Practice Questions • 20 Questions
Identify whether each of the following unusual balances would appear on the debit (DR) or credit (CR) side of the trial balance, and state what each balance means. (a) A credit balance in the Sales Ledger Control Account. (b) A debit balance in the Purchases Ledger Control Account. (2 marks)
State two purposes of the trial balance. (2 marks)
Identify the type of error in each of the following situations. (a) A cash payment for rent of £1,400 was recorded correctly in the bank account but was debited to the rates account instead of the rent account. (b) A credit sale of £820 to T. Holt was posted to the account of D. Holt. (2 marks)
Explain what is meant by an error of reversal and explain why it does not cause the trial balance totals to differ. (3 marks)
Explain the purpose of a suspense account and state when it can be closed. (3 marks)
A business charges interest of £85 on a customer's overdue account. (a) State which side of the Sales Ledger Control Account (SLCA) this interest charge is recorded on, and explain why. (2 marks) (b) State the double entry for this transaction in the general ledger. (1 mark)
A bookkeeper discovers that a purchase invoice for stationery of £380 was completely omitted from the accounting records. Explain how this error affects the profit figure, and state the journal entry required to correct it. (4 marks)
Explain the purpose of the Sales Ledger Control Account (SLCA) and identify four items that would appear on its debit (DR) side. (4 marks)
Explain what is meant by a contra entry between the Sales Ledger Control Account and the Purchases Ledger Control Account, and state the journal entry used to record it. (4 marks)
Explain the difference between uncleared lodgements and unpresented cheques, and state how each is treated when preparing a bank reconciliation statement. (4 marks)
The following errors have been discovered in the accounting records of Hallwood Trading. (i) A credit purchase of £640 from Malik Supplies was recorded in the account of Karim Supplies. (ii) The purchase of a new computer for £1,200 was debited to the purchases account. (iii) Wages paid by bank of £4,800 were debited to the wages account as £4,200 and credited to the bank account as £4,200. Prepare the journal entries required to correct each error. Include a brief narration for each entry. (6 marks)
The following information is available for Prestwick Designs for the month of May. Cash book balance at 1 May (DR): £3,420 Cash book balance at 31 May before update (DR): £2,180 Items on the bank statement not in the cash book: - Direct debit for insurance: £320 - Bank charges: £45 - BACS receipt from a credit customer: £760 - Dishonoured cheque from a customer previously recorded as received: £190 There are no cash book errors. Prepare the updated cash book for May, clearly showing the revised balance at 31 May. (6 marks)
The trial balance of Redstone Furniture as at 31 March did not balance. The DR total exceeded the CR total by £540. The following errors were subsequently found: (i) The sales day book total of £8,400 had been posted to the CR of the sales account as £7,860. (ii) A payment to a credit supplier of £270 had been entered in the cash book on the payments side but no entry had been made in the purchases ledger. Prepare the suspense account and the journal entries required to clear it. (6 marks)
Explain why each of the following appears in the Purchases Ledger Control Account (PLCA), and state whether each item is a debit (DR) or credit (CR) entry. (a) Discounts received. (b) Purchase returns. (c) Credit purchases. (d) Contra with the Sales Ledger Control Account. (6 marks)
Explain the three steps involved in preparing a bank reconciliation. Your answer should make clear what happens at each step and why. (8 marks)
The draft profit of Thornton Kitchens for the year ended 30 September is £24,600. The following errors were subsequently discovered. (i) Wages paid by bank of £3,200 were debited to the wages account as £2,300 and credited to the bank account as £2,300. (error of original entry) (ii) A payment for motor expenses of £840 was recorded correctly in the bank account but was debited to the motor vehicles account. (error of principle) (iii) Discount received of £180 was debited to discount received and credited to trade payables. (error of reversal) (iv) A receipt from a credit customer of £760 was credited to the account of A. Bell instead of E. Bell. (error of commission) Prepare a statement showing the revised profit after correcting these errors. Show all workings. (8 marks)
The cash book of Brentfield Interiors shows a balance of £4,860 DR at 31 October before any updates. On comparing the cash book with the bank statement, the following differences were found. Items on the bank statement not in the cash book: (a) Direct debit for business rates: £480 (b) BACS receipt from credit customer Ogden Ltd: £1,250 (c) Bank charges: £90 (d) Dishonoured cheque from customer N. Hardy, previously banked for £340 Items in the cash book not on the bank statement: (e) Uncleared lodgement of £2,100 (receipt banked on 31 October) (f) Unpresented cheque payable to Greystone Supplies: £630 (g) Unpresented cheque payable to Apex Freight: £415 Bank statement balance at 31 October: £2,965 DR Prepare (i) the updated cash book balance and (ii) the bank reconciliation statement at 31 October. (10 marks)
Evaluate the usefulness of control accounts as a method of verifying the accuracy of a business's accounting records. In your answer you should consider both advantages and limitations of control accounts. (10 marks)