Carefully review the question and solution below
1. Which of the following describes a trial balance?
A. It is a special account
B. It is a list of balances in the books ✔
C. It reveals the financial position of a business
D. It shows all the entries in the books of a business
Explanation:
A trial balance lists all ledger balances to check that debits equal credits.
2. Which of the following is not a feature of accounting information?
A. Affordability ✔
B. Timeliness
C. Accuracy
D. Completeness
Explanation:
Accounting information must be timely, accurate, and complete; affordability is not a key feature.
3. Which of the following is the equation for determining net profit or loss from the records of a firm?
A. Closing Capital - Drawings - Capital Introduced ✔
B. Opening Capital + Drawings - Closing Capital
C. Closing Capital + Opening Capital – Drawings
D. Closing Capital + Drawings - Opening Capital
Explanation:
Net profit = Closing Capital – Opening Capital + Drawings – Capital Introduced.
4. Purchase invoice is first entered in the
A. Purchases Account
B. Cash Book
C. Sales Journal
D. Purchases Journal ✔
Explanation:
A purchase invoice is first recorded in the purchases journal (book of original entry).
5. Assets acquired is recorded by debiting _______?
A. Asset Account, Crediting Cash Account ✔
B. Cash Account, Crediting Asset Account
C. Purchase of Business Account, Crediting Sale of Business Account
D. Asset Account, Crediting Purchase of Business Account
Explanation:
Assets are debited to show an increase; cash or bank credited for payment.
6. Goods returned to a supplier is
A. Debited to returns outward account ✔
B. Credited to returns outwards account
C. Debited to returns inwards account
D. Credited to returns inwards account
Explanation:
Returns outward account is debited when goods are returned to suppliers.
7. Which of the following is not a real account?
A. Plant account
B. Salaries account ✔
C. Creditors account
D. Trading account
Explanation:
Salaries account is a nominal account (expense), not a real account.
8. The accounting ledger for goods sold on credit are debit
A. Debtors account, credit sales account ✔
B. Creditors account, credit sales account
C. Sales account, credit debtors account
D. Sales account, credit creditors account
Explanation:
Debtors account is debited (receivable) and sales account credited.
9. Which of the following is not a book of original entry?
A. Sales journal
B. Purchases account ✔
C. Cash account
D. Return inwards journal
Explanation:
Purchases account is a ledger account, not a book of original entry.
10. Which of the following is not a book of original entry?
A. Sales journal
B. Purchases account ✔
C. Cash account
D. Return inwards journal
Explanation:
Same as question 9. Ledger accounts are not books of original entry.
11. Discount received account is a
A. Real account
B. Personal account
C. Nominal account ✔
D. Profit and loss account
Explanation:
Discount received is an income, classified as a nominal account.
12. Which of the following accounts has a credit balance?
A. Capital ✔
B. Cash
C. Drawings
D. Premises
Explanation:
Capital is a credit balance account.
13. The accounting entry to correct sales day book overcast is?
A. Debit sales account and credit debtors account
B. Debit suspense account and credit sales account
C. Debit debtors account and credit suspense account
D. Debit sales account and credit suspense account ✔
Explanation:
Errors in sales day book overcast are corrected by debiting sales and crediting suspense.
14. Which of the following expresses the accounting equation?
A. Capital + assets = liabilities
B. Assets - liabilities = Capital ✔
C. Liabilities + Current Assets = Fixed assets
D. Liabilities - Capital = Current assets
Explanation:
The basic accounting equation is: $Assets - Liabilities = Capital$.
15. When the invoice of a customer is overcast, the supplier will send to him a
A. Cheque
B. Payment voucher
C. Debit note ✔
D. Credit note
Explanation:
A debit note is sent to correct overcharged invoices.
16. Unpresented cheques are cheques _________
A. That have been recorded in the cash book but not by the bank ✔
B. That have been received by the bank, but not recorded in the cash book
C. Returned by the bank
D. Written but not handed over to customers
Explanation:
Unpresented cheques are recorded in cash book but not yet processed by the bank.
17. Advertising owing in respect of the year ended June 30, $2012$ is
A. GH¢12,000 ✔
B. GH¢ 9,000
C. GH¢ 6,000
D. GH¢ 3,000
Explanation:
Total advertising paid by cheque = GH¢36,000 covering 12 months.
Monthly expense = $36,000 ÷ 12 = 3,000$.
For the year ended June 30, 2012, 4 months still owing = $3,000 × 4 = 12,000$.
18. Amount charged to profit and loss account for advertising for year ended June 30, $2012$ is
A. GH¢36,000
B. GH¢30,000 ✔
C. GH¢27,000
D. GH¢24,000
Explanation:
Advertising for 10 months of the year: $3,000 × 10 = 30,000$. This is charged to P&L.
19. Electricity in arrears as at June 30, $2012$ amounted to
A. GH¢12,000
B. GH¢10,000
C. GH¢8,000 ✔
D. GH¢4,000
Explanation:
Total electricity paid for 15 months = GH¢60,000
Monthly = $60,000 ÷ 15 = 4,000$
Arrears for 2 months = $4,000 × 2 = 8,000$
20. The cost of putting goods into a saleable condition is charged to
A. Balance sheet
B. Trial balance
C. Profit and loss account
D. Trading account ✔
Explanation:
Direct costs like carriage inwards, insurance on purchases are part of trading account.
21. Which of the following is not a method of depreciating fixed assets?
A. Revaluation ✔
B. Straight Line
C. Diminishing balance
D. Obsolescence
Explanation:
Revaluation is an adjustment of asset value, not a depreciation method.
22. In preparing a profit and loss account, a decrease in provision for doubtful debts accounts is treated as
A. Current liability
B. Expenses
C. Income ✔
D. Current asset
Explanation:
A decrease in provision for doubtful debts increases net profit and is treated as income.
23. Which of the following items is found in the sales ledger control account?
A. Discount received
B. Total credit purchases
C. Discount allowed ✔
D. Returns outwards
Explanation:
Discount allowed reduces amounts receivable from debtors; appears in sales ledger control.
24. The process of using sales ledger balance to cancel off purchases ledger balance is
A. Balancing
B. Set off ✔
C. Reconciliation
D. Cancelling
Explanation:
Sales ledger balances can be set off against purchases ledger balances to simplify transactions.
25. The total of the returns outwards journal is posted to the
A. Credit side of the returns outwards book
B. Debit side of the returns outwards account
C. Debit side of the purchases returns book
D. Credit side of the returns outwards account ✔
Explanation:
Total returns outwards are credited to the returns outwards account in the ledger.
26. Which of the following is not revealed by a firm's accounting records?
A. Profit of a period
B. Quality of labour force ✔
C. Credit worthiness
D. Value of assets
Explanation:
Accounting records do not give qualitative information like labour quality.
27–29. Opening capital, closing capital, and net profit for the year
| Item | 1/7/10 | 30/6/11 |
|---|---|---|
| Stock | D1,460 | D4,200 |
| Motor van | D3,600 | D3,200 |
| Creditor | D600 | D700 |
| Drawings | - | D1,500 |
30. In the balance sheet of a social club, subscription owing is treated as
A. Current liability
B. Current asset ✔
C. Tangible asset
D. Long term liability
Explanation:
Owed subscription is an amount to be received; hence, a current asset.
31. The accounting concept that allows the cost of kitchen cutlery to be expensed, though it will be used for more than one year is
A. Materiality ✔
B. Accrual
C. Going concern
D. Business Entity
Explanation:
Expenditure on insignificant amounts is expensed immediately.
32. The accounting concept that assumes that a business will continue operating for an indefinite period is
A. Business entity
B. Going concern ✔
C. Consistency
D. Duality
Explanation:
Going concern assumes business will continue indefinitely.
33. The accounting concept that states that a firm's financial affairs must be separated from that of the owner's private transactions is
A. Business entity ✔
B. Going concern
C. Consistency
D. Duality
Explanation:
Business entity principle separates business and personal transactions.
34. Goodwill is recognized in partnership accounts when
A. The business makes a huge profit
B. The business has good customer relationship
C. A partner is dormant
D. A new partner is admitted ✔
Explanation:
Goodwill is calculated when a new partner joins.
35. Which of the following is not stated in the partnership agreement?
A. Profit sharing ratio
B. Interest on capital
C. Interest on fixed asset ✔
D. Purpose of partnership
Explanation:
Fixed asset interest is not normally in partnership agreement.
36. Same as 35 (duplicate)
A. profit sharing ratio
B. interest on capital
C. interest on fixed asset ✔
D. purpose of partnership
Explanation:
Repeats question 35.
37. How much was paid for goodwill?
Total assets = $670,000$, Liabilities = $320,000$
Net asset value = $670,000 - 320,000 = 350,000$
Purchase price = $410,000$
Goodwill = $410,000 - 350,000 = 60,000$
A. GHc350,000
B. GHc260,000
C. GHc90,000
D. GHc60,000 ✔
Explanation:
Goodwill = Purchase price – Net asset value.
38. The double entry to record the goodwill in the books is debit
A. Cash account and credit goodwill account
B. Goodwill account and credit purchase of business account
C. Goodwill account and credit cash account ✔
D. Purchase of business account and credit cash account
Explanation:
Goodwill is debited and cash paid is credited.
39. The document which sets out the internal arrangement for the proper management of a company is the
A. Prospectus
B. Article of association ✔
C. Memorandum of association
D. Certificate of incorporation
Explanation:
Articles of association govern internal management.
40. A person who has applied to purchase shares in a company is referred to as
A. A promoter
B. A subscriber ✔
C. An allottee
D. An underwriter
Explanation:
A subscriber applies to buy shares; an allottee is issued shares.
41. Which of the following expenses is allocated according to the floor area?
A. Wages and Salaries
B. Rent and Rates ✔
C. Canteen Expenses
D. Discount allowed
Explanation:
Rent and rates are allocated based on floor area.