Accounting Multiple Choice Question – 3 May 2019

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

If, in the accounts of a sole trader, £2,500 was debited to the purchases account instead of being debited to the drawings account, then….?

Select ONE answer:

  1. gross profit would be overstated.
  2. the total of expenses would be understated.
  3. net profit would be understated.
  4. capital would be understated.

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 3

  1. Purchases (and therefore the cost of sales) would be overstated. Therefore, gross profit would be understated.
  2. There would not be any effect on the total expenses.
  3. Correct – Purchases would be overstated because there would be a debit entry in the purchases account which shouldn’t be there. As the purchases figure is one of the components of the cost of sales figure, the cost of sales figure would also be overstated. Therefore, gross profit and consequently net profit would be understated.
  4. Closing capital (after deducting drawings) would be overstated because the amount of drawings deducted would be understated (because a debit entry has been omitted from the drawings account).

 

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