Tag: AQA

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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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:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

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:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

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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