Day: December 26, 2019

A firm records all transactions relating to the expense of both postage and stationery in a single ledger account.

At the beginning of a financial year. there is both a debit balance brought down of £50 and a credit balance brought down of £100 on the account.

Which of the following alternatives could explain this situation?

Select ONE answer:

1. The firm has a stock of stationery worth £50.
2. Postage is prepaid to the extent of £100.
3. The firm has a stock of stationery worth £100.
4. Postage payable amounts to £50.

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 1

1. Correct – In any ledger account, a debit balance brought down represents either an asset or an expense and a credit balance brought down represents either a liability or income. Since the balance on an expense account is either an accrual or a prepayment, the £50 balance has to be a prepayment (asset) and the £100 balance has to be an accrual (liability). This rules out options B (£100 asset), C (£100 asset) and D (£50 liability). When the stationery expense is prepaid, there is a stock of stationery remaining at the end of the year.
2. Not correct
3. Not correct
4. Not correct

 

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