £1,780.

Question 44Domain 1 - placeholder, unverified

A sales ledger control account shows customer debit balances of £48,600 and credit balances of £700. How should receivables be presented in the statement of financial position?

  1. £700
  2. £49,300
  3. £48,600
  4. £47,900 Correct answer.

Explanation

Debit balances represent amounts owed by customers, while credit balances are amounts owed to customers and are shown as a current liability. Receivables are therefore the net debit position, £48,600 − £700 = £47,900.

Question 45Domain 1 - placeholder, unverified

Which statement describes the business entity concept?

  1. Business and owner are kept separate Correct answer.
  2. Assets are recorded at their original cost
  3. The business will continue in operation for the foreseeable future
  4. Revenue is matched with the expenses incurred to earn it

Explanation

The business entity concept treats the business as separate from its owner for accounting purposes. Only transactions affecting the business are recorded, and the owner's private affairs are excluded.

Question 46Domain 1 - placeholder, unverified

A machine that cost £30,000 with accumulated depreciation of £21,000 is sold for £7,500. What is the result of the disposal?

  1. A profit of £9,000
  2. A loss of £1,500 Correct answer.
  3. A profit of £1,500
  4. A loss of £7,500

Explanation

The carrying amount at disposal is cost less accumulated depreciation, £30,000 − £21,000 = £9,000. Proceeds of £7,500 are £1,500 below that amount, so a loss on disposal of £1,500 is recognised.

Question 47Domain 1 - placeholder, unverified

Capital at the start of the year was £40,000 and at the end £55,000. During the year the owner introduced £5,000 and made drawings of £12,000. What was the profit for the year?

  1. £22,000 Correct answer.
  2. £15,000
  3. £27,000
  4. £17,000

Explanation

Closing capital equals opening capital plus capital introduced plus profit less drawings. Rearranging, profit = £55,000 − £40,000 − £5,000 + £12,000 = £22,000.

Question 48Domain 1 - placeholder, unverified

Opening inventory was £10,000 and purchases were £45,000. Sales of £60,000 were made at a consistent gross profit margin of 30%. Inventory counted after a fire was £9,000. Using the gross profit method, what is the cost of the inventory lost?

  1. £4,000 Correct answer.
  2. £6,000
  3. £13,000
  4. £9,000

Explanation

A 30% gross margin means cost of sales is 70% of £60,000 = £42,000. Goods available for sale were £10,000 + £45,000 = £55,000, so inventory before the loss should have been £13,000; the £9,000 counted leaves £4,000 lost.

Question 49Domain 1 - placeholder, unverified

Which transaction increases both total assets and total liabilities by the same amount?

  1. Buying inventory for cash
  2. Paying a supplier by bank transfer
  3. The owner introducing capital
  4. Buying inventory on credit Correct answer.

Explanation

A credit purchase increases inventory, an asset, and increases payables, a liability, by the invoice value. Total assets and total liabilities therefore rise together and the accounting equation stays in balance.

Question 50Domain 1 - placeholder, unverified

Closing inventory has been overstated by £3,000. What is the effect on the financial statements?

  1. Profit is understated and net assets are overstated by £3,000
  2. Profit is unaffected and net assets are overstated by £3,000
  3. Profit and net assets are both overstated by £3,000 Correct answer.
  4. Profit is overstated and net assets are understated by £3,000

Explanation

Closing inventory is deducted in cost of sales, so overstating it reduces cost of sales and overstates profit. The same overstated figure is carried into the statement of financial position as a current asset, so net assets are overstated by the same amount.