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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

When the Trial Balance extracted from the books of Kevin Enterprises at the year-end failed to balance, the difference was placed in a Suspense account. Identify the amount that would have been
The working capital (or net current assets) of a business is:(a) The capital introduced by the proprietor at commencement of business(b) Current assets less current liabilities(c) Capital plus
If, as at the commencement of an accounting period, the account named below has a balance as stated in respect of each, what would that balance represent:(a) Trade creditors account – a credit
Which of the following statements is correct? If a business acquires a vehicle for £36,000, making a downpayment of £15,000 and undertaking to pay the remainder a year later:(a) Net assets will
Which of the following should be the first action when making a prime entry for a transaction?(a) Enter the transaction in the appropriate book of prime entry(b) Decide on the ledger account to be
Shown is an extract of the year-end Trial Balance. At which of the following points of the accounting process has the Trial Balance been extracted?(a) At the beginning of the accounting period(b) On
Listed on the right are some of the balances, at close of business on 31 May 2012, in the books of MEL. VAT has been calculated to the nearest pound at 17.5%.Following transactions took place on 1
The amount paid by a business as premium on the owner’s life insurance is accounted as:(a) Debit Drawings account and credit Cash account(b) Debit Insurance account and credit Cash account(c) Debit
Shown the Sales and Returns Inwards Day Book of XY, a sole trader, who employs a bookkeeper to maintain her accounting records, but maintains a nominal ledger herself.Required:(a) Explain the meaning
The Value Added Tax is an expense to be suffered by:(a) The final consumer of the goods on which they are levied(b) All traders dealing with goods on which they are levied(c) Limited companies
A VAT-registered trader’s credit purchases and sales, without including VAT, were £380,000 and £420,000 respectively. VAT rate applicable is 17.5%. £4,800 was paid as VAT. Set out (a) How
Study the following invoices received by J. Kennedy & Co Ltd and answer the questions which follow.(a) Make the necessary entries in J. Kennedy’s Purchases. Day Book showing clearly the totals
Richard, a wholesale dealer, reports his sales (inclusive of VAT at 17.5%) as stated below. You are required to record the sales in a Sales Day Book and post them to ledger accounts assuming that the
Which of the following is not a VAT rate in the UK?(a) The standard rate of 17.5%(b) The concession rate of 10%(c) The reduced rate of 5%(d) The zero rate of 0%
Tom Kelaart, registered for VAT, is familiar with accounting for VAT and has extracted the year-end Trial Balance as shown. He informs you that:(a) Invoices received after 31 December 2012 confirm
John Richard, registered for VAT purposes, extracted his Trial Balance as shown. You are informed as follows:(a) VAT-inclusive prices of £9,400 and £23,500 paid on 1 January 2012 for furniture and
Ryan, registered for VAT, extracted the year-end Trial Balance as shown. He informs you that:(a) The following invoices relating to the period are yet to be accounted for: £29,140 from supplier of
Pollt Ltd has a year-end of 31 December. At 30 November 2012 the balances stated on the right appear in its ledger. Following transactions took place in December 2012:(i) Sales of £85,000 plus VAT
In the UK Value Added Tax is administered by:(a) HM Revenue and Customs Department(b) The local borough(c) The Board of Trade
A trader, registered for VAT, commenced business in the year with a capital in cash of £180,000. His purchases and sales, inclusive of VAT at 17.5%, were £446,500 and £493,500. 20% of goods
Which of the following purposes would a purchase invoice serve?(i) To inform of the amount that has to be paid to the supplier in the transaction(ii) As evidence to support the entry in the relevant
At the beginning of September 2012, GL had the following balances on the accounts of three customers:A. Barton £400 C. Dodd £1,200 F. Gray £340During September, the following sales and
The details stated on the right relate to the payroll of XYZ Ltd for the week ended 27 October 2012. The company pays the employees £5.00 per hour plus an overtime premium of £2.50 per hour in
Set out the journal entry to account for goods costing £235,000 (inclusive of VAT at 17.5%) removed by the proprietor for own use.
The Carpet Store extracted its Trial Balance on the last day of its accounting period as stated.You are informed as follows:(a) A housing loan of £20,000 given to the Store Manager on 1 November
A VAT account debit balance reported in the year-end Trial Balance would represent:(a) The amount recoverable from the VAT department(b) The amount payable to the VAT department(c) The amount to be
Steadfast Stores Ltd has drafted its Statement of financial position as set out below.Since preparing the draft the following information has become available:(i) Goods received from B. Brown in
Which of the following would be an appropriate book of prime entry for VAT on credit sales?(a) The Cash Book(b) The Sales Day Book(c) The VAT book(d) The Journal
Based on the information provided in Activity 18.5 above, write up the Salaries account in the books of the trader.Data from Activity 18.5:A trader’s gross salary to staff for a month is £417,000.
Which of the following is the prime entry book for recording cash sales including 17.5% VAT?(a) The Cash Book(b) The Sales Day Book(c) The VAT book(d) The Journal
The year-end Trial Balance includes, as shown on the right, the net salary paid and the payments to HMRC. PAYE deductions are 10% of gross pay and National Insurance contribution is at 6% from
The prime entry book for recording a cheque for £14,664 received net of 4% cash discount is:(a) The Cash Book(b) The Sales Day Book(c) The VAT book(d) The Journal
Tom purchased raw materials for £3,760 from Harry and used them to manufacture goods which were sold to Dick for £9,870. Harry and Tom are VAT registered, but Dick is not. Prices stated are
The Sales Day Book formatted with a separate column to record VAT reports £485,000 in the column that is posted to the Sales account and VAT rate is 17.5%. How and at what amount will the related
Agnes paid £4,000 to buy a gas cooker from Linda and sold it for £5,000 plus VAT to Sally who, in turn, sold it for a VAT inclusive price of £7,050 to Catherine, a customer. Agnes and Sally are
If a VAT-registered trader formats his Sales Day Book to record VAT amounts in a separate column, the total of that column should be periodically posted to:(a) Debit of VAT account(b) Credit of VAT
In a VAT-registered trader’s books and assuming the VAT rate of 17.5% unless advised otherwise.Credit sales invoiced to customer at £282,000 inclusive of VAT should be accounted for as:(a) Debit
In a VAT-registered trader’s books and assuming the VAT rate of 17.5% unless advised otherwise.A purchase invoice, inclusive of VAT, for £9,400, should be accounted for as:(a) Debit Purchases
In a VAT-registered trader’s books and assuming the VAT rate of 17.5% unless advised otherwise.Payment by cheque for expenses, liable to VAT, of £14,100 should be accounted for as:(a) Debit
In a VAT-registered trader’s books and assuming the VAT rate of 17.5% unless advised otherwise.Payment by cheque of £5,640 for customer entertainment should be accounted for as:(a) Debit Customer
When selling goods with a list price of £20,000 a trade discount of 10% was allowed and a settlement discount of 4% offered if payment is received within a week. The payment was not received; but
Payment by cheque for furniture for office use of £14,100 should be accounted for as:(a) Debit Furniture account £14,100, credit Bank account £14,100(b) Debit Furniture account £12,000, credit
If VAT payable at beginning of the month was £22,800, and during the month purchases and sales at VAT-inclusive prices were £92,120 and £128,968 respectively, the balance in the VAT account by the
In a VAT-registered trader’s books and assuming the VAT rate of 17.5% unless advised otherwise.Payment of £35,250 by cheque for an office vehicle should be accounted for as:(a) Debit Motor
The list price of goods sold was £72,000. A trade discount of 10% and 5% cash discount are on offer. The VAT to be included on the invoice would be: a £9,800 b £10,773 c £11,340 d £12,600
A trader’s opening inventory was reported as £38,600. His purchases during the year inclusive of VAT were £569,875. He reports that a fifth of goods purchased during the year remains unsold by
Goods costing £6,815 (inclusive of VAT) removed by a sole trader for personal use should be accounted for as:(a) Debit Drawings account and credit Purchases account £6,815(b) Debit Drawings account
A trader registered for VAT reports his purchases, sales and expenses for the year as £92,120, £116,090 and £16,920 respectively. The amounts reported are all inclusive of VAT at 17.5%. The
A telephone bill for £3,290 (inclusive of VAT) remaining unpaid should be accounted for as:(a) Debit Telephone expense £2,800, debit VAT account £490, credit Bank account £3,290(b) Debit
A trader registered for VAT reports his purchases, sales and expenses for the year as £138,180, £174,135 and £25,380. Additionally he paid £35,250 for an office vehicle and £15,040 for office
A trader, registered for VAT but dealing only in zero-rated goods, pays £15,040, by cheque, to acquire office equipment. He should account for it as:(a) Debit Office equipment a/c £12,800, debit
A trader registered for VAT but dealing in products zero rated for VAT acquired a vehicle, computers for office use and furniture for £47,000, £7,990 and £15,040 respectively. These prices are all
A trader registered for VAT acquired a machine on one month’s credit. The list price of the machine is £180,000. The trader is offered 10% trade discount and 6% cash discount if payment is made
As at 5 June £74,850 was owed as VAT. During the week commencing on that date purchases were £141,000 (excluding VAT) and sales £423,000 (inclusive of VAT). Assuming that there were no other
Goods with a list price of £37,500 were returned to the supplier. When purchased the supplier had allowed 5% trade discount and had offered 4% cash discount for settlement within a week. The amount
As at 1.6.2012 a customer owed £11,400 for goods sold ten days earlier. Sales made on 7 June were invoiced at £60,000 plus £9,975 VAT, with an offer of 5% cash discount if paid for within a week.
Which of the following are statutory payroll deductions in the UK?(i) Save as you earn (SAYE)(ii) Pay as you earn (PAYE)(iii) Pension contribution(iv) National Insurance contribution ai & ii bi, ii &
PAYE and NIC deductions from employees, until remitted, are accounted for as:(a) An income(b) An expense(c) A liability(d) An asset
PAYE and NIC deductions from employees are normally required to be remitted to HMRC at:(a) Weekly intervals(b) Monthly intervals(c) Quarterly intervals(d) Half yearly intervals
HMRC allocates a PAYE Code to each employee so that:(a) The employee’s pay may be determined according to family circumstances(b) The employee’s tax deductions may take account of tax allowance
The acronym BACS, commonly used for payroll, stands for:(a) Bank Automated Clearing Services(b) Bank Automatic Clearing System(c) Bank Automatic Credit Services(d) Bank Automated Credit System
Which of the following is not a payroll function?(a) Check gross pay entitlement of each employee(b) Verify accuracy of pay-sheet deductions(c) Prepare and distribute payslips(d) Notify promotional
Gross staff salary for the month is £218,400. Pay-sheet deductions to be made are loan recovery (£1,450), PAYE 10%, National Insurance 6%. Employer’s contribution for National Insurance is
The only pay-sheet recovery is national insurance contribution at 6%. Employer’s contribution is 9%. By the year-end net salary paid is £154,630 and the total amount remitted as the National
The year-end Trial Balance as at 31 December reports a staff loan of £10,000 as an asset. Monthly recoveries of £500 made from pay-sheet, from August, should be accounted for as:(a) Debit Cash
The amount to be written off as expense in the year should be:(a) The gross salary payable for the year(b) The net salary paid after making all pay-sheet recoveries(c) The gross salary payable for
Gross staff pay for December is £38,500. All employees contribute to National Insurance and the pension fund at 6% and 9% respectively of gross salary; while the employer’s contribution is 9% and
Emil’s and Basil’s wages are calculated at £4.20 and £4.50 per unit produced. Minimum wage per week is £360. Any employee producing more than 80 units per week is paid at £5 per unit for the
Workers at a factory are required to work for 40 hours per week at minimum. Any excess hours are reckoned as overtime and paid at time and a half. Weekend hours are paid at double time. During a
Admittedly the primary interest of shareholders of a company will be the discharge of stewardship by the directors and the profitability of their business. Nevertheless they will also be watchful of
Based on your studies so far, do you feel that the information communicated in the Statement of income and the Statement of financial position is adequate to properly assess the performance and
Susan Pizzy, a young graduate operating as a dealer in computer software, requests your help to finalise the accounts of her shop for the year ended 31 December 2011. After you have completed the
Profitability of a company is one of the main interests of its shareholders because:(i) Higher profit results in reporting higher earnings per share and hence better prices for shares(ii) Higher
The Framework for the preparation and presentation of financial statements adopted by IASB in April 2001 attempts to establish a conceptual framework for the accounting and reporting functions.(a)
It is claimed that a range of stakeholders depend on financial reports to make crucial economic decisions. Identify two such economic decisions the shareholders have to make.
When preparing their financial statements of a sole trader’s business for the year ended 31 December 2011, the following accounting adjustments were made:(i) £16,500 due from a customer was
Fill in the words Very, Highly and Potentially in the following grid to state your opinion of the extent of interest each identified group of stakeholders would have in the specified areas:
In relation to measuring and accounting for inventory, explain how each of the following accounting concepts would apply:(a) Going concern (b) Accruals and matching (c) Consistency (d)
Which of the following statements is incorrect?(a) The financial statements are intended only for the use of shareholders and investors(b) Employees of a business will have an interest in
In the recent past accountants have shown an interest in identifying the concepts which underlie the techniques they use when accounting for transactions. They acknowledge that some among the
In support of its application for a £60 million loan, Presage plc submitted its Statement of financial position and Statements of cash flows for the preceding five years. The financier has called
Accounting concepts must be defined clearly and well understood by both those who prepare financial statements and those who use the information therein for decision making for the following
Unless expressly stated otherwise, financial statements are assumed to have been prepared on the premise that the entity will remain in the business as a going concern for the foreseeable future, at
(a) Explain clearly the following accounting terms in a manner which an intelligent non-accountant could understand in the context of a profit-oriented organisation:(i) Expense(ii) Prudence(iii)
Norwich Tanners and Curriers (NTC) extracted its yearend Trial Balance as shown.You are informed as follows:(i) Inventory is ascertained on 5 July 2011 at £752,000. During the five days after 30
When accounting for transactions and preparing financial statements certain assumptions are made and a number of working rules are complied with. Which of the following would you regard as
Accountants measure everything they account for in money terms. Accordingly they assume that what is not measurable in terms of money need not be accounted for. They are aware, however, of
Accounting on the basis of historical cost is valid only if it is assumed that the value of money remains constant over time. This constraint would be overcome if accounting used current values
Two sisters, Tessa and Vanessa, commenced separate businesses on 1.1.2012 each with capital of £50,000 in cash. On that day each invested their whole capital in 50,000 ordinary shares of £1 each at
Which of the following statements is incorrect?(a) The non-aggregation rule is applied when comparing cost and net realisable value of inventory(b) Non-current assets are depreciated to comply with
Which accounting concept needs to take precedence when accounting for the cost of advertising which is expected to significantly enhance the sales in future years?(a) Consistency concept(b) Matching
We have come across many accounting concepts, of which some are assumptions we make and others are rules we comply with when accounting for transactions. However, IASB’s Framework has named two
Which of the following statements is the most appropriate explanation of the prudence concept?(a) Income should not be accounted for until realised in cash(b) Faced with uncertainty an accountant
Relevance and reliability are accorded equal primary status as principal characteristics of information to be included in financial statements. Discuss the possibility of conflict between the two
In times of rising prices accounting on the basis of the historical cost concept would tend to:(a) Inflate profit and inflate assets(b) Understate profit and understate assets(c) Inflate profits and
You are now familiar with a number of accounting concepts. Identify which among them would be relevant when deciding on:(a) The value at which inventory is reported on the Statement of financial
The prudence concept is the compelling reason for which of the following accounting treatments:(a) Reporting as an asset the unsold portion of goods purchased for sale(b) Accounting for the personal
In the financial statements issued by large companies like Imperial Chemical Industries (ICI) the amounts stated are rounded off to the nearest million pounds. The reason for this is:(a) The
Identify three of the following accounting concepts as justification for depreciating non-current assets:(i) Realisation (ii) Matching (iii) Neutrality(iv) Substance over form (v)
An item of information or amount is not separately reported in a financial statement, on account of materiality, if:(a) It accounts for less than 5% of the balance sheet total(b) It would not be

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