72 Questions

Question 1

Name the 5 stages of the accounting process.

Answer 1

1. Identifying transactions
2. Recording transactions
3. Classifying transactions
4. Summarizing transactions
5. Reporting financial statements

Question 2

State 2 reasons why financial statements are prepared.

Answer 2

1. To provide information to stakeholders
2. To comply with legal requirements

Question 3

Define a stakeholder and name 2 internal and 2 external.

Answer 3

A stakeholder is any individual or group that has an interest in the performance of a business.

Internal: Employees, Managers
External: Investors, Customers

Question 4

Why is a bank interested in the accounts of a business?

Answer 4

To assess the creditworthiness and financial stability of the business.

Question 5

Explain the difference between current and non-current liabilities.

Answer 5

Current liabilities are obligations due within one year, while non-current liabilities are obligations due beyond one year.

Question 6

What is the accounting equation?

Answer 6

Assets = Liabilities + Equity

Question 7

What would capital be if assets are £12,500 and liabilities £1,800?

Answer 7

Capital would be £10,700.

Question 8

Define cost of sales.

Answer 8

Cost of sales refers to the direct costs attributable to the production of the goods sold by a company.

Question 9

Define and identify 6 source documents.

Answer 9

1. Invoice
2. Receipt
3. Bank statement
4. Purchase order
5. Credit note
6. Delivery note

Question 10

What are the 6 books of original entry? Explain their purposes.

Answer 10

1. Sales journal - records sales transactions
2. Purchases journal - records purchase transactions
3. Cash book - records cash transactions
4. General journal - records miscellaneous transactions
5. Sales returns journal - records returns of sold goods
6. Purchases returns journal - records returns of purchased goods

Question 11

Identify the relevant source document and book of original entry for the following transactions: a. Paid £120 of cash into the bank.

Answer 11

Source Document: Receipt
Book of Original Entry: Cash Book

Question 12

Identify the relevant source document and book of original entry for the following transactions: b. Returned faulty goods to a supplier.

Answer 12

Source Document: Credit Note
Book of Original Entry: Purchases Returns Journal

Question 13

Using PEARLS identify which account would be debited and which credited in the following transactions: a. Started a business putting in £1000 of capital in cash.

Answer 13

Debit: Cash Account
Credit: Capital Account

Question 14

Using PEARLS identify which account would be debited and which credited in the following transactions: b. Bought a motor vehicle worth £2000, paying by bank transfer.

Answer 14

Debit: Motor Vehicle Account
Credit: Bank Account

Question 15

Using PEARLS identify which account would be debited and which credited in the following transactions: c. Bought £150 of goods on credit from ABC Ltd.

Answer 15

Debit: Purchases Account
Credit: ABC Ltd Account

Question 16

Using PEARLS identify which account would be debited and which credited in the following transactions: d. Returned £70 of these goods.

Answer 16

Debit: ABC Ltd Account
Credit: Purchases Returns Account

Question 17

Identify the three ledgers and explain their role.

Answer 17

1. General Ledger - records all financial transactions
2. Sales Ledger - records all sales transactions
3. Purchases Ledger - records all purchase transactions

Question 18

Look back at the transactions in 12 and state which ledger you would record each transaction in.

Answer 18

a. Cash Book
b. General Ledger
c. Purchases Ledger
d. Purchases Ledger

Question 19

What labels would you put on the discounts allowed and discounts received ledger accounts using PEARLS?

Answer 19

Discounts Allowed: Expense Account
Discounts Received: Income Account

Question 20

Describe two uses of the trial balance.

Answer 20

1. To verify the accuracy of bookkeeping
2. To prepare financial statements

Question 21

Identify and describe the 5 errors detected by a trial balance.

Answer 21

1. Transposition errors
2. Addition errors
3. Omission errors
4. Double entry errors
5. Misposting errors

Question 22

Identify and describe the 6 errors not detected by a trial balance.

Answer 22

1. Error of omission
2. Error of commission
3. Error of principle
4. Compensating errors
5. Error of original entry
6. Error of reversal

Question 23

What is the difference between a two column and three-column cash book?

Answer 23

A two-column cash book records cash receipts and cash payments, while a three-column cash book also includes a bank column.

Question 24

Describe two differences between cash and trade discounts.

Answer 24

1. Cash discounts are offered for early payment, while trade discounts are reductions on the list price.
2. Cash discounts are recorded in the books, while trade discounts are not.

Question 25

Why are trade discounts not recorded in the books?

Answer 25

Because they are reductions in the selling price and do not affect the accounting records.