Day: April 30, 2019

A sole trader incurred a loss of £10,000 during his most recent accounting period, yet had more money in his bank account at the end of the period than he had at the beginning of it.

Which of the following, on its own, could explain this?

Select ONE answer:

1. An increase in the amount of his stock over the course of the period.
2. The introduction of £15,000 new capital during the period.
3. His customers taking longer than normal to pay the amounts they owe to him.
4. The purchase of fixed assets during the period.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Any increase in stock over the course of the period would have to have been paid for either in cash or by cheque or else purchased on credit. In all of these cases, the cash balance would either not have changed or would have decreased.
2. Correct
3. Assuming that bills are being paid by the sole trader at the normal rate, customers taking longer to pay their bills will, over time, reduce the cash and/or bank balance(s) as money will be paid out at the normal rate but will be coming in at a slower rate.
4. The purchase of fixed assets would have to have been paid for either in cash or by cheque or else purchased on credit. In all of these cases, the cash balance would either not have changed or would have decreased.

 

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