CIMA BA3 · Chapter 4
Books of prime entry and sales tax MCQs with Answers
10 multiple-choice questions on Books of prime entry and sales tax for CIMA BA3 Fundamentals of Financial Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
In which book of prime entry are invoices issued to credit customers first recorded?
- A) Sales day book
- B) Purchase day book
- C) Cash book
- D) The journal
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Answer: A) Sales day book
The sales day book lists the invoices sent to credit customers. Its totals are posted to the receivables ledger control account, sales and sales tax, and the individual invoices are posted to the customers' accounts in the receivables ledger.
Question 2
Goods bought on credit are returned to the supplier because they are faulty. In which book of prime entry is the credit note received first recorded?
- A) Sales returns day book
- B) Purchase day book
- C) Petty cash book
- D) Purchase returns day book
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Answer: D) Purchase returns day book
Credit notes received from suppliers for goods returned are recorded in the purchase returns (returns outwards) day book. The sales returns day book records credit notes issued to customers.
Question 3
Which of the following would normally be recorded first in the journal?
- A) The annual depreciation charge on non-current assets
- B) A cheque received from a credit customer
- C) A credit sales invoice
- D) A payment of petty cash expenses
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Answer: A) The annual depreciation charge on non-current assets
The journal records non-routine items and adjustments, such as depreciation, error corrections and irrecoverable debt write-offs. Cash received is recorded in the cash book, invoices in the sales day book and petty cash payments in the petty cash book.
Question 4
A business runs a petty cash imprest system with an imprest of $400. At the end of the month there are vouchers totalling $312 and $88 cash in the tin, so no cash is missing. How much cash should be drawn from the bank to restore the imprest?
- A) $88
- B) $393
- C) $400
- D) $312
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Answer: D) $312
Under an imprest system the float is topped up to the imprest amount by reimbursing exactly what has been spent. Vouchers $312 + cash $88 = $400, so the float is complete. Amount to draw = imprest $400 - cash in hand $88 = $312, which equals the total of the vouchers.
Question 5
A business that is registered for sales tax sells goods on credit for $2,450 excluding sales tax. Sales tax is charged at 20%. What amount is credited to the sales tax account?
- A) $408.33
- B) $490
- C) $2,450
- D) $2,940
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Answer: B) $490
Sales tax = 20% x $2,450 = $490. The customer is invoiced $2,940: receivables are debited $2,940, sales credited $2,450 and sales tax credited $490.
Question 6
During a quarter a business made sales of $186,000 excluding sales tax and purchases of $104,400 including sales tax. Sales tax is 20% on all items. How much sales tax is payable to the tax authority for the quarter?
- A) $13,600
- B) $16,320
- C) $19,800
- D) $54,600
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Answer: C) $19,800
Output tax = 20% x $186,000 = $37,200. Input tax on a tax-inclusive amount = $104,400 x 20/120 = $17,400. Tax payable = $37,200 - $17,400 = $19,800.
Question 7
A business is unable to recover the sales tax charged on its purchase of a car for a sales representative. How should the irrecoverable sales tax be treated?
- A) It is debited to the sales tax account as a receivable from the tax authority
- B) It is deducted from the output tax on sales
- C) It is included in the cost of the car and capitalised
- D) It is credited to profit or loss as other income
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Answer: C) It is included in the cost of the car and capitalised
Sales tax that cannot be reclaimed is a real cost to the business, so it is included in the cost of the asset or expense it relates to. Here it is capitalised as part of the cost of the car and depreciated with it.
Question 8
Which of the following is often used as both a book of prime entry and part of the double entry system?
- A) The sales day book
- B) The purchase day book
- C) The sales returns day book
- D) The cash book
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Answer: D) The cash book
The cash book is usually both a book of prime entry and the bank and cash ledger accounts. The day books are lists of documents; only their totals are posted to the ledger, so they are not part of the double entry themselves.
Question 9
The sales day book for a month shows totals of: net $50,000, sales tax $10,000, gross $60,000. Which entry records these totals in the general ledger?
- A) Debit Receivables control $60,000; Credit Sales $50,000; Credit Sales tax $10,000
- B) Debit Receivables control $50,000; Debit Sales tax $10,000; Credit Sales $60,000
- C) Debit Sales $50,000; Debit Sales tax $10,000; Credit Receivables control $60,000
- D) Debit Receivables control $60,000; Credit Sales $60,000
Show answer & explanation
Answer: A) Debit Receivables control $60,000; Credit Sales $50,000; Credit Sales tax $10,000
Customers owe the gross amount, so the receivables control account is debited with $60,000. Revenue excludes sales tax, so sales is credited with $50,000, and the $10,000 owed to the tax authority is credited to the sales tax account as a liability.
Question 10
Goods with a list price of $8,000 are sold to a trade customer who receives a 15% trade discount. Sales tax at 20% is charged. What is the total amount shown on the invoice?
- A) $6,800
- B) $8,160
- C) $8,400
- D) $9,600
Show answer & explanation
Answer: B) $8,160
Trade discount is deducted before anything is recorded: $8,000 x 85% = $6,800. Sales tax is calculated on the discounted price: $6,800 x 20% = $1,360. Invoice total = $6,800 + $1,360 = $8,160.