Introduction to Accounting: practice questions

6 questions · 11 marks · free, no account · Read the notes first

1. Question 1Multiple choice · 1 mark

   A business has assets of $500 000 and liabilities of $180 000. Its owner's equity is

   A

   $680 000

   B

   $320 000

   C

   $180 000

   D

   $500 000

2. Question 2Multiple choice · 1 mark

   The owner pays his home electricity bill with the business's cash. It is recorded as drawings, not as a business expense. Which principle is applied?

   A

   Prudence

   B

   Consistency

   C

   Business entity

   D

   Going concern

3. Question 3Multiple choice · 1 mark

   Which entry records the purchase of equipment on credit?

   A

   Dr Equipment, Cr Cash

   B

   Dr Purchases, Cr Trade payables

   C

   Dr Other payables, Cr Equipment

   D

   Dr Equipment, Cr Other payables

4. Question 4Multiple choice · 1 mark

   The trial balance agrees. Which error could still exist?

   A

   A credit sale was completely left out of the books.

   B

   Only the debit side of a transaction was posted.

   C

   One ledger account was balanced off wrongly.

   D

   A debit entry was posted to the credit side of the same account.

5. Question 54 marks

   State the effect (increase, decrease or no effect, with the amount) of each transaction on assets, liabilities and owner's equity.

   (a) The owner contributes $50 000 cash as capital.

   (b) Inventory of $8000 is bought on credit.

   (c) $3000 is paid in cash to a trade payable.

   (d) The owner withdraws $2000 cash for private use.

   Show worked solution

   	Assets	Liabilities	Owner's equity
   (a)	+ $50 000 (cash)	no effect	+ $50 000 (capital)	(1)
   (b)	+ $8000 (inventory)	+ $8000 (trade payables)	no effect	(1)
   (c)	− $3000 (cash)	− $3000 (trade payables)	no effect	(1)
   (d)	− $2000 (cash)	no effect	− $2000 (drawings)	(1)

6. Question 63 marks

   A shop prepares an allowance for doubtful accounts at the end of each year. Explain the accounting principle applied.

   Show worked solution

   Prudence principle. (1)

   Profit and assets should not be overstated; anticipated losses should be provided for, but anticipated gains should not be recognised. (1)

   Some trade receivables may not be collected, so an allowance is made to avoid overstating trade receivables and profit. (1)