Accounting Multiple Choice Question – 7 December 2019

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

Accounting

A credit balance on Mr. Murphy’s account in a firm’s debtors ledger means that . . .

Select ONE answer:

  1. the amount owed by Murphy is a bad debt.
  2. one or more of Murphy’s cheques has ‘bounced’.
  3. the firm owes money to Murphy.
  4. a provision should be made specifically against Murphy’s account.

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. Not correct – If the amount owed by Murphy is considered to be a bad debt it should be written off in full, leaving a zero balance on his account. If the bad debt has not yet been written off, there would be a debit balance on Mr. Murphy’s account.
  2. Not correct – One or more of Murphy’s cheques may have ‘bounced’ but this, on its own, would not cause there to be a credit balance on Murphy’s account. The recording of a ‘bounced’ cheque from Mr. Murphy would increase the balance on his account relative to what it was before the bounced cheque was recorded. Although this could leave a credit balance on his account (if there was a higher credit balance on the account before the dishonoured cheque was recorded) this would not be normal and certainly, the existence of a credit balance on a debtor’s account does not indicate that a cheque from a debtor has been dishonoured.
  3. Correct – The normal balance on a debtor’s account – when the debtor owes money to the firm – is a debit balance. Therefore, the opposite – a credit balance – implies that the firm owes money to the debtor.
  4. Not correct – The normal balance on a debtor’s account – when the debtor owes money to the firm – is a debit balance. Therefore, the opposite – a credit balance – implies that the firm owes money to the debtor. There is, therefore, no possibility of not being paid the present balance. Consequently, there is no need to make a provision against this account.

 

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Author: stuart001uk2014

Referral marketing, business, economics and accounting s​pecialist & corporate mentor

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