Accounts Test – Chapter 1 & 3 (40 marks)

Q1] Explain the following terms: (5 marks)

a) Book-keeping- the detailed recording of financial transactions
b) Accounting- using book-keeping records to prepare financial statements
c) Assets- anything the business owns
d) Liabilities- anything business owes
e) Inventory- goods business has that can be sold
f) SOFP- shows assets and liabilities of a business on a certain date
g) Capital- resources provided by the owner to start the business
h) Trade receivables- amounts owed to the business by its customers
i) Trade payables- amounts business owes to its supplier
j) Trial balance- list of balances on the accounts in the ledger on a certain date

Q2] Describe the effect of these transactions on assets and liabilities: (5 marks)
a) Sold a motor vehicle and received payment in cash
b) Bought goods on credit from a credit supplier
c) Received a cheque from a credit customer
d) Sold goods on credit
e) Took a loan from ABC bank in cash
Effect on assets Effect on liabilities

Motor vehicles- Decrease NO EFFECT

Cash - Increase
Inventory - Increase Trade Payables – Increase
Bank – Increase NO EFFECT
Trade Receivables - Decrease
Inventory – Decrease NO EFFECT
Trade Receivables – Increase
Cash - Increase Trade Payable - Increase

Q3] Write whether these will come under Debit or Credit / Asset or Liability: (10 marks)
a) Capital (Debit or Credit) Credit
b) Land and buildings (Asset or Liability) Asset
c) Sales (Debit or Credit) Credit
d) Inventory (Asset or Liability) Asset
e) Rent receivables (Debit or Credit) Debit
f) Trade receivables (Asset or Liability) Asset
g) Commission payable (Debit or Credit) Debit
h) Motor vehicle (Asset or Liability) Asset
i) Commission receivable (Debit or Credit) Debit
j) Premises (Asset or Liability) Asset

Q4] Identify which error has been made: (6 marks)

a) Rent of premises debited to the premises account Error of commission
b) Cash sales debited to the sales account and credited to the cash account Error of
complete reversal
c) Sales to R Singh debited to H Singh’s account. Error of commission
d) Balance on cash account overstated by $10 and balance on sales account overstated by
$10 Compensating Error
e) Bought motor vehicle for $10000 but recorded as $1000 Error of original entry
f) Payment of loan was not recorded in the records. Error of omission

Q5] True or False: (4 marks)

a) A trial balance is a list of the assets and liabilities on a certain date. True
b) A trial balance is a list of balances in the ledger on a certain date. False
c) A trial balance proves the arithmetical accuracy of the double entry book-keeping. True
d) If both the sides of a trial balance are same that means the trial balance does not contain
any errors or mistake. False

Q6] Create a SOFP after the changes (10 marks)

 Riya Traders

Assets $ Liabilities $
Machinery 55000 Capital 90000
Equipment 18000 Loan 30000
Motor Vehicle 35000 Trade payable 7100
Inventory 11000
Trade receivables 6400
Cash 100
Bank 1600
127100 127100
Q7] Prepare the trial balance: (10 marks)

$ $
Details Debit Credit
Capital 392000
Drawings 18000
Premises 210000
Fixtures and Fitting 66100
Inventory 11950
Trade Receivables 13160
Trade payables 12280
Loan from FH 20000
Cash 100
Sales 157280
Purchases 143400
Rates 6000
General expenses 11540
Wages 96750
Bank 4560
581560 581560