Accounting Multiple Choice Question – 2 May 2019

The proprietor of a firm took some of the firm’s stock for his own use without paying for it.

As he considered this to be his ‘right‘, he did not record this transaction.

The result of this is that when final accounts are prepared for the firm…?

Select ONE answer:

1. both its net profit and its closing stock will be overstated.
2. its net profit will be understated and its closing stock will be unaffected.
3. both its net profit and its closing stock will be understated.
4. its net profit will be overstated and its closing stock will be unaffected.

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. Not correct
2. Correct – The correct double-entry to record stock withdrawn from a firm by the proprietor, without him’ paying for it, is to debit the drawings account and credit the purchases account. If these entries are not made, then the figure for drawings in the balance sheet will be understated and the purchases figure in the trading account will be overstated, thus overstating the cost of sales and understating both the gross profit and the net profit. The closing stock figure will not be affected as this figure is arrived at as a result of stocktaking at the balance sheet date.
3. Not correct
4. Not correct

 

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