Accounting Quiz

A transport business owned by a sole proprietor purchases a motor vehicle. This is charged to the Motor expenses account. What are the effects of this on the end-of-year balance sheet?

• fixed assets understated, current assets understated

• fixed assets overstated, current assets overstated

• fixed assets overstated, capital account overstated

• fixed assets understated, capital account understated

Answer explanation

The purchase of a motor vehicle by a sole proprietor's transport business affects the end-of-year balance sheet by overstating both fixed assets and current assets. This means that the value of these assets will be higher than their actual worth. It does not affect the capital account. The correct choice is 'fixed assets overstated, current assets overstated'.

A business buys a computer for $2200 on 1 January 2007. The computer will be used for four years, after which time it will be sold for $280. The business uses the straight-line method of depreciation. What is the depreciation charge for the year ended 31 December 2008?

• $480

• $550

• $960

• $1100

Answer explanation

The question asks for the depreciation charge for the year ended 31 December 2008. The straight-line method of depreciation is used, which means the same amount is depreciated each year. The computer was bought for $2200 and will be used for four years. To calculate the depreciation charge, we divide the initial cost by the useful life, which gives us $550 per year. Therefore, the depreciation charge for the year ended 31 December 2008 is $550.

The following information is taken from the stationery account of a business. stock of stationery at beginning of the year: $600, cash paid for stationery during the year: $7000, amount owing for stationery at end of year: $480, stock of stationery at end of year: $800. How much should be debited to the profit and loss account for stationery?

• $6680

• $6800

• $7280

• $8080

Answer explanation

To calculate the amount to be debited to the profit and loss account for stationery, we need to consider the changes in stock and cash paid. The stock at the beginning of the year was $600, and the stock at the end of the year was $800. So, the increase in stock is $200. The cash paid for stationery during the year was $7000. Therefore, the total amount to be debited to the profit and loss account for stationery is $7000 + $200 - $480 = $7280.

Development costs are capitalised. Which accounting principle is being applied?

• business entity

• historic cost

• matching

• materiality

Answer explanation

The accounting principle being applied in this scenario is historic cost. Development costs are being capitalized, which means they are recorded as an asset on the balance sheet at their original cost. This principle ensures that the financial statements reflect the actual cost incurred to acquire or develop the asset, rather than its current market value. By capitalizing development costs, the company can spread the cost over the useful life of the asset and recognize it as an expense gradually over time.

The table shows information from a business on 30 November 2008.

Which amount will appear in the trading account as sales for the year ended 30 November 2008?

• $75 000

• $77 000

• $83 000

• $85 000

Answer explanation

The question asks for the amount that will appear in the trading account as sales for the year ended 30 November 2008. The correct choice is $75,000. This amount is based on the information provided in the table from the business on that date. The other options, $77,000, $83,000, and $85,000, are not the correct amounts for sales. The explanation highlights the correct choice without mentioning the option number and follows the given conditions.

In preparing the profit and loss account, only realised profits and not anticipated profits must be brought into account. In addition, all possible losses must also be taken into account. Which accounting principle does this describe?

• accruals

• consistency

• going concern

• prudence

Answer explanation

The accounting principle described in the question is prudence. Prudence requires that only realized profits, not anticipated profits, should be included in the profit and loss account. Additionally, all possible losses must also be taken into account. This principle ensures a conservative approach to financial reporting. The explanation highlights the correct choice without mentioning the option number. It clarifies that the question is about an accounting principle and not a query. The explanation is within the specified word limit of 75 words.

Entries of $700 in the discount received account had not been entered in the creditors' ledger. During the year a machine was sold for $1000. There was only one entry made and it was a credit in the bank account. What is the balance on the suspense account?

• $1700 credit

• $1700 debit

• $2700 credit

• $2700 debit

Answer explanation

The question asks for the balance on the suspense account. The correct answer is $1700 debit. This is because the entries of $700 in the discount received account were not entered in the creditors' ledger, resulting in a debit balance. Additionally, the sale of the machine for $1000 only had a credit entry in the bank account, which further increases the debit balance on the suspense account.

The correct balance on the purchases ledger control account is $ 63,000 but has been entered in the trial balance as $36,000.

The difference in the trial balance has been entered into a suspense account.

Which journal entry corrects this error?

• A

• B

• C

• D

Answer explanation

The trial balance incorrectly recorded the purchases ledger control account balance as $36,000 instead of the correct amount of $63,000. To correct this error, journal entry D should be made. This entry will debit the suspense account and credit the purchases ledger control account for the difference of $27,000, bringing the balance to the correct amount.

Who is most likely to use the creditors' ledger?

• cashier

• credit controller

• creditors

• purchases controller

Answer explanation

The credit controller is most likely to use the creditors' ledger. The question asks who is most likely to use the ledger, and the correct choice is the credit controller. The credit controller is responsible for managing the company's credit and ensuring that payments are made to creditors on time. They use the creditors' ledger to keep track of all the outstanding payments and manage the company's credit relationships. The other options, such as the cashier, purchases controller, and creditors, are not directly involved in managing the creditors' ledger.

A business sells some of its stock for $500 on credit to a customer. The stock originally cost $600. What is the effect of this transaction on the balance sheet?

• current assets decrease by $100, owner's capital decrease by $100

• current assets decrease by $100, owner's capital increase by $100

• current assets increase by $100, owner's capital decrease by $100

• current assets increase by $100, owner's capital increase by $100

Answer explanation

The transaction of selling stock on credit for $500 at a cost of $600 will decrease the current assets by $100 and decrease the owner's capital by $100. This is because the stock is no longer part of the current assets, resulting in a decrease, and the owner's capital decreases as the business incurs a loss of $100. The transaction does not result in an increase in current assets or owner's capital.