ICAEW AF · Chapter 3
Double entry, books of prime entry and the trial balance MCQs with Answers
11 multiple-choice questions on Double entry, books of prime entry and the trial balance for ICAEW AF Accounting Fundamentals. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A business accepts goods back from a credit customer because they were faulty. Which source document will the business issue to the customer?
- A) A credit note
- B) A goods received note
- C) A sales invoice
- D) A remittance advice
Show answer & explanation
Answer: A) A credit note
A credit note is issued to a customer to reduce the amount the customer owes, for example when goods are returned. Credit notes issued are recorded in the sales returns day book. A remittance advice accompanies a payment, and a goods received note is an internal record of goods coming in from suppliers.
Question 2
In which book of prime entry are invoices received from suppliers for goods bought on credit first recorded?
- A) The purchases day book
- B) The sales day book
- C) The journal
- D) The cash book
Show answer & explanation
Answer: A) The purchases day book
Invoices received for credit purchases are listed in the purchases day book, and its totals are then posted to the general ledger. The sales day book records invoices issued to customers, the cash book records cash and bank receipts and payments, and the journal is used for non-routine entries such as corrections and year-end adjustments.
Question 3
A business sells goods on credit to a customer for £1,800. The business is not registered for sales tax. What is the double entry to record the sale?
- A) Debit Trade receivables £1,800, Credit Revenue £1,800
- B) Debit Revenue £1,800, Credit Trade receivables £1,800
- C) Debit Cash £1,800, Credit Revenue £1,800
- D) Debit Trade receivables £1,800, Credit Inventory £1,800
Show answer & explanation
Answer: A) Debit Trade receivables £1,800, Credit Revenue £1,800
A credit sale creates an asset, the amount owed by the customer, so trade receivables are debited. Income is recorded by crediting revenue. Cash is only affected when the customer pays, at which point cash is debited and trade receivables credited.
Question 4
A sole trader takes goods that cost the business £640 for personal use. What is the double entry to record this?
- A) Debit Capital £640, Credit Cash £640
- B) Debit Drawings £640, Credit Revenue £640
- C) Debit Purchases £640, Credit Drawings £640
- D) Debit Drawings £640, Credit Purchases £640
Show answer & explanation
Answer: D) Debit Drawings £640, Credit Purchases £640
Goods taken by the owner are drawings, so the drawings account is debited. The goods were never sold, so revenue is not credited; instead purchases are credited at cost to remove the goods from the cost of goods available for sale. No cash has moved.
Question 5
A business's bank account in the general ledger had a debit balance of £2,350 at the start of the month. During the month, receipts of £14,780 and payments of £17,320 were recorded. What is the balance on the account at the end of the month?
- A) £2,540 credit (overdrawn)
- B) £190 credit (overdrawn)
- C) £190 debit
- D) £4,890 credit (overdrawn)
Show answer & explanation
Answer: B) £190 credit (overdrawn)
Balance = opening debit £2,350 + receipts £14,780 - payments £17,320 = £17,130 - £17,320 = -£190. Payments exceed the opening balance plus receipts, so the account has a credit balance of £190, meaning the business is overdrawn. A credit balance on a bank account in the business's own ledger is a liability.
Question 6
The following balances have been extracted from the ledger of a sole trader at the year end: Non-current assets £48,000 Inventory £6,200 Trade receivables £9,400 Bank overdraft £1,700 Trade payables £7,300 Revenue £96,500 Purchases £58,100 Expenses £21,900 Drawings £12,000 Loan £10,000 Capital ? Assuming the trial balance balances, what is the balance on the capital account?
- A) £43,500
- B) £16,100
- C) £40,100
- D) £50,100
Show answer & explanation
Answer: C) £40,100
Debit balances are assets, expenses, purchases and drawings: £48,000 + £6,200 + £9,400 + £58,100 + £21,900 + £12,000 = £155,600. Credit balances are the overdraft, payables, revenue and loan: £1,700 + £7,300 + £96,500 + £10,000 = £115,500. Capital is a credit balance, so capital = £155,600 - £115,500 = £40,100. Treating drawings as a credit gives £16,100 and treating the overdraft as a debit gives £43,500.
Question 7
Which of the following errors would cause the totals of a trial balance to disagree?
- A) A credit sale was debited to the customer's receivables account but nothing was credited to revenue
- B) A repair to a machine was debited to the machinery cost account
- C) A payment to a supplier was debited to the bank account and credited to trade payables
- D) A purchase invoice was omitted from the books completely
Show answer & explanation
Answer: A) A credit sale was debited to the customer's receivables account but nothing was credited to revenue
A single-sided entry records a debit with no matching credit, so the trial balance totals will differ. The other three errors all have equal debits and credits: an error of principle, an error of omission and a reversal of entries. These do not affect the agreement of the trial balance, although they still need correcting.
Question 8
A business operates an imprest petty cash system with a float of £300. During the month, petty cash vouchers totalling £241.60 were paid out, and £15 was received from staff for private photocopying and put into the petty cash tin. How much cash must be drawn from the bank at the end of the month to restore the imprest?
- A) £241.60
- B) £256.60
- C) £226.60
- D) £58.40
Show answer & explanation
Answer: C) £226.60
Cash in the tin at the month end = £300 - £241.60 + £15 = £73.40. To restore the float to £300, the amount required is £300 - £73.40 = £226.60. This equals the vouchers of £241.60 less the £15 received.
Question 9
A sole trader's net assets were £62,000 at the start of the year and £71,500 at the end. During the year the owner introduced additional capital of £5,000 and took drawings of £18,300. What was the profit for the year?
- A) £22,800
- B) £9,500
- C) £4,500
- D) £32,800
Show answer & explanation
Answer: A) £22,800
Closing net assets = opening net assets + capital introduced + profit - drawings. So profit = £71,500 - £62,000 - £5,000 + £18,300 = £22,800. The increase in net assets of £9,500 must be reduced by capital introduced, which is not profit, and increased by drawings, which reduced net assets but are not an expense.
Question 10
For which of the following would the journal normally be used as the book of prime entry?
- A) Recording year-end depreciation and the correction of errors
- B) Recording invoices received from credit suppliers
- C) Recording cash received from customers
- D) Recording invoices issued to credit customers
Show answer & explanation
Answer: A) Recording year-end depreciation and the correction of errors
The journal records non-routine transactions that do not belong in any other book of prime entry, such as year-end adjustments, depreciation, correction of errors and opening entries. Routine transactions go through the cash book, the sales day book and the purchases day book respectively.
Question 11
Which source document is used to write up the purchase returns day book?
- A) Credit notes issued to customers
- B) Invoices received from suppliers
- C) Credit notes received from suppliers
- D) Remittance advices sent to suppliers
Show answer & explanation
Answer: C) Credit notes received from suppliers
The purchase returns day book lists goods returned to suppliers, and its source documents are the credit notes that suppliers send to confirm the reduction in the amount owed. Credit notes issued to customers are recorded in the sales returns day book, and suppliers' invoices in the purchases day book.