Month: December 2019

In the balance sheet of a sole trader, prepayments should be shown as . . .

Select ONE answer:

1. a deduction from capital.
2. part of creditors.
3. a deduction from current liabilities.
4. part of current assets.

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – Prepayments are amounts paid in advance in respect of expenses. As this means that the benefit of the money paid is yet to be received, prepayments are clearly an asset (a resource). As the advance payment normally covers no longer than the next 12 months, this asset is a current asset.

 

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In the balance sheet of a sole trader, accruals should be shown as part of . . .

Select ONE answer:

1. fixed assets.
2. drawings.
3. current assets.
4. current liabilities.

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – Current liabilities are amounts payable which are due to be discharged within one year. Accruals. being amounts owing in respect of expenses are normally due to be paid within one year. Therefore, accruals should be shown as part of current liabilities.

 

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Provision for discount allowed on outstanding debtors balances should be calculated, at an appropriate rate, on . . .

Select ONE answer:

1. total debtors net of any bad debts written off.
2. total debtors before the account is taken of bad debts.
3. total debtors less total creditors.
4. total debtors net of any bad debts written off and after deducting the cumulative amount of any provision for doubtful debts.

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – Cash discount (also known as settlement discount) is allowed only to those customers who pay their accounts on time. The total amount of debtors estimated to pay their accounts on time equals total debtors less bad debts (these customers already owe money for some time) less the provision for bad debts (an estimate of the amount currently owed by debtors which it is probable will never be received — let alone received in time to warrant a cash discount).

 

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When preparing financial statements, the bad debts account is ‘closed’ by a transfer to…

Select ONE answer:

1.  the balance sheet.
2. the profit and loss account.
3. the trading account.
4. the provision for bad debts 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 2

1. Not correct
2. Correct – The purpose of the bad debts account is to accumulate the total of the bad debts written off during an accounting period. As writing off bad debts is an expense, this total must then be charged in the profit and loss account. In general, the difference between the two sides of an expense or revenue account is transferred to the profit and loss account – a balance is not carried down (and therefore not brought down) on these types of accounts. On the other hand, the difference between the two sides of an asset or liability account (balance sheet accounts) is the balance on that account – to be listed in the trial balance and subsequently shown in the balance sheet.
3. Not correct
4. Not correct

 

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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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