Fia - Exercises (C1-C4)

Foundations in P
Accountancy A
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T
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FA1 E
RECORDING FINANCIAL &

TRANSACTIONS
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Welcome to BPP Learning Media's Practice & Revision Kit for FA1. In this Practice &
Revision Kit, which has been reviewed by the ACCA examining team, we:
O
 Include Do you know? Checklists to test your knowledge and understanding N
of topics
 Provide you with two mock exams including the Specimen Exam June 2014
 Provide the ACCA's exam answers to the Specimen Exam June 2014 as an
additional revision aid
K
I
T
FOR EXAMS FROM 1 SEPTEMBER 2019 TO 31 AUGUST 2020
FA1 RECORDING FINANCIAL TRANSACTIONS
First edition May 2011

Eighth edition March 2019 A note about copyright
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ii
CONTENTS
Contents
Page
Finding questions
Question index .............................................................................................................................. v
Helping you with your revision ....................................................................................................... vii

Using your BPP Practice & Revision Kit......................................................................................... viii
Passing the FA1 exam................................................................................................................... ix
Approach to examining the syllabus ................................................................................................ ix
The Computer-based examination.................................................................................................... x
Tackling Multiple Choice Questions................................................................................................. xi
Using your BPP products.............................................................................................................. xii
Questions and answers

Questions .................................................................................................................................... 3
Answers .................................................................................................................................... 37
Mixed bank 1
 Questions........................................................................................................................... 55
 Answers............................................................................................................................. 65
Mixed bank 2
 Questions........................................................................................................................... 73
 Answers............................................................................................................................. 83
Mixed bank 3
 Questions........................................................................................................................... 89
 Answers............................................................................................................................. 99
Exam practice
Mock exam 1 (Specimen exam June 2014)
 Questions......................................................................................................................... 107
 Answers........................................................................................................................... 119
Mock exam 2
 Questions......................................................................................................................... 123
 Answers........................................................................................................................... 135
Review form
iii
iv
QUESTION INDEX
Question index
Time
Page
allocation
Marks Mins Question Answer
Part A: Introduction to transaction accounting
Business transactions and documentation
Questions 1.1 to 1.8 16 19 7 37
Assets, liabilities and the accounting equation
Questions 1.9 to 1.17 18 22 9 38
Recording, summarising and posting transactions
Questions 1.18 to 1.33 32 38 10 39
Completing ledger accounts and financial statements
Questions 1.34 to 1.45 24 31 12 41
Part B: Recording and accounting for cash transactions
Receiving and checking money
Questions 2.1 to 2.5 10 12 17 43
Banking monies received
Questions 2.6 to 2.10 10 12 17 43
Recording monies received
Questions 2.11 to 2.15 10 12 18 44
Authorising and making payments
Questions 2.16 to 2.23 16 19 19 44
Recording payments
Questions 2.24 to 2.29 12 14 20 45
Maintaining petty cash records
Questions 2.30 to 2.35 12 14 21 46
Bank reconciliations
Questions 2.36 to 2.41 12 17 22 47
Part C: Recording and accounting for credit

transactions
The receivables ledger
Questions 3.1 to 3.7 14 17 27 48

The payables ledger
Questions 3.8 to 3.10 6 7 28 49

Control accounts
Questions 3.11 to 3.18 16 24 28 49
v
Time
Page
allocation
Marks Mins Question Answer
Part D: Payroll
Recording payroll transactions
Questions 4.1 to 4.11 22 26 33 50

Mixed banks
Mixed bank 1: Questions 5.1 to 5.50 100 120 55 65

Mock exams
Mock exam 1 (Specimen Exam June 2014) 100 120 107 119
Mock exam 2 100 120 123 135
vi
USING YOUR PRACTICE AND REVISION KIT
Helping you with your revision
BPP Learning Media – ACCA Approved Content Provider

As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use revision
materials reviewed by the ACCA examining team. By incorporating the ACCA examining team's
comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning
Media Practice & Revision Kit provides excellent, ACCA-approved support for your revision.
These materials are reviewed by the ACCA examining team. The objective of the review is to ensure that
the material properly covers the syllabus and study guide outcomes, used by the examining team in
setting the exams, in the appropriate breadth and depth. The review does not ensure that every
eventuality, combination or application of examinable topics is addressed by the ACCA Approved
Content. Nor does the review comprise a detailed technical check of the content as the Approved
Content Provider has its own quality assurance processes in place in this respect.
Selecting questions
We provide signposts to help you plan your revision.
 A full question index
Attempting mock exams

There are two mock exams that provide practice at coping with the pressures of the exam day. We
strongly recommend that you attempt them under exam conditions. Mock exam 1 is the Specimen Exam
June 2014. Mock exam 2 reflects the question styles and syllabus coverage of the exam.
vii
Using your BPP Practice & Revision Kit
Aim of this Practice & Revision Kit

To provide the practice to help you succeed in the examination for FA1 Recording Financial
Transactions.
To pass the examination you need a thorough understanding in all areas covered by the syllabus and
teaching guide.
Recommended approach
 Make sure you are able to answer questions on everything specified by the syllabus and teaching
guide. You cannot make any assumptions about what questions may come up in your exam. The
examining team aims to discourage 'question spotting'.
 Learning is an active process. Use the DO YOU KNOW? Checklists to test your knowledge and
understanding of the topics covered in FA1 Recording Financial Transactions by filling in the
blank spaces. Then check your answers against the DID YOU KNOW? Checklists. Do not attempt
any questions if you are unable to fill in any of the blanks – go back to your BPP Interactive Text
and revise first.
 When you are revising a topic, think about the mistakes that you know that you should avoid by
writing down POSSIBLE PITFALLS at the end of each DO YOU KNOW? Checklist.
 Once you have completed the checklists successfully, you should attempt the questions on that
topic. Each question is worth 2 marks and carries with it a time allocation of 2.4 minutes.
 Once you have completed all of the questions in the body of this Practice & Revision Kit, you
should attempt the MOCK EXAMS under examination conditions. Check your answers against our
answers to find out how well you did.
viii
PASSING THE FA1 EXAM
Passing the FA1 exam

FA1 Recording Financial Transactions teaches you basic bookkeeping for cash and credit transactions.
There is a lot to learn, but none of it is particularly difficult and a good grasp of these topics will help
you in higher-level financial accounting.
To access Foundation In Accountancy syllabuses, visit the ACCA website:
www2.accaglobal.com/students/fia
The exam
This is a computer-based exam. All questions in the exam are compulsory. This means you cannot avoid
any topic, but also means that you do not need to waste time in the exam deciding which questions to
attempt. There are 50 MCQs in the FA1 exam. The examining team are able to test most of the syllabus
at each sitting, and that is what they aim to do. So you need to have revised right across the syllabus for
this exam.
Revision
This Practice & Revision Kit has been reviewed by the FA1 examining team and contains the Specimen
Exam June 2014, so if you just worked through it to the end you would be very well prepared for the
exam. It is important to tackle questions under exam conditions. Allow yourself just the number of
minutes shown next to the questions in the index and don't look at the answers until you have finished.
Then correct your answer and go back to the Interactive Text for any topic you are really having trouble
with. Try the same question again a week later – you will be surprised how much better you are getting.
Doing the questions like this will really show you what you know, and will make the exam experience
less worrying.
Doing the exam

If you have honestly done your revision you can pass this exam. There are certain points which you must
bear in mind:
 Read the question properly.
 Don't spend more than the allotted time on each question. If you are having trouble with a
question leave it and carry on. You can come back to it at the end.
Approach to examining the syllabus

FA1 is a two-hour exam.
The exam is structured as follows:

No of marks
50 compulsory multiple choice questions of 2 marks each 100
ix
The computer-based examination

Computer-based examinations (CBEs) are available for most of the Foundations In Accountancy exams.
The CBE exams for the first seven modules can be taken at any time, these are referred to as 'exams on
demand'. The Option exams can be sat in June and December of each year, these are referred to as
'exams on sitting'. FAU and FFM are moving from paper-based exams (PBE) to CBE format from the
December 2019 exam sitting, and FTX will follow from the June 2020 exam sitting. There will be no
parallel running of PBE and CBE exams.
Computer based examinations must be taken at an ACCA CBE Licensed Centre.
How do CBEs work?

 Questions are displayed on a monitor.
 Candidates enter their answer directly onto the computer.
 Candidates have two hours to complete the examination.
 Candidates are provided with a Provisional Result Notification showing their results before leaving
the examination room.
 The CBE Licensed Centre uploads the results to the ACCA (as proof of the candidate's
performance) within 72 hours.
 Candidates sitting the Option exams will receive their results approximately five weeks after the
exams sitting once they have been marked by an expert.
 Candidates can check their exam status on the ACCA website by logging into myACCA.
Benefits
 Flexibility as the first seven modules, exams on demand, can be sat at any time.
 Resits for the first seven modules can also be taken at any time and there is no restriction on the
number of times a candidate can sit a CBE.
 Instant feedback for the exams on demand as the computer displays the results at the end of the
CBE.
 Results are notified to ACCA within 72 hours.
For more information on computer-based exams, visit the ACCA website:
www.accaglobal.com/gb/en/student/exam-entry-and-administration/computer-based-exams.html
x
TACKLING MULTIPLE CHOICE QUESTIONS
Tackling Multiple Choice Questions

MCQs are part of all Foundations In Accountancy exams.
The MCQs in your exam contain four possible answers. You have to choose the option that best
answers the question. The incorrect options are called distracters. There is a skill in answering MCQs
quickly and correctly. By practising MCQs you can develop this skill, giving you a better chance of
passing the exam.
You may wish to follow the approach outlined below, or you may prefer to adapt it.
Step 1 Skim read all the MCQs and identify what appear to be the easier questions.
Step 2 Attempt each question – starting with the easier questions identified in Step 1. Read
the question thoroughly. You may prefer to work out the answer before looking at the
options, or you may prefer to look at the options at the beginning. Adopt the method
that works best for you.
Step 3 Read the options and see if one matches your own answer. Be careful with numerical
questions as the distracters are designed to match answers that incorporate common
errors. Check that your calculation is correct. Have you followed the requirement
exactly? Have you included every stage of the calculation?
Step 4 You may find that none of the options match your answer.
 Re-read the question to ensure that you understand it and are answering the
requirement
 Eliminate any obviously wrong answers
 Consider which of the remaining answers is the most likely to be correct and
select the option
Step 5 If you are still unsure make a note and continue to the next question.
Step 6 Revisit unanswered questions. When you come back to a question after a break you
often find you are able to answer it correctly straight away. If you are still unsure have a
guess. You are not penalised for incorrect answers, so never leave a question
unanswered!
After extensive practice and revision of MCQs, you may find that you recognise a question when you sit
the exam. Be aware that the detail and/or requirement may be different. If the question seems familiar
read the requirement and options carefully – do not assume that it is identical.
xi
Using your BPP products

This Practice & Revision Kit gives you the question practice and guidance you need in the exam. Our other
products can also help you pass:
 Interactive Text introduces and explains the knowledge required for your exam
 Passcards provide you with clear topic summaries and exam tips
You can purchase these products by visiting.www.bpp.com/learning-media.
xii
Questions
1
2
QUESTIONS
Do you know? – INTRODUCTION TO TRANSACTION ACCOUNTING
Check that you can fill in the blanks in the statements below before you attempt any questions. If in doubt,
you should go back to your BPP Interactive Text and revise first.
 Whenever property changes hands there has been a ………………………. .
 A cash transaction is one where the ………………………………………………………………..…
…………………………. .
 A credit transaction is ………………………………………………………………………………...…
………………..… .
 The purpose of the accounting system is to ……….., ……………. and ……… the information contained
in the documentation generated by transactions.
 A discount is a reduction in the price of goods below the amount at which those goods would normally
be sold to other customers of the supplier.
– A ……………….. is a reduction in the amount of money demanded from a customer.
– A ………………… is an optional reduction in the amount of money payable by a customer.
 Many business transactions involve sales tax.
– …………… is sales tax charged on goods and services sold by a business.
– ………….. is sales tax paid on goods and services bought in by a business.
TRY QUESTIONS 1.1 TO 1.8
 ……… is the excess of income over expenditure. When expenditure exceeds income, the business is
running at a ……. .
 A business must always be treated as a ………………… from its owners when preparing accounts.
 The accounting equation is that the assets and liabilities of a business must always be ……. .
– Assets = (Capital introduced + retained profits – drawings) + liabilities
 Double entry bookkeeping reflects the fact that for every debit, there is an equal ……….. . Therefore the
total value of debit entries will always be equal to the total value of credit entries.
 At any point in time a business will have assets, liabilities and capital.
– …………………are for use within a business.
– ………………… are used to generate cash.
– …………………… are payables of the business.
 Books of …………… are used to keep records of …………………… . Examples include the sales day
book, the ……………. day book and the cash book.
 Entries are ………. from the day books to the ………… ledger.
 Accounting packages can update ledgers simultaneously if the ledgers are…………………… .
 Customer and supplier information which is stored may be subject to …………………. legislation.
 The ………… is a record of unusual movements between accounts.
 An error of …………… occurs when two digits in an amount are recorded the wrong way round.
 An error of …………….. means failing to record a transaction at all.
 An error of ……………. denotes a mistake which breaks the 'rules' of an accounting concept or
principle, such as a posting to the wrong type of account.
3
Do you know? – INTRODUCTION TO TRANSACTION ACCOUNTING – CONT'D
 Posting to the correct accounts but using the wrong amount is an error of ……………..
 Posting an entry to the wrong account is an error of …………………
 The trial balance is a list of ……………….
 The trial balance will detect errors of …………….
 When a trial balance does not balance the difference is temporarily posted to a ……………..
 Corrections involving equal debits and credits are made using a ………………
 Postings to the wrong account can be caused by incorrect……..…..
 Possible pitfalls
Write down the mistakes you know you should avoid.
4
QUESTIONS
Did you know? – INTRODUCTION TO TRANSACTION ACCOUNTING
Could you fill in the blanks? The answers are in bold. Use this page for revision purposes as you approach
the exam.
 Whenever property changes hands there has been a business transaction.
 A cash transaction is one where the buyer pays cash to the seller at the time the goods or services are
transferred.
 A credit transaction is a sale or purchase which occurs some time earlier than cash is received or paid.
 The purpose of the accounting system is to record, summarise and present the information contained in
the documentation generated by transactions.
 A discount is a reduction in the price of goods below the amount at which those goods would normally
be sold to other customers of the supplier.
– A trade discount is a reduction in the amount of money demanded from a customer.
– A settlement discount is an optional reduction in the amount of money payable by a customer.
 Many business transactions involve sales tax.
– Output tax is sales tax charged on goods and services sold by a business.
– Input tax is sales tax paid on goods and services bought in by a business.
 Profit is the excess of income over expenditure. When expenditure exceeds income, the business is running at
a loss.
 A business must always be treated as a separate entity from its owners when preparing accounts.
 The accounting equation is that the assets and liabilities of a business must always be equal.
– Assets = (Capital introduced + retained profits – drawings) + liabilities
 Double entry bookkeeping reflects the fact that for every debit, there is an equal credit. Therefore the
total value of debit entries will always be equal to the total value of credit entries.
 At any point in time a business will have assets, liabilities and capital.
– Non-current assets are for use within a business.
– Current assets are used to generate cash.
– Liabilities are payables of the business.
 Books of prime entry are used to keep records of source documents. Examples include the sales day
book, the purchase day book and the cash book.
 Entries are posted from the day books to the general (or nominal) ledger.
 Accounting packages can update ledgers simultaneously if the ledgers are integrated.
 Customer and supplier information which is stored may be subject to data protection legislation.
 The journal is a record of unusual movements between accounts.
 An error of transposition occurs when two digits in an amount are recorded the wrong way round.
 An error of omission means failing to record a transaction at all.
 An error of principle denotes a mistake which breaks the 'rules' of an accounting concept or principle,
such as a posting to the wrong type of account.
 Posting to the correct accounts but using the wrong amount is an error of original entry.
 Posting an entry to the wrong account is an error of commission.
5
Did you know? – INTRODUCTION TO TRANSACTION ACCOUNTING – CONT'D
 The trial balance is a list of account balances.

 The trial balance will detect errors of transposition.
 When a trial balance does not balance the difference is temporarily posted to a suspense account.
 Corrections involving equal debits and credits are made using a journal.
 Postings to the wrong account can be caused by incorrect coding.
– Confusing cash and credit transactions
– Confusing trade and cash (or settlement) discounts
– Ignoring sales tax in double entry bookkeeping
– Not being able to distinguish between non-current and current assets
– Not understanding the purpose and format of journals
– Not being certain about debit and credit postings to control accounts
– Not knowing which accounts will normally have a debit balance (such as receivables ledger
control) and which will normally have a credit balance (such as payables ledger control).
IMPORTANT
Some accounting systems have a separate receivables and payables ledger and the double-entry
posting in the general ledger goes to the receivables ledger or payables ledger control account.
Questions which ask you to reconcile the control account balance to the receivables or payables ledger
are based on this type of system.
However, some computerised systems have the receivables and payables ledgers as part of the double
entry system, so no separate control account is needed. For instance, a question which says that an
invoice is posted DR receivables ledger, CR sales, is based upon this type of system. You will be able
to tell from the question what is needed, but be aware of the distinction.
6
QUESTIONS
1.1 What is the primary function of a credit sales invoice which a customer has received from a supplier?
A It is a receipt for money paid
B It is a demand for immediate payment by the supplier
C It is a record of goods purchased by the customer
D It is a demand for payment within an agreed time from the supplier (2 marks)
A
Approaching the answer
Use this answer plan to construct your answer if you are stuck.
Step 1 If you have never done a Multiple Choice Question (MCQ) before, do not panic! The chances
are that you will have done something similar in a magazine quiz or seen a television quiz
programme in the same format (eg Who Wants to be a Millionaire). The principle is the same
for these MCQs. You are given four possible answers, one is correct and the other three are
wrong (distracters).
Step 2 Read the question and work out what is required. Try not to read the possible answers at this stage.
Step 3 Re-read the question and decide on your own answer.
Step 4 Read the four options and see if one matches your own answer. If yes, then select that option.
Step 5 If none of the options matches (or is close to) your answer, adopt the following method.
– Re-read the question to ensure that you understand it and are answering the correct
requirement
– Exclude the obvious wrong answers
– Consider which of the remaining answers is the most likely to be correct
Step 6 If you are still in doubt, remember that you will not be penalised for a wrong answer in the
exam. You just will not get any marks for a wrong answer. Therefore, if you really do not know,
a guess is better than leaving out a question. However, if you are guessing, do not think that as
the last few answers have been (a), (b) and (c) that the answer must be (d)! The examining
team may well have decided that the correct answer to every question is (a).
Notes
1 In this Kit, if you find that you are guessing the answers to most of the questions, then you need to go
back to your Interactive Text and revise.
2 In the exam, you could leave any questions that you are having trouble with and do all the questions
that you can answer fairly easily. You should then have time at the end to go back and deal with the
problem questions. Remember that you have 2.4 minutes per question. If you spend 2 minutes on each
question, this will leave you 20 minutes at the end to go back over troublesome questions.
1.2 Which of the following correctly describes the function of a credit note issued by a supplier to one of
its customers?
A A demand for payment
B An agreed allowance which can be deducted from the next invoice payment
C A loan available to the customer
D A document used by the supplier to cancel part or all of a previously issued invoice (2 marks)
7
1.3 Which of the following correctly describes the term 'debit note'?
A It is issued by a supplier to a customer to demand payment in full for goods supplied
B It is issued by a customer to a supplier to request a credit note
C It is issued by a customer when goods are delivered
D It is issued by a customer to a supplier to cancel an invoice received (2 marks)
1.4 What is a 'trade discount'?

A A reduction in the amount of an invoice given by the supplier if a customer pays promptly
B A price reduction which a supplier applies to a selection of goods on special offer
C A refund which a supplier agrees with an individual customer after an invoice has been sent at
full price
D A reduction in the invoice price by a supplier because of the terms of trade agreed with an
individual customer (2 marks)
1.5 Which of the following correctly explains sales tax?

A A tax on business profits
B A tax levied on the sale of goods and services which is administered and collected by the
government
C A tax levied on the sale of goods and services which is administered by the government
D A tax levied on the sale of goods and services which all businesses must pay (2 marks)
1.6 What is the purpose of a remittance advice?

A It provides details of amounts being paid
B It identifies goods that have been received by the business
C It identifies goods that have been despatched by the business
D It provides details of cheques to be issued (2 marks)
1.7 The bookkeeper of a business makes the following entries in the books of account:
DR Office premises $500,000
CR Payables $500,000
These entries record which of the following business transactions?
A The business has taken out a bank loan to refurbish the head office
B The business has paid an outstanding invoice for repairs to office premises
C The business has purchased a non-current asset on credit
D The business has purchased a non-current asset for cash (2 marks)
1.8 Xero Co purchases goods with a list price of $100,000 subject to a 5% trade discount. Xero Co is
allowed 2.5% cash discount for payment within 30 days from invoice date.
Assuming the discount is taken, how much will Xero pay? (Ignore sales tax.)
A $92,625
B $102,375
C $97,500
D $95,000 (2 marks)
8
QUESTIONS
1.9 Charlie Co starts a business with $50,000 cash, buying inventory $10,000 from cash and paying
business expenses of $1,000. Inventory is purchased on credit for $5,000.
Following these transactions, what is the capital of Charlie Co's business?
A $39,000
B $49,000
C $50,000
D $54,000 (2 marks)
1.10 A business receives an accountant's bill for $500.

Which of the following statements correctly shows the effect upon the accounting equation of the
business, assuming the bill is unpaid?
A Assets decrease, liabilities increase
B Capital decreases, liabilities increase
C Capital increases, liabilities decrease
D Assets decrease, capital decreases (2 marks)
1.11 Which of the following statements concerning a debit entry is correct?

A It records a decrease in assets
B It records a business expense
C It records a sale
D It records an increase in the liabilities of a business (2 marks)
1.12 Which of the following statements concerning credit entries is correct?

A Credit entries record decreases in capital or liabilities
B Credit entries record increases in assets
C Credit entries record increases in profits
D Credit entries record increases in expenses (2 marks)
1.13 Which of the following correctly records the repayment of a loan of $10,000 plus outstanding interest
$500?
A Assets – $10,500, Capital – $10,500
B Assets + $10,500, Liabilities + $10,500
C Assets – $10,500, Liabilities – $10,000, Expenses + $500
D Assets – $10,500, Liabilities – $10,500 (2 marks)
1.14 What is the most appropriate definition for a trade receivable?

A A person owing money to the business in return for goods supplied
B A person to whom the business owes money in return for goods supplied
C A person to whom the business owes money which was lent to finance the trading operations of
the business
D A person who has purchased goods from the business (2 marks)
1.15 Which of the following is an example of an item of revenue expenditure?

A Insurance of goods in transit to customers
B Import duties charged on a new non-current asset for the business
C Delivery and installation costs of a new non-current asset
D A new delivery van (2 marks)
1.16 A business buys a machine for $500 (cash) and pays machinery insurance $50 (cash).
Which of the following shows the correct double entry for this transaction?
A Debit machinery $550, credit cash $550
B Debit cash $550, credit machinery $550
C Debit machinery $500, credit cash $550, debit insurance $50
D Debit cash $550, credit machinery $500, credit insurance $50 (2 marks)
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1.17 Which ONE of the following statements is correct?

A Sales invoices are recorded in the sales returns daybook and are summarised and posted to the
receivables ledger
B Purchase invoices are recorded in the purchase daybook and are summarised and posted to the
payables ledger
C Cash received is recorded in the cash book and posted to the journal
D Adjustments to the financial statements are recorded in the cash book and summarised and
posted to the general ledger (2 marks)
1.18 Which of the following is an example of a prime record originating outside the business?
A The cash book
B The bank statement
C The sales day book
D The purchase returns day book (2 marks)
1.19 Y Co keeps a receivables control account as part of its accounting system. Invoices totalling $5,000 are
raised in March, an irrecoverable debt of $100 is written off and customers pay cash $3,000.
Which of the following entries correctly record these transactions?
A Debit receivables control account $5,000, credit sales $5,000, debit cash $3,000, credit
irrecoverable debts $100, credit receivables control account $3,000
B Debit receivables control account $5,000, credit sales $5,000, debit cash $3,000, credit
receivables control account $3,100, debit irrecoverable debts $100
C Debit sales $5,000, credit receivables control account $5,000, debit cash $3,000, debit
irrecoverable debts $100, credit receivables control account $3,100
D Debit receivables control account $5,000, credit sales $5,000, debit cash $3,000, credit
receivables control account $3,000 (2 marks)
1.20 In the receivables ledger of X Co, the account of Y Co has a credit balance of $5,000.
Which of the following is a plausible explanation for this?
A Y Co has been sent an invoice for $5,000
B Y Co has supplied goods to X Co and these have been correctly recorded by X Co
C Y Co has paid X Co $5,000 twice in error
D Y Co has an overdue balance of $5,000 owing to X Co (2 marks)
1.21 Which of the following statements concerning the receivables ledger control account is INCORRECT?
A It helps to ensure that all transactions with customers have been correctly recorded
B It makes the detection of errors easier
C It helps to reduce the chance of a fraud in relation to transactions between the business and its
customers
D It ensures that errors cannot occur in relation to transactions between the business and its
customers (2 marks)
1.22 A sales tax registered business sells goods $1,200 plus $240 sales tax and purchases goods costing
$200 plus sales tax $40. Assume that these are the only transactions in the sales tax period and that
input tax is fully recoverable.
How much sales tax is due/payable to/from the government?
A Payable $200
B Recoverable $200
C Payable $240
D Payable $280 (2 marks)
10
QUESTIONS
1.23 Which of the following statements is correct?

A Output tax charged to a customer is debited to the sales tax account.
B A machine is purchased for $200 plus sales tax $40. The machinery account is debited with
$200 and the sales tax account debited with $40. The sales tax is irrecoverable.
C If the sales tax account has a debit balance at the end of the sales tax quarter, the balance is
recoverable from the government.
D The sales figure in the statement of profit or loss of a sales tax registered business includes sales
tax. (2 marks)
1.24 Accounts are classified according to the nature of the transactions which are recorded in them.
Which of the following classifications is INCORRECT?
A Insurance is recorded in a general ledger account
B Rents received are recorded in a general ledger account
C Sales transactions with individual customers are recorded in a personal ledger
D Control accounts are kept in the personal ledgers (2 marks)
1.25 Which of the following statements explains the term 'memorandum account'?
A One used for the correction of errors
B One use to record transactions between the business and its proprietor(s)
C An account used to record information, which does not form part of the double entry system
D An account used to summarise transactions before they are posted to the ledgers
(2 marks)
1.26 A machine (cost $5,000) is bought on credit. Subsequently, $1,000 of the debt is paid by cheque.
Which of the following correctly records the transactions?
A Debit payables $5,000, credit machine $5,000. Debit bank $1,000, credit payables $1,000
B Debit payables $5,000, credit machine $5,000. Debit payables $1,000, credit bank $1,000
C Debit machine $5,000, credit payables $5,000. Debit bank $1,000, credit payables $1,000
D Debit machine $5,000, credit payables $5,000. Debit payables $1,000, credit bank $1,000
(2 marks)
1.27 What is the correct entry for the total of a discount received column in a cash book is? (assume a
control account is kept)
A Debited to discount received and credited to purchases
B Credited to purchases and debited to cash
C Credited to discount received and debited to payables control account
D Credited to cash and debited to purchases (2 marks)
1.28 Miranda was reconciling her payables control account as at 31 March and discovered that the total of
her purchase day book for March was overstated by $5,000.
What is the effect of correcting this error in Miranda's reconciliation?
Control account List of supplier balances
A Credit $5,000 No effect
B Debit $5,000 No effect
C Credit $5,000 Increased
D Debit $5,000 Decreased (2 marks)
11
1.29 What is the prime entry record for returns outwards?

A Sales returns day book
B The journal
C The cash book
D The purchase returns daybook (2 marks)
1.30 What is the prime entry record for credit notes sent out?
A Sales returns day book
B General ledger
C Sales day book
D Purchase returns day book (2 marks)
1.31 Which of the following should appear on the credit side of a suppliers account in the payables ledger?
A Payments made
B Cash received
C Discounts received
D Purchase invoices received (2 marks)
1.32 The following entries appear in a cash account in March.

$
Payments by customers 15,000
Rents received 250
Insurance paid 150
Drawings 700
Capital paid 2,000
The balance at 1 March was $2,000 (in hand).
What was the closing balance at 31 March?
A $14,400
B $18,400
C $15,800
D $10,400 (2 marks)
1.33 Which of the following statements concerning journal entries is correct?

A All journal entries are made for routine transactions and as such need not be authorised
B Journal entries are used exclusively for the correction of errors
C The journal is a ledger account in the accounting system of a business
D All journal entries must have a narrative explanation (2 marks)
1.34 What is a trial balance?

A A list of ledger balances extracted from customer accounts
B A list of ledger balances extracted from accounts which helps to ensure that the bookkeeping has
been accurate
C An accounting document which a business must prepare
D A list of all the transactions which have occurred in a period taken from ledger accounts
(2 marks)
1.35 Which of the following statements is correct?

A The balance on a bank loan account will appear in the debit column of a trial balance
B The sales returns account balance will appear in the credit column of a trial balance
C Loan interest paid will appear in the debit column of a trial balance
D Purchase returns will appear in the debit column of a trial balance (2 marks)
12
QUESTIONS
1.36 What is the correct explanation of a 'control total'?

A A total which is used to ensure that no errors are present in data input to an accounting system
B A total which is used to make sure the value of transactions processed agrees to a total
previously calculated
C An amount posted to a control account
D The totals of a trial balance which should then agree to each other (2 marks)
1.37 The following balances have been taken from the trial balance of XYZ.
What is the trial balance total on the debit side?
$
Rent paid 1,800
Capital 15,000
Purchases 10,000
Sales 12,000
Wages 5,000
Sundry expenses 1,000
Cash 9,200
A $26,000
B $29,000
C $42,000
D $27,000 (2 marks)
1.38 Which of the following is an example of an error of commission (assuming a control account is not
kept)?
A A receipt of $25 from J. Gee entered in G. Jay's account as a credit and debited to cash
B A purchase of cleaning materials recorded as DR cash $50, CR cleaning materials $50
C An invoice for $1,300 is lost and not recorded at all
D An invoice for $2,500 sales is posted as $2,050 (2 marks)
1.39 Which of the following errors would be a possible reason for a trial balance failing to agree?
A Sales $500 entered correctly, but entered as $1,500 in the receivables ledger control account
B A purchase of $550 on credit not being recorded
C Cash wages being recorded as debit: cash $250, credit: wages $250
D An asset purchase $750 being recorded as debit: machinery repairs $750, credit: cash $750
(2 marks)
1.40 Which of these would be an error of principle?

A Plant and machinery purchased was credited to an assets account
B Plant and machinery purchased was debited to the purchases account
C Plant and machinery purchased was debited to the equipment account
D Plant and machinery purchased was debited to the correct account but with the wrong amount
(2 marks)
1.41 A suspense account shows a credit balance of $130. What could this be due to?
A Omitting a sale of $130 from the receivables ledger
B Recording a purchase of $130 twice in the purchases account
C Failing to write off an irrecoverable debt of $130
D Recording an electricity bill paid of $65 by debiting the bank account and crediting the electricity
account (2 marks)
13
1.42 What type of information is regulated by data protection legislation?

A Information about individuals
B Master files
C Archived business ledgers
D Business accounts (2 marks)
1.43 Which of the following are appropriate ways of dealing with sensitive or confidential business
documents that are no longer needed?
(i) Microfilm or microfiche for long-term storage
(ii) Archiving documents for storage
(iii) Secure destruction
(iv) It can be thrown away
A (i) only
B (i) and (ii) only
C (i), (ii) and (iii) only
D (i), (ii), (iii) and (iv) (2 marks)
1.44 Which of the following statements in relation to computerised data entry is/are true?
1 Automatic data entry such as scanning avoids transcription errors.
2 Computerisation avoids data entry errors caused by malicious intent on the part of staff.
Statement 1 Statement 2
A Correct Correct
B Correct Incorrect
C Incorrect Correct
D Incorrect Incorrect (2 marks)
1.45 What is the term for a computer program that deals with one particular part of a business accounting
system?
A Package
B Suite
C Module
D Software (2 marks)
(2 marks per question = 90 marks)
14
QUESTIONS
Do you know? – RECORDING AND ACCOUNTING FOR CASH TRANSACTIONS
 A …………………….. shows which invoices a payment covers.
 A receipt is a document given by the seller to the ………. when goods change hands in exchange for
…………. .
 Payment for goods sold can be made by ………, …………. or .……………….. . Other types of
payment by customers include banker's draft, …………. order and……… debit.
 Internet payments are made using ………… cards and ………….. cards or by ……………….
 Clearing is the mechanism for obtaining ………… for cheques.
 Security procedures when banking cash should include ……. the time of the visit to the bank, varying
the ………………….. taking the money there, sending more than one person and using a …………
firm.
 …………………..……. help to control cash receipts by checking the business cash book to the bank
statement.
 Cash receipts are posted from the cash book to the ………………… .
 An analysed cash book is a book of ………. entry.
 Controls over payments will include …………………. of the payment, cheque requisition forms and
…………….. documents.
 An ………………………… is used to reimburse employees' expenses.
 Payment can be made in the same ways that the business receives monies for goods sold. Of particular
importance are cheques and ……… .
 When recording payments, an analysed cash book is used to split payments between sales tax,
payments to suppliers, expenses, discounts …………., cash purchases and petty cash.
 Totals are posted from the ……. book to the general ledger.
 Petty cash should be used for ……… items of expense.
 Petty cash must be kept secure and all payments must be properly ………….. .
 An …………. system has a maximum amount of money in petty cash, usually enough to cover
payments for about one month.
 Petty cash transactions are recorded and analysed in the …………… book.
 A …………………….….. compares the balance of cash in the business records to the balance held by
the bank.
 Any errors or ……………. found should be adjusted in the cash book.
 The corrected balance in the cash book should be reconciled to the balance on the bank statement by
taking account of ……… differences.
15
Did you know? – RECORDING AND ACCOUNTING FOR CASH TRANSACTIONS
the exam.
 A remittance advice shows which invoices a payment covers.
 A receipt is a document given by the seller to the buyer when goods change hands in exchange for
payment.
 Payment for goods sold can be made by cash, cheque or credit card. Other types of payment by
customers include banker's draft, standing order and direct debit.
 Internet payments are made using credit cards and debit cards or by direct transfer.
 Clearing is the mechanism for obtaining payment for cheques.
 Security procedures when banking cash should include varying the time of the visit to the bank, varying
the member of staff taking the money there, sending more than one person and using a security firm.
 Bank reconciliations help to control cash receipts by checking the business cash book to the bank
statement.
 Cash receipts are posted from the cash book to the general ledger.
 An analysed cash book is a book of prime entry.
 Controls over payments will include authorisation of the payment, cheque requisition forms and
supporting documents.
 An expenses claim form is used to reimburse employees' expenses.
 Payment can be made in the same ways that the business receives monies for goods sold. Of particular
importance are cheques and BACS.
 When recording payments, an analysed cash book is used to split payments between sales tax,
payments to payables, expenses, discounts received, cash purchases and petty cash.
 Totals are posted from the cash book to the general ledger.
 Petty cash should be used for small items of expense.
 Petty cash must be kept secure and all payments must be properly authorised.
 An imprest system has a maximum amount of money in petty cash, usually enough to cover payments
for about one month.
 Petty cash transactions are recorded and analysed in the petty cash book.
 A bank reconciliation compares the balance of cash in the business records to the balance held by the
bank.
 Any errors or omissions found should be adjusted in the cash book.
 The corrected balance in the cash book should be reconciled to the balance on the bank statement by
taking account of timing differences.
– Forgetting that all the ways of receiving money can also be used to make payments.
– Bank reconciliations are important as there may be computational questions in the exam.
– Ignoring controls procedures. Exam questions often ask about these.
– Ignoring sales tax.
16
QUESTIONS
2.1 Which of the following is NOT a method of payment by a customer?

A A cheque
B A cheque guarantee card
C A credit card
D A debit card (2 marks)
2.2 Which of the following combinations describe acceptable forms of security procedures for cash
banking?
(i) Night safes
(ii) Frequent banking at the same time
(iii) Security firm's collections
(iv) Banking by cashiers
A (i), (ii), (iii)
B (i), (iii) only
C (ii), (iii), (iv)
D (i), (iv) only (2 marks)
2.3 Assume you are selling goods, which have a high value, to a customer. Which of the following
methods of payment is most secure?
A A credit card
B A credit sale
C A cheque
D A banker's draft (2 marks)
2.4 Which of the following features on a cheque guarantee card should be in agreement with a cheque
tendered by a customer?
(i) Amount guaranteed
(ii) Customer name/signature
(iii) Account number
(iv) Bank sort code
A (ii), (iii), (iv) only
B (i), (ii), (iv) only
C (i), (ii), (iii), (iv)
D (i), (ii), (iii) only (2 marks)
2.5 Which of the following describes the features of an EFTPOS system?

A The organisation can invoice its bank, electronically, for the value of goods sold in a trading
period
B EFTPOS acts as a form of on line validation of cheques rendered by customers
C Funds are transferred automatically from a customer's bank account to the organisation's bank,
when goods are purchased
D EFTPOS system will initiate a payment to the organisation at the end of a trading period
(2 marks)
2.6 When a customer deposits cash at a bank, what is the nature of the contractual relationship?
A Receivable/Payable
B Bailor/Bailee
C Principal/Agent
D Mortgagor/Mortgagee (2 marks)
17
2.7 Which of the following is NOT a duty which a customer owes to a bank?
A To check statements received from the bank
B To inform banks when a cheque book is stolen or lost
C To repay overdrafts on demand if required
D To operate their account with care to minimise the risk of fraud (2 marks)
2.8 As a general rule, banks must keep customers' affairs confidential.

Which of the following is NOT a valid reason for disclosure?
A When a customer has given permission to a third party to obtain a 'bankers reference'
B When there is a public duty to make disclosure
C When the bank suspects the customer is engaged in illegal activities
D When disclosure is specifically required by statute (2 marks)
2.9 What is the bank clearing system?

A It is the mechanism for obtaining payment for cheques
B It moves cash between banks
C It sets credit levels for banks' business customers
D It arranges long term loans for bank customers (2 marks)
2.10 Which of the following are reasons for a bank returning or dishonouring a cheque?
(i) Words and figures differ
(ii) Cheque less than guaranteed amount
(iii) Cheque and guarantee card stolen
(iv) Cheque unsigned
A (i), (ii), (iii), (iv)
B (i), (iii), (iv)
C (i), (ii), (iv)
D (ii), (iii), (iv) (2 marks)
2.11 Which of the following items will appear in the firm's cash book?
A Irrecoverable debts written off
B Receipts from the sale of surplus equipment
C Credit notes
D Sales invoices (2 marks)
2.12 Which of the following correctly records discount received?

(i) DR discount received
(ii) CR discounts received
(iii) DR suppliers' accounts
(iv) CR suppliers' account
A (ii), (iii)
B (i), (iv)
C (ii), (iv)
D (i), (iii) (2 marks)
18
QUESTIONS
2.13 During March, a business has the following transactions. Credit sales $15,000, receipts from customers
$10,000, irrecoverable debts written off $500.
Which of the following entries correctly record these transactions?
(i) DR sales $15,000, CR receivables control $15,000
(ii) DR bank $10,000, CR receivables control $10,000
(iii) DR irrecoverable debts $500, CR receivables control $500
(iv) CR sales $15000, DR receivables control $15,000
A (i), (ii), (iii)
B (ii), (iii), (iv)
C (i), (iii), (iv)
D (ii), (iv) only (2 marks)
2.14 What is the purpose of an analysed cash book?

A To record sales and purchases
B To ensure petty cash payments are recorded correctly
C To record entries from the bank statements received by the organisation from its bank
D To ensure that receipts and payments are summarised under suitable headings for posting
purposes (2 marks)
2.15 In a computerised receivables ledger, which of the following is classified as variable data in a
customer account?
A Account number
B Account balance
C Credit limit
D Customer name (2 marks)
2.16 Which of the following is NOT an example of a control over payments made by an organisation?
A Scrutiny of adverse spending variances on a budget report
B Ensuring each request for payment is supported by documentary evidence
C Making sure each payment is authorised
D Limiting the authority of persons approving payments (2 marks)
2.17 Which of the following is NOT a valid reason for using a cheque requisition form to initiate a payment?
A Some suppliers do not issue invoices
B The accounts department has lost the invoices
C The invoice has not been received but the supplier must be paid immediately
D It is necessary to send a cheque with the order for suppliers (2 marks)
2.18 What is a bank mandate form?

A This is an instruction to a bank to make a payment direct to a supplier
B A list of personnel within a company authorised to sign cheques
C Names and specimen signatures of individuals authorised to sign cheques supplied to a bank
D A request to open a bank account (2 marks)
2.19 Which of the following statements concerning direct debit payments is correct?
A They appear on the bank statement and need not be entered in the cash book
B They are initiated by the paying company
C They are picked out from the bank statement and recorded in the cash book
D They are totalled at the year end and entered in the cash book as an annual figure at the year end
(2 marks)
19
2.20 Which of the following is a characteristic of a banker's draft?

A It can be stopped after issue
B It is signed by the directors of the company making the payment
C It is a secure form of payment for the recipient
D It provides a cheap source of finance for high value purchases (2 marks)
2.21 Which of the following is NOT a characteristic of a standing order?

A Used to make regular payments from an account
B The payment amount is fixed
C The recipient of the payment initiates each payment
D The amount of the payment can be varied (2 marks)
2.22 What is a 'pro forma' invoice?

A This is a document provided by a supplier to acknowledge an order
B A document which is provided by a supplier where payment with order is required
C A document which is issued when the purchaser and supplier have not finally settled a price
D One used for export sales (2 marks)
2.23 What is a 'remittance advice'?

A A document which is sent to a supplier containing detailed delivery instructions
B A document used to confirm a telephone order
C A document sent with a payment explaining what a payment represents
D A document prepared by a supplier on a regular basis listing the outstanding amounts and
payments received in the most recent trading period (2 marks)
2.24 Which of the following is the term used to describe the deployment of staff so that no one person has
overall control over financial transactions?
A Prevention of error
B Segregation of duties
C Prevention of fraud
D Internal check (2 marks)
2.25 Which of the following statements, concerning payments to credit suppliers recorded in the cash book,
is correct?
A They are analysed according to the type of payment
B They are entered on the debit side of the cash book
C Discounts received are not recorded in the cash book
D The amount after discounts received is entered in the cash book and discounts received are
entered in a separate column (2 marks)
2.26 You receive a cheque from a customer in payment which is banked. The cheque is then returned as
unpaid.
What is the correct accounting entry for this (assuming you take no other action)?
A Debit your cash book and observe a debit on your bank statement
B Credit your cash book and observe a credit on your bank statement
C Identify a debit on your bank statement and make a credit entry in the cash book
D Identify a credit on your bank statement and make a debit entry in the cash book (2 marks)
20
QUESTIONS
2.27 Which of the following are characteristics of a direct debit?

(i) Used for regular payments
(ii) Recipient initiates each payment
(iii) Amount of each payment is fixed
(iv) Direct debit instruction is sent by company to supplier
A (i), (ii) only
B (ii), (iv) only
C (i), (ii), (iii)
D (i), (ii), (iv) (2 marks)
2.28 Which of the following is an example of a payment which is most appropriate for settlement using
BACS?
A Paying a regular sum to a supplier
B Paying a regular, but variable sum to a supplier
C Paying wages and salaries to employees
D Making irregular payments to overseas suppliers (2 marks)
2.29 Which of the following describes the term 'petty cash'?

A Small payments in cash not dealt with through the business bank account
B A small float accessible by all members of staff for minor expenditure
C Used to reimburse employees for expenditure undertaken for business purposes
D Expenditure not subject to limits (2 marks)
2.30 Which of the following is an example of a payment which could be made out of petty cash? (The petty
cash float is $100.)
A Payment of an employee's parking fine whilst on company business – $25
B Purchase of a concrete mixer – $275
C The first instalment of a lease agreement ($15 per month) for office equipment
D Purchase of postage stamps – $7.57 (2 marks)
2.31 A petty cash imprest is $500. A spot check by the auditors of the petty cash revealed cash in hand of
$45. In addition valid vouchers to the value of $395 were produced by the cashier.
How much cash is missing?
A $60
B $455
C $395
D $350 (2 marks)
2.32 Your company has a petty cash imprest of $750, this is to be increased to $800. At the end of the
month the cash in hand was $57 and receipts and vouchers totalled $673. In addition the cash box
contained an IOU from a member of staff for $20.
How much cash is withdrawn from the bank to restore and increase the imprest?
A $723
B $800
C $743
D $653 (2 marks)
2.33 A petty cash purchase is made costing $79.20, inclusive of sales tax at 20%.
Which of the following entries is correct?
A DR expense $66.00, DR sales tax $13.20 CR cash $79.20
B DR cash $79.20, CR sales tax $13.20, CR expense $66.00
C DR expense $63.36, DR sales tax $15.84, CR cash $79.20
D DR cash $79.20, CR sales tax $15.84, CR expense $63.36 (2 marks)
21
2.34 Which of the following items will NOT appear on a petty cash voucher?
A Purpose of the expenditure and details
B Name and signature of petty cashier
C Name and signature of recipient
D Name and signature of person authorising payment (2 marks)
2.35 Which of the following items would be revealed when a bank reconciliation is performed? (Identify all
the items.)
(i) Unpresented cheques
(ii) Missing cheques
(iii) Standing orders
(iv) Direct debits
(v) Interest and charges
A (i), (ii), (iii), (iv)
B (i), (iii), (iv), (v)
C (i), (iii), (iv) only
D (i), (ii), (v) only (2 marks)
2.36 Which of the following correctly defines a 'bank statement'?

A A statement produced to agree the balance at bank with the cash book balance for a business
B One sent to customers of a bank itemising the account balances, payments and receipts for an
account in a month
C A record showing the cash balance of a business
D An analysis of payments and receipts for a business (2 marks)
2.37 XYZ has a bank statement showing an overdrawn balance of $300. The cash book shows a balance in
hand of $25, interest charged was $30 which had not been recorded in the cash book. There were no
unpresented cheques.
How much was the total of undeposited receipts cheques?
A $245
B $325
C $295
D $355 (2 marks)
2.38 The cash book of XYZ showed a balance in hand of $900. The bank statement showed a credit balance
of $1,100. Cheques paid in but not yet credited to the bank statement were $250.
What is the amount of the unpresented cheques?
A $450
B $50
C $250
D $200 (2 marks)
2.39 Which of the following will NOT appear in a bank reconciliation statement?
A Unpresented cheques
B Undeposited receipts
C Journal entries
D Bank errors (2 marks)
22
QUESTIONS
2.40 Which of the following are appropriate documents to send with a payment, to inform the recipient
what the payment is for and who it is from?
(i) Remittance advice
(ii) Bank giro credit form
(iii) Covering letter
(iv) Cheque requisition form
A (i) and (ii) only
B (iii) and (iv) only
C (i), (ii) and (iii)
2.41 When a business or an individual hands over cash to be paid into their bank account, which of the
following documents should be prepared?
A Cheque
B Standing order
C Paying-in slip
D Direct debit (2 marks)
23
24
QUESTIONS
Do you know? – RECORDING AND ACCOUNTING FOR CREDIT TRANSACTIONS
 The sales day book is used to keep a list of all the ……………. and ……………. sent out to customers
each day.
 The entries in the day books are posted to ……………. accounts in the receivables ledger.
 The double entry is completed by posting the daily totals from the day books. Sales day book totals are
posted DR Receivables control account, CR …………….. The sales returns day book totals are posted
DR Returns inwards, CR Receivables control account.
 If the business is sales tax registered, sales tax will need to be accounted for. The sales day book
postings would be DR Receivables control account, CR Sales (net of sales tax), CR sales tax account.
 The ……………. ledger contains the individual personal accounts showing what each customer owes to
the business.
 Control is kept over the receivables ledger by comparing the totals of the individual accounts with the
balance on the receivables control account.
 An ……………. of receivables breaks down the receivable balances on the receivables ledger into
different periods of outstanding debt.
 Old debts may be written off to …………….……………..
 The purchase day book is used to keep a list of all the invoices received from ……………. of goods and
services to the business.
 The purchase returns day book is used to keep a list of all …………….……… received from suppliers.
 The purchase day book will ……………. all invoices between different types of purchase and expenses.
 The entries in the day books are posted to ……………. accounts in the payables ledger.
 The double entry is completed by posting the daily totals from the day books. Purchase day book totals
could be posted DR Purchases, DR Expenses, DR Non-current, DR sales tax, CR Payables control account.
 The personal accounts, showing how much is owed to each supplier, are contained in the …………….
ledger.
 ……………. payables consist of those liabilities which relate to the trade of the business.
 Other payables include …………….…………….…………….…………….…………….……………. and
…………….……………..
 An age analysis of payables lists payables balances, analysed between different 'ages' of debt.
 ……………. entries offset balances on the receivables and payables ledgers which are in the names of
the same individual.
 Control accounts act as an …………….……………. on the accuracy of the accounting records.
 Control account ……………. should be carried out at regular intervals.
 The …………….……… control account provides a check on the accuracy of postings made to the
personal accounts in the receivables ledger.
 The ……………. control account provides a check on the accuracy of postings made to the personal
accounts in the payables ledger.
25
Did you know? – RECORDING AND ACCOUNTING FOR CREDIT TRANSACTIONS
the exam.
 The sales day book is used to keep a list of all the invoices and credit notes sent out to customers each
day.
 The entries in the day books are posted to personal accounts in the receivables ledger.
 The double entry is completed by posting the daily totals from the day books. Sales day book totals are
posted DR Receivables control account, CR sales. The sales returns day book totals are posted DR
Returns inwards, CR Receivables control account.
 If the business is sales tax registered, sales tax will need to be accounted for. The sales day book
postings would be DR Receivables control account, CR Sales (net of sales tax), CR sales tax account.
 The receivables ledger contains the individual personal accounts showing what each customer owes to
the business.
 Control is kept over the receivables ledger by comparing the totals of the individual accounts with the
balance on the receivables control account.
 An age analysis of receivables breaks down the receivable balances on the receivables ledger into
different periods of outstanding debt.
 Old debts may be written off to bad (irrecoverable) debts.
 The purchase day book is used to keep a list of all the invoices received from suppliers of goods and
services to the business.
 The purchase returns day book is used to keep a list of all credit notes received from suppliers.
 The purchase day book will analyse all invoices between different types of purchase and expenses.
 The entries in the day books are posted to personal accounts in the payables ledger.
 The double entry is completed by posting the daily totals from the day books. Purchase day book totals
could be posted DR Purchases, DR Expenses, DR Non-current, DR sales tax, CR Payables control
account.
 The personal accounts, showing how much is owed to each supplier, are contained in the payables ledger.
 Trade payables consist of those liabilities which relate to the trade of the business.
 Other payables include wages and salaries, income tax, sales tax, company tax, non-current assets,
overhead expenses and bank loans and overdrafts.
 An age analysis of payables lists payables balances, analysed between different 'ages' of debt.
 Contra entries offset balances on the receivables and payables ledgers which are in the names of the
same individual.
 Control accounts act as an internal check on the accuracy of the accounting records.
 Control account reconciliations should be carried out at regular intervals.
 The receivables control account provides a check on the accuracy of postings made to the personal
accounts in the receivables ledger.
 The payables control account provides a check on the accuracy of postings made to the personal
accounts in the payables ledger.
– Ignoring sales tax.
– Ignoring double entry bookkeeping – exam questions are set on the double entry postings.
26
QUESTIONS
3.1 XYZ Co has the following balances extracted from its returns inwards day book for a month. Total (inc
sales tax) $36,000, sales tax $6,000, net $30,000.
Which is the correct posting?
A DR sales returns $30,000, DR sales tax $6,000, CR receivables control account $36,000
B DR purchase returns $30,000, DR sales tax $6,000, CR payables control account $36,000
C DR sales returns $36,000, CR sales tax $6,000, CR receivables control account $30,000
D DR purchase returns $36,000, CR sales tax $6,000, CR payables control account $30,000
(2 marks)
3.2 What is meant by the term 'integrated receivables ledger'?

A Double entry processes no longer operate because this is an example of a computerised system
B Separate personal accounts are no longer maintained, control accounts only are kept
C Customer accounts are part of the double entry; general ledger and receivables ledger postings
are combined
D Customer and suppliers accounts are combined in one integrated ledger (2 marks)
3.3 Which of the following combinations correctly describes the need for personal accounts for customers
in a business?
(i) To deal with customer queries
(ii) To prepare statements
(iii) To monitor customer credit limits
(iv) To match cash received with invoices
A (i), (ii), (iii)
B (ii), (iii), (iv)
C (i), (iii), (iv)
D (i), (ii), (iii), (iv) (2 marks)
3.4 Which of the following is a valid reason for a debt being written off as irrecoverable?
A The customer has ceased trading
B The customer disputes the quality of goods supplied
C The customer has exceeded the account credit limit
D The customer has ceased trading and no dividend is expected from a liquidation
(2 marks)
3.5 What would irrecoverable debts written off appear as in the financial statements?
A An expense in the statement of financial position
B An expense in the statement of profit or loss
C A deduction from sales revenue
D A deduction from the receivables figure in the statement of financial position (2 marks)
3.6 What is an 'aged debt analysis'?

A An analysis of the length of time customers have traded with the business
B A summary of transactions on customers' accounts
C The total debt on the receivables ledger is broken down into different elements of outstanding
debt according to pre-determined time periods usually 30, 60, 90 days
D An analysis of all debts overdue for payment (2 marks)
3.7 How will a payables control account appear in the financial statements?
A An asset
B A liability
C An item of revenue in the statement of profit or loss
D An expense in the statement of profit or loss (2 marks)
27
3.8 Why is a personal account for a supplier kept?

A To facilitate payments to receivables
B To ensure the accounts are paid in full
C To check the amount due agrees to a statement received from the supplier, prior to payment
D To ensure all trade discounts are taken (2 marks)
3.9 Which of the following could create a debit balance on an account in the payables ledger?
A An underpayment to a supplier
B A duplicate payment of a supplier's account
C Trade discount received
D An overcharge on a supplier's invoice (2 marks)
3.10 If a credit controller needs to decide which debts need to be chased, which of the following could be
used?
A Age analysis of payables
B Age analysis of receivables
C Bank reconciliation
D Receivables control account (2 marks)
3.11 The following entries appeared in the receivables control account for June. Balance b/f 1 June $7,500,
sales $20,000, receipts from customers $8,000, irrecoverable debts written off $900.
What was the balance at 30 June?
A $3,600
B $19,500
C $20,400
D $18,600 (2 marks)
3.12 The following entries appeared in the payables control account for February. Balance b/f
1 February $1,700, purchases $18,000, paid to suppliers $10,000, discount received $1,200,
purchase returns $3,000.
What was the balance at 28 February?
A $5,500
B $2,100
C $11,500
D $7,900 (2 marks)
3.13 Which of the following items will appear as an item posted to the payables ledger control account?
A Irrecoverable debts written off
B Returns inwards of the period
C Trade discounts received in total in the period
D Settlement discounts received in total in the period (2 marks)
3.14 A business maintains a receivables ledger control account. A debt of $1,500 is to be written off.
Which of the following entries is correct (ignore sales tax)?
A Debit: personal account of the customer, credit: irrecoverable debts expense, $1,500
B Debit: irrecoverable debts expense, credit: receivables control account, $1,500
C Debit: receivables control account, credit: irrecoverable debts expense, $1,500
D Debit: irrecoverable debts expense, credit: personal account of the customer, $1,500
(2 marks)
28
QUESTIONS
3.15 What is a document sent to the customers at the end of a month to show the transactions that have
taken place and the amount owed known as?
A Sales analysis
B Age analysis of receivables
C Statement of account
D Receivables control account (2 marks)
3.16 If a purchase return of $48 has been wrongly posted to the debit of the sales returns account, but has
been correctly entered in the supplier's account.
How would this appear in the trial balance?
A The credit side to be $48 more than the debit side
B The debit side to be $48 more than the credit side
C The credit side to be $96 more than the debit side
D The debit side to be $96 more than the credit side (2 marks)
3.17 Which of the following acts as an internal check, or internal control, in the maintenance of accurate
accounting records:
(i) Trial balance
(ii) Bank reconciliation
(iii) Control account reconciliation
(iv) Segregation of duties
A (i) and (ii) only
B (iii) and (iv) only
3.18 Which of the following appears on the credit side of a purchase ledger control account:
A Purchases and other expenses
B Cash paid
C Discounts received
D Returns outwards to suppliers (2 marks)
29
30
QUESTIONS
Do you know? – PAYROLL
 A payroll is a list of employees and what they are …………... .
 ………. pay is what the employee earns and … pay is what they actually receive in cash or by transfer
to their bank account.
 ……… pay is the rate for the job, before overtime and bonuses.
 Payroll deductions include …………... deductions (income tax, …………...…………... contributions)
and …………... deductions (pension contributions, savings schemes, trade union subscriptions).
 By law, a payslip must show:
– Gross pay
– …………………….
– Net pay
– Employer's name
– Employee's name
 Wages can be paid automatically to employees by …………. (Bankers Automated Clearing Service).
 Payroll records will come under the provisions of ………………………… legislation.
31
Did you know? – PAYROLL
the exam.
 A payroll is a list of employees and what they are to be paid.
 Gross pay is what the employee earns and net pay is what they actually receive in cash or by transfer to
their bank account.
 Basic pay is the rate for the job, before overtime and bonuses.
 Payroll deductions include statutory deductions (income tax, benefit contributions) and other deductions
(pension contributions, savings schemes, trade union subscriptions).
 By law, a payslip must show:
– Gross pay
– Deductions (and what they are)
– Net pay
– Employer's name
– Employee's name
 Wages can be paid automatically to employees by BACS (Bankers Automated Clearing Service).
 Payroll records will come under the provisions of data protection legislation.
– Assuming payroll doesn't matter
– Ignoring the role of the personnel department
– Not being sure how to calculate the various elements of pay
– Not being sure how to deal with deductions
32
QUESTIONS
4.1 In some jurisdictions employers have a duty to collect what from employees' gross wages and salaries?
A Holiday pay
B Income tax for the self employed
C Income tax for the employed
D Sales tax (2 marks)
4.2 The payroll function in a business is important.

Which of these statements below will confirm this?
(i) Wage costs form a large proportion of total spending in a business
(ii) Employee relations are important
(iii) The company acts as a collector of tax
(iv) Security issues are involved
A (i), (ii), (iv) only
B (ii), (iii) only
C (iii), (iv) only
D (i), (ii), (iii), (iv) (2 marks)
4.3 An employee works under a guaranteed minimum piecework system based on output produced.
Which of the following explains this?
A Basic pay goes up in proportion to output
B Earnings are the same each pay period
C Basic earnings will increase as output increases above a guaranteed minimum level of earnings
D Under this system the wage cost per unit produced remains constant (2 marks)
4.4 Which of the following is an advantage of a piecework system?

A Output will increase and quality will be maintained
B Inspection costs will decrease
C Employees receive the same wage each week
D There is an incentive to work harder (2 marks)
4.5 An employee received a guaranteed minimum wage of $50 per week and works on a piecework system
where output is paid at $10 per unit. Time worked in excess of 40 hours is paid at $3 per hour. In a
given week the employee produced seven units and worked for 45 hours.
What is the employee's gross pay?
A $85
B $65
C $70
D $135 (2 marks)
4.6 Each month a company pays its sales staff commission of 3% on all sales up to the value of $100,000
and 5% on all sales over $100,000. In May 20X2 a member of the sales staff made total sales of
$125,000.
How much commission will she be paid for the month?
A $3,000
B $3,750
C $4,250
D $6,250 (2 marks)
33
4.7 An employee earns $24,000 per annum ($2,000 per month). In May a salary increase was agreed to
$26,400 per annum, which was backdated to 1 April. In addition, a 2% bonus of basic monthly salary
is payable if the company profits exceed a certain figure. The profit threshold was passed for May.
What is the employee's gross pay for May?
A $2,244
B $2,444
C $2,040
D $2,440 (2 marks)
4.8 Which of the following functions are performed by the personnel department in a large company?
(i) Recruiting and dismissing employees
(ii) Maintaining records of employment
(iii) Employee relations and welfare
(iv) Calculation and payment of wages
A (i) only
B (i) and (ii) only
4.9 Which of the following is an example of a non-compulsory disclosure on an employee payslip?

A Employee's national insurance number
B Gross pay
C The deductions from gross pay (and what they are for)
D The net pay (2 marks)
4.10 The following details have been extracted from the payroll records for the month of May:
$
Gross wages 25,500
Employer's benefit contribution 1,800
Employer's pension contribution 1,200
What is the correct journal for posting these details to the ledger accounts?
$ $
A DR Staff costs 28,500
CR Wages control 28,500
B DR Staff costs 27,300
C DR Staff costs 26,700
D DR Staff costs 25,500
(2 marks)
4.11 Which of the following are appropriate controls to help ensure the accuracy of payroll transactions?
(i) Reconciliation of payroll to bank statement and general ledger
(ii) Segregation of duties between payroll preparation and authorising payment
(iii) Cheque payments
(iv) Automated payments
A (i) only
B (i) and (ii) only
34

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Foundations in P

RECORDING FINANCIAL &

First edition May 2011

www.bpp.com/learning-media With current technology, things might seem a bit

Helping you with your revision ....................................................................................................... vii

Questions and answers

Marks Mins Question Answer

Part A: Introduction to transaction accounting

Business transactions and documentation

Questions 1.1 to 1.8 16 19 7 37

Assets, liabilities and the accounting equation

Questions 1.9 to 1.17 18 22 9 38

Recording, summarising and posting transactions

Questions 1.18 to 1.33 32 38 10 39

Completing ledger accounts and financial statements

Questions 1.34 to 1.45 24 31 12 41

Part B: Recording and accounting for cash transactions

Receiving and checking money

Questions 2.1 to 2.5 10 12 17 43

Banking monies received

Questions 2.6 to 2.10 10 12 17 43

Recording monies received

Questions 2.11 to 2.15 10 12 18 44

Authorising and making payments

Questions 2.16 to 2.23 16 19 19 44

Questions 2.24 to 2.29 12 14 20 45

Maintaining petty cash records

Questions 2.30 to 2.35 12 14 21 46

Questions 2.36 to 2.41 12 17 22 47

Part C: Recording and accounting for credit

The receivables ledger

Questions 3.1 to 3.7 14 17 27 48

Questions 3.8 to 3.10 6 7 28 49

Questions 3.11 to 3.18 16 24 28 49

Marks Mins Question Answer

Recording payroll transactions

Questions 4.1 to 4.11 22 26 33 50

Mixed bank 1: Questions 5.1 to 5.50 100 120 55 65

Helping you with your revision

BPP Learning Media – ACCA Approved Content Provider

Attempting mock exams

Using your BPP Practice & Revision Kit

Aim of this Practice & Revision Kit

Passing the FA1 exam

Doing the exam

Approach to examining the syllabus

The exam is structured as follows:

The computer-based examination

How do CBEs work?

Tackling Multiple Choice Questions

Using your BPP products

You can purchase these products by visiting.www.bpp.com/learning-media.

Do you know? – INTRODUCTION TO TRANSACTION ACCOUNTING

Do you know? – INTRODUCTION TO TRANSACTION ACCOUNTING – CONT'D

Did you know? – INTRODUCTION TO TRANSACTION ACCOUNTING

Did you know? – INTRODUCTION TO TRANSACTION ACCOUNTING – CONT'D

 The trial balance is a list of account balances.

Step 3 Re-read the question and decide on your own answer.

1.4 What is a 'trade discount'?