Accounting Multiple Choice Question – 26 October 2020

A transport business owned by a sole proprietor purchases a new motor vehicle for £25,000 by cheque.

This is charged to the Motor Vehicles Running Expenses account.

What are the effects of this on the end-of-year Balance Sheet?

Select ONE answer:

1. fixed assets understated & current assets understated
2. fixed assets overstated & current assets overstated
3. fixed assets overstated & capital account overstated
4. fixed assets understated & capital account 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
2. Not correct
3. Not correct
4. Correct – Original Double Entry made in error Dr Expenses Cr Bank, should have been Dr Fixed Assets (Non-current Assets) Cr Bank

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