1 Which of the following best explains what is meant by 'capital expenditure'?

Capital expenditure is expenditure:

A on non-current assets, including repairs and maintenance

B on expensive items over £10,000
C on the acquisition of non-current assets, or improvement in their earning capacity
D on items relating to owners' capital

2 Which of the following should be accounted for as capital expenditure?

A The annual cost of painting a factory floor

B The repair of a window in a building
C The purchase of a vehicle by a garage for re-sale
D Legal fees incurred on the purchase of a building
3 Which of the following items should be treated as capital expenditure in the financial statements of a sole
trader?

A £500 taken by the proprietor to buy himself a music system

B £800 spent on purchasing a new PC to replace his secretary's old one
C £2,000 on purchasing a machine for resale
D £150 paid to a painter for redecorating his office
4 The accounting equation can be written as:

A Assets + profits – drawings – liabilities = closing capital

B Assets – liabilities – drawings = opening capital + profit
C Assets – liabilities – opening capital + drawings = profit
D Opening capital + profit – drawings – liabilities = assets
5 The capital of a sole trader would change as a result of:

A a credit customer paying by bank transfer

B raw materials being purchased on credit
C non-current assets being purchased on credit
D personal petrol being paid for out of the business's petty cash
6 A business can make a profit and yet have a decreased bank balance. Which of the following might cause
this to happen?

A The sale of non-current assets at a loss

B The charging of depreciation in the statement of profit or loss
C The lengthening of the period of credit given to customers
D The lengthening of the period of credit taken from suppliers

7 The purpose of the financial statement that lists an entity's total assets and total capital/liabilities is to
show:

A the financial performance of the entity over a period of time

B the amount the entity could be sold for in liquidation
C the amount the entity could be sold for as a going concern
D the financial position of the entity at a particular point in time
8. A business paid out £12,450 in net wages to its employees. In respect of these wages, the following
amounts were shown in the statement of financial position.

No other deductions were made.

Employees' gross wages, before deductions, were:

A £12,450
B £27,450
C £16,280
D £17,780

9. Which of the following is a source document that would be entered into the accounting system?

A Debit note
B Credit note
C Sales order
D Purchase order

10. Which of the following best explains the imprest system of petty cash?

A Each month an equal amount of cash is transferred into petty cash.

B The exact amount of petty cash expenditure is reimbursed at intervals to maintain a fixed float.
C Petty cash must be kept under lock and key.
D The petty cash total must never fall below the imprest amount.

11. On 1 April, a business had a balance of £100 (the imprest amount) in petty cash. At the end of April she
has vouchers totalling £38, a receipt for a refund for stationery of £4 and a note to say that an employee was
reimbursed £12 in respect of postage costs but no voucher was issued.
How much does the business need to reinstate her imprest balance at 30 April?

A £34
B £46
C £54
D £66

12. Richard is a VAT registered trader whose sales and purchases carry VAT at the standard rate of 20%.
Richard sells a customer goods on credit for £4,800 exclusive of VAT.
What is the double entry to record this ?

A Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760

B Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800
C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800
13. What transaction is represented by the entries: Debit rent, Credit landlord?

A The receipt of rental income by the business

B The issue of an invoice for rent to a tenant
C The receipt of an invoice for rent payable by the business
D The payment of rent by the business
14. In double-entry bookkeeping, which of the following statements is true?

A Credit entries decrease liabilities and increase income.

B Debit entries decrease income and increase assets.
C Credit entries decrease expenses and increase assets.
D Debit entries decrease expenses and increase assets.

15. A debit balance of £3,000 brought down on America Ltd's account in B Ltd's books means that Brazil Ltd
owes A Ltd £3,000.

A True
B False

16. Crimson plc paid an invoice from a credit supplier and took advantage of the early settlement discount
offered. When the invoice was received and recorded, Crimson plc did not expect to take the discount.
The journal entry to record the payment of the invoice is:

A Debit Payables, Credit Purchases, Credit Cash at bank account

B Debit Payables, Credit Cash at bank account
C Debit Cash at bank account, Debit Purchases, Credit Payables
D Debit Cash at bank account, Credit Purchases, Credit Payables

17. Anchor Ltd is preparing its financial statements. After transferring the balances on all the income and
expense ledger accounts to the profit and loss ledger account, the total credits in the profit and loss ledger
account exceed the total debits by £4,000.
Which two of the following statements about Anchor Ltd are correct?

A Anchor Ltd has made a loss for the year of £4,000.

B Anchor Ltd has made a profit for the year of £4,000.
C To begin to calculate the closing capital account balance, Anchor Ltd should credit the capital account
and debit the profit and loss ledger account with £4,000.
D The opening balance on the profit and loss ledger account for the next reporting period is £4,000 credit.
E The closing balance on the profit and loss ledger account of £4,000 should be deducted from the capital
account to give the profit for the year.

18. Which of the following would be classified as a non-current asset?

A Cash
B Prepayments
C Land
D Receivables
19. Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers for a total of
£89,436 excluding VAT and purchases goods from suppliers for a total of £86,790 including VAT.
What is the net amount shown in Gerrard Ltd's VAT account at the end of April?

A £3,422 debit
B £2,452 debit
C £3,422 credit
D £2,452 credit

20. Which of the following statements concerning preparation of financial statements is true?

A The balances on income and expense accounts are brought down at the end of the
accounting period to be carried forward to the next accounting period.
B The balances on asset and liability accounts are summarised in an additional ledger account known as the
statement of financial position ledger account.
C The statement of profit or loss ledger account is a list of all the balances extracted from the business's
accounts.
D Loss for the year is a credit entry in the statement of profit or loss ledger account.

21. A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of £7,200, credit
sales of £16,500 and received £15,300 from his credit customers.
The balance on his trade receivables account at the end of May was:

A £1,500
B £3,900
C £8,700
D £11,100

22. Which of the following would be a credit balance in the trial balance?

A Bank overdraft
B Drawings
C Purchases
D Delivery outwards

23. Plym plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the year to 30
June 20X7, Plym plc made purchases of £69,600 including VAT and made sales of £89,400 excluding
VAT. There was no change in the figures for opening and closing inventory in the statements of financial
position as at 30 June 20X6 and 20X7.
What was Plym plc's gross profit for the year ended 30 June 20X7?

A £19,800
B £4,900
C £31,400
D £16,500
24. Which three of the following situations are likely to result in a suspense account being used to record a
transaction?

A A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3% prompt payment
discount.
B A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%.
C A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.
D A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in which the bookkeeper
was unsure where to record the credit entry.
E A payment made to a supplier for £90.25 in respect of an invoice for £95 on which a prompt payment
discount of 5% was expected to be taken.

25. Indicate whether the following statements are true or false.

The owner's drawings are shown on the initial trial balance.

A True
B False
26. Indicate whether the following statements are true or false.
The closing inventory balance is included in the final trial balance.

A True
B False
27. When performing a reconciliation between the bank transaction report and the cash at bank account, which
two of the following would require an entry in the cash at bank account?

A Deposits credited after date

B Direct debit on bank transaction report only
C Bank charges
D Bank error
E Cheque presented after date

28. Epsilon's cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn.
On comparing this with the transaction report downloaded from the electronic banking system, the accountant
discovers the following:
1 A cheque for £57 drawn by Epsilon on 29 December 20X3 has not yet been presented for payment.
2 A cheque for £92 from a customer, which was paid into the bank on 24 December 20X3, has been
dishonoured on 31 December 20X3.
The correct balance in Epsilon's cash at bank account as at 31 December 20X3 is:

A £473 debit
B £714 credit
C £657 credit
D £473 credit
 29. Smock Ltd 's draft profit for the year is £324,700. After the draft profit was calculated, the
following issues were discovered.
• Debts of £6,800 should have been written off as irrecoverable at the year end, but the journal entry was not
posted.
• The accounting system had automatically calculated and recorded depreciation, but the standing data was
found to be incorrect. The depreciation rate for cars should have been updated to 20% straight-line at the start
of the year, but was left as 25% straight-line in error. The balance on the car cost account at the year end was
£24,000. There were no additions or disposals of cars in the year.
What is Smock Ltd's corrected profit for the year after accounting for the above issues?
A £323,500
B £319,100
C £313,100
D £316,700

30. A company's initial trial balance includes a balance of £25,000 in a suspense account. On reviewing the
exception report, the bookkeeper identified the amount as a purchase of machinery for £25,000. The amount
had been correctly recorded in cash at bank but the other side of the transaction had not been matched by the
accounting system.
Which of the following journal entries would remove the suspense account and correctly record the purchase of
machinery?
A DEBIT Plant and machinery £25,000
CREDIT Cash at bank account £25,000
B DEBIT Suspense account £25,000
CREDIT Plant and machinery £25,000
C DEBIT Plant and machinery £25,000
CREDIT Suspense account £25,000
D DEBIT Cash at bank account £25,000
CREDIT Suspense account £25,000

31. The following information relates to a bank reconciliation. The balance in the cash at bank account before
taking the items below into account was £8,970 overdrawn.
1 Bank charges of £550 on the bank statement have not been entered in the cash at bank account.
2 The bank has credited the account in error with £425 which belongs to another customer.
3 Cheque payments totalling £3,275 have been entered in the cash at bank account but have not been presented
for payment.
4 Cheques totalling £5,380 have been correctly entered on the debit side of the cash at bank account but have
not been paid in at the bank.

What was the overdrawn balance as shown by the bank statement?

A £6,990
B £10,650
C £11,200
D £11,625
32. A business has opening inventory of £7,200 and closing inventory of £8,100. Purchases for the year were
£76,500, delivery inwards was £50 and delivery outwards was £180.
What is the correct amount for cost of sales?

A £75,550
B £75,650
C £75,830
D £77,450

33. Platoon plc is preparing its financial statements for the year ended 30 April 20X1, having extracted an
initial trial balance.
It had no opening inventory, its purchases in the period were £686,880 and closing inventories were valued as
£18,647 on 30 April 20X1.
Which two of the following journal entries are required to record cost of sales and closing inventories at 30
April 20X1?

A Dr Cost of sales £686,880; Cr Inventories £686,880

B Dr Purchases £686,880; Cr Cost of sales £686,880
C Dr Cost of sales £686,880; Cr Purchases £686,880
D Dr Inventories £18,647; Cr Cost of sales £18,647
E Dr Cost of sales £18,647; Cr Inventories £18,647
F Dr Inventories £18,647; Cr Purchases £18,647

34. Muse plc began trading on 1 January 20X8 and had zero inventories at that date. During 20X8 it made
purchases of £455,000, incurred delivery inwards of £24,000, and delivery outwards of £29,000. Closing
inventories at 31 December 20X8 were £52,000.
What is the correct amount for cost of sales for the year ended 31 December 20X8?

A £456,000
B £427,000
C £432,000
D £531,000

35. Boomerang Co had 200 units in inventory at 30 November 20X1 valued at £800. During December it
made the following purchases and sales.
2/12 Purchased 1,000 @ £5.00 each
5/12 Sold 700 @ £7.50 each
12/12 Purchased 800 @ £6.20 each
15/12 Purchased 300 @ £6.60 each
21/12 Sold 400 @ £8.00 each
28/12 Sold 500 @ £8.20 each
Which of the following is the closing inventory amount using FIFO?

A £4,460
B £4,340
C £4,620
D £3,500
36. The following information relates to Camberwell plc's year-end inventory of finished goods.

At what amount should finished goods inventory be stated in the company's statement of financial position?

A £13,280
B £18,960
C £18,760
D £19,580

37. At its year end Crocodile plc has 6,000 items of product A, and 2,000 of product B, costing £10 and £5
respectively. The following information is available:
Product A – 500 are defective and can only be sold at £8 each.
Product B – 100 are to be sold for £4.50 each with selling expenses of £1.50 each.
What figure should be shown in Crocodile plc's statement of financial position for inventory?

A £57,000
B £68,950
C £68,800
D £70,000

38. Indicate whether the following statements are true or false.

In a period of rising prices, applying the FIFO method to determine the cost of inventories will give a lower
gross profit figure than the AVCO method.

A True
B False

39. Indicate whether the following statements are true or false.

Closing inventory is a debit in the statement of profit or loss..

A True
B False
40. At 30 September 20X4, Mathieson plc's allowance for receivables was£19,500. At 30 September 20X5 it
was decided to write off irrecoverable debts totalling £6,000 and to decrease the allowance for the remaining
receivables to £15,000.
What is the charge or credit to the statement of profit or loss in respect of irrecoverable debts for the year ended
30 September 20X5?:

A £1,500 credit
B £1,500 debit
C £21,000 debit
D £21,000 credit

41. At 30 June 20X1 Cameron plc has decided to write off two debts of £1,300 and £2,150 respectively and to
make an allowance of £6,631 against the remaining trade receivables balance. The balance on this allowance at
1 July 20X0 was £8,540.
What is Cameron plc's irrecoverable debts expense for the year to 30 June 20X1?

A £1,541
B £1,909
C £3,450
D £5,359

42. Enigma plc has reduced its allowance for receivables by £600. Indicate whether the
following statements are true or false.
This will increase gross profit by £600.

A True
B False

This will increase net profit by £600.

C True
D False

43. Disaster plc's trial balance shows trade receivables of £50,000. However, no adjustment has been made for
the following items.
1 £3,250 from J Crisis & Sons who have gone into liquidation. The amount is considered irrecoverable.
2 An increase in the allowance for receivables of £2,000.
3 Cash received from P Chaos of £2,500 which had previously been written off.
What is the revised trade receivables account balance after posting the above adjustments?

A £50,500
B £50,200
C £46,750
D £49,250

44. At 28 February 20X4, a company's allowance for receivables was £38,000. At 28 February 20X5 it was
decided to write off £28,500 of receivables and to increase the allowance for the remaining receivables to
£42,000.
What is the irrecoverable debts expense in the statement of profit or loss for the year ended 28 February 20X5?:

A £42,000
B £28,500
C £70,500
D £32,500
 45. Arrow plc had a receivables balance of £7,050 at 31 December 20X0. During the year £500 was received
in respect of a debt previously written off, and an allowance for receivables of £495 was considered necessary.
The allowance brought down as at 1 January 20X0 was
£1,000.
What is the correct action for Arrow plc to take respect of irrecoverable debts for the year ended 31 December
20X0?

A debit £5
B debit £1,005
C credit £5
D credit £1,005
46. During 20X5 Bow plc received £500 from a customer in respect of a balance that had previously been
written off, and reduced its allowance for receivables to £100. The allowance brought down as at 1 January
20X5 was £1,000. At the year end the dishonour of a cheque received for £280 needs to be accounted for, and
the debt related to it needs to be written off.
What is the irrecoverable debts debit or credit in the statement of profit or loss for the year ended 31 December
20X5?

A £880 debit
B £780 debit
C £1,120 credit
D £1,300 credit
47. At 31 December 20X2 a company's receivables totalled £400,000 and an allowance for receivables of
£50,000 had been brought forward from the year ended 31 December 20X1.
It was decided to write off debts totalling £38,000 and to adjust the allowance for receivables to £36,200.
What is the irrecoverable debts expense that should appear in the company's statement of profit or loss for the
year ended 31 December 20X2?

A £36,200
B £51,800
C £38,000
D £24,200

48. A business preparing its financial statements for the year to 31 October pays rent quarterly in advance on 1
January, 1 April, 1 July and 1 October each year. The annual rent was increased from £48,000 to £60,000 from
1 March 20X4.
What figure should appear for rent in the statement of profit or loss for the year ended 31 October 20X4 and in
the statement of financial position as at that date?

A Statement of profit or loss £56,000; Statement of financial position £10,000

B Statement of profit or loss £52,000; Statement of financial position £5,000
C Statement of profit or loss £56,000; Statement of financial position £5,000
D Statement of profit or loss £55,000; Statement of financial position £10,000
49. A business has received telephone bills as follows:

What amount of telephone expenses should be included in the statement of profit or loss for the year ended 31
December 20X1?
A £3,407.60
B £3,351.60
C £3,250.80
D £3,463.60

50. A company receives rent from a large number of properties. The total cash received in the year ended 31
October 20X6 was £481,200.
The following are the amounts of rent in advance and in arrears at 31 October 20X5 and 20X6.

What amount of rental income should be included in the company's statement of profit or loss for the year
ended 31 October 20X6?
A £486,500
B £460,900
C £501,500
D £475,900

51. A rent prepayment of £960 was treated as an accrual in a sole trader's statement of profit or loss at the year
end. As a result the profit was:

A understated by £960
B understated by £1,920
C overstated by £1,920
D overstated by £960