Month: December 2019

Relative to not having a provision for bad or doubtful debts, the existence of such a provision . . .

Select ONE answer:

1. increases the total of current liabilities.
2. reduces the cost of sales.
3. reduces the total of current assets.
4. None of the above.

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct – The existence of a provision for bad or doubtful debts does not affect current liabilities.
2. Not correct – The existence of a provision for bad or doubtful debts does not affect the cost of sales.
3. Correct – The amount of any provision for bad or doubtful debts is deducted from the debtors total which is shown as a current asset in the balance sheet. Because it is deducted, it reduces the total of current assets (relative to what the total would be if the provision was not deducted).
4. Not correct

 

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The rationale for making a provision in respect of doubtful debts is that the provision . . .

Select ONE answer:

1. is an estimate of future bad debts.
2. records the expense of bad debts as they are incurred.
3. matches the estimated cost of future bad debts against the revenue earned in giving rise to the potential bad debts
4. records bad debts without taking them out of the showing the full amount owed by debtors as a current ‘books’ of an entity, thus asset.

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct -A provision for bad debts is calculated by reference to the current level of debtors. These debtors have arisen (at least principally) because of sales in the current accounting period. The total of these sales is included as revenue in the profit and loss account. However, as all of these debtors may not pay, this amount of revenue is overstated. It is therefore appropriate to offset this in part by a charge to the profit and loss account.
4. Not correct

 

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If, in the case of an engineering firm, the cost of acquiring a vehicle is inadvertently debited to the motor expenses account in the nominal (general) ledger . . .

Select ONE answer:

1. the total of current assets will be understated.
2. the total of current liabilities will be overstated.
3. the total of motor expenses will be understated.
4. the total of fixed assets will 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 4

1. Not correct – the total of current assets will not be affected.
2. Not correct – the total of current liabilities will not be affected.
3. Not correct – the total of motor expenses will be overstated.
4. Correct

 

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In the case of a newsagent, which of the following is a revenue receipt?

Select ONE answer:

1. The proceeds of the sale of plant and equipment.
2. Money received from an insurance company as a result of crashing a delivery vehicle.
3. A refund received from a supplier as compensation for damaged stock supplied.
4. None of the above.

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 – The proceeds of the sale of plant and equipment is a capital receipt.
2. Not correct – Money received from an insurance company as a result of crashing a delivery vehicle is a capital receipt
3. Correct
4. Not correct

 

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Which of the following is revenue expenditure?

Select ONE answer:

1. The cost of acquiring machinery for continuous use in the business.
2. The introduction of additional capital by a proprietor.
3. The cost of advertising a mid-season sale.
4. The transfer of surplus funds from a bank current account to a bank deposit 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 – The cost of acquiring machinery for continuous use in the business is capital expenditure.
2. Not correct – The introduction of additional capital by a proprietor is capital (not capital expenditure).
3. Correct
4. Not correct – The transfer of surplus funds from a bank current account to a bank deposit account is not expenditure at all.

 

This work is licensed under a Creative Commons Attribution 4.0 International License.