PRC-1 · Chapter 2
Books of Prime Entry MCQs with Answers
100 multiple-choice questions on Books of Prime Entry for PRC-1 Fundamentals of Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following source documents is primarily used to record entries in the sales day book of 'Nova Retailers'?
- A) Credit notes received
- B) Sales invoices issued
- C) Goods received notes
- D) Purchase orders
Show answer & explanation
Answer: B) Sales invoices issued
The sales day book is used to record credit sales made to customers. The primary source document for these transactions is the sales invoice issued by the business to the customer.
Question 2
'Zenith Enterprises' purchased inventory on credit from 'Prime Wholesalers'. In which book of prime entry should 'Zenith Enterprises' record this transaction?
- A) General Journal
- B) Cash Book
- C) Purchases day book
- D) Sales day book
Show answer & explanation
Answer: C) Purchases day book
The purchases day book is specifically used to record the purchase of inventory items on credit from suppliers. Cash purchases would go in the cash book, and non-inventory purchases on credit would go in the general journal.
Question 3
'Apex Logistics' bought a new delivery truck on credit for Rs. 2.5 million. Which book of prime entry is used to correctly record this transaction?
- A) Purchases day book
- B) Cash book
- C) General Journal
- D) Sales day book
Show answer & explanation
Answer: C) General Journal
The purchases day book is strictly for trading inventory bought on credit. The purchase of a non-current asset (like a delivery truck) on credit is a non-routine transaction that must be recorded in the general journal.
Question 4
Under the imprest system of petty cash used by 'Crescent Corp', the imprest amount is set at Rs. 15,000. If expense vouchers for the week total Rs. 12,400, what amount will be reimbursed to the petty cashier to restore the float?
- A) Rs. 15,000
- B) Rs. 2,600
- C) Rs. 12,400
- D) Rs. 27,400
Show answer & explanation
Answer: C) Rs. 12,400
Under the imprest system, the petty cash float is restored to its original fixed amount at regular intervals. Therefore, the exact amount of the recorded expenditure (Rs. 12,400) is reimbursed.
Question 5
'Radiant Traders' maintains a three-column cash book. What do the three distinct columns on the receipt (debit) side represent?
- A) Cash, Bank, and Discount Received
- B) Cash, Bank, and Discount Allowed
- C) Cash, Sales, and Bank
- D) Bank, Payables, and Discount Allowed
Show answer & explanation
Answer: B) Cash, Bank, and Discount Allowed
A three-column cash book contains columns for physical cash and bank transactions, plus a memorandum column for discounts. On the receipt side (debit), this third column specifically records the settlement discounts allowed to customers.
Question 6
'BlueSky Electronics' sells laptops with a list price of Rs. 150,000. A bulk customer is given a 10% trade discount. At what amount should this sale be recorded in the sales day book?
- A) Rs. 150,000
- B) Rs. 15,000
- C) Rs. 165,000
- D) Rs. 135,000
Show answer & explanation
Answer: D) Rs. 135,000
A trade discount is a definite price reduction given at the time of the sale. The invoice is issued at the net amount (Rs. 150,000 - 10% = Rs. 135,000), and this net amount is recorded in the sales day book.
Question 7
A credit customer returns damaged goods to 'Summit Furnishings'. Which source document will 'Summit Furnishings' issue, and in which book will it be recorded?
- A) Debit note; Sales returns day book
- B) Credit note; Purchases returns day book
- C) Credit note; Sales returns day book
- D) Debit note; General Journal
Show answer & explanation
Answer: C) Credit note; Sales returns day book
When a customer returns goods, the seller issues a credit note to acknowledge the reduction in the amount owed. This transaction is then recorded in the seller's sales returns (return inwards) day book.
Question 8
'Lunar Boutiques' returned defective inventory to its supplier, 'Fabric World'. Which document does 'Lunar Boutiques' receive from the supplier to confirm this return?
- A) Debit note
- B) Credit note
- C) Goods received note
- D) Sales invoice
Show answer & explanation
Answer: B) Credit note
When a business returns goods to a credit supplier, the supplier issues a credit note back to the business. This document serves as the source for the business's purchases returns (return outwards) day book.
Question 9
The owner of 'Falcon Enterprises' withdrew Rs. 50,000 cash directly from the business bank account for personal use. Where is this primarily recorded?
- A) General Journal
- B) Cash book
- C) Purchases day book
- D) Petty cash book
Show answer & explanation
Answer: B) Cash book
The cash book records all receipts and payments made through the business bank account or physical cash. Drawings made via a bank withdrawal are recorded on the payment (credit) side of the cash book.
Question 10
A cheque for Rs. 45,000 received from a customer was previously entered in the cash book but has now been dishonored by the bank. How is this recorded in the books of prime entry?
- A) It is recorded in the sales returns day book.
- B) It is entered on the receipt side of the cash book.
- C) It is entered on the payment side of the cash book.
- D) It is recorded in the general journal as a bad debt.
Show answer & explanation
Answer: C) It is entered on the payment side of the cash book.
When a cheque is received, it is recorded on the receipt side of the cash book. If it is later dishonored, the entry must be reversed by recording the exact amount on the payment (credit) side of the cash book.
Question 11
The warehouse manager at 'Pioneer Manufacturing' needs raw materials that are currently out of stock. Which internal document should he prepare to initiate the purchasing process?
- A) Purchase order
- B) Purchase requisition
- C) Goods received note
- D) Purchase invoice
Show answer & explanation
Answer: B) Purchase requisition
A purchase requisition is an internal document prepared by a department (like the warehouse) to formally notify the purchasing department that an item is needed and to authorize its purchase.
Question 12
'Omega Traders' owes Rs. 100,000 to 'Sigma Supplies', and 'Sigma Supplies' simultaneously owes Rs. 60,000 to 'Omega Traders'. They agree to offset the Rs. 60,000. In which book of prime entry is this contra settlement recorded?
- A) Cash book
- B) Purchases day book
- C) General Journal
- D) Sales day book
Show answer & explanation
Answer: C) General Journal
A contra settlement (offsetting receivables against payables) does not involve cash movement, inventory purchase, or inventory sale. Therefore, it is a non-routine adjustment recorded in the General Journal.
Question 13
A customer pays an invoice of Rs. 200,000 within the discount period and is allowed a 5% settlement discount. What amounts are recorded in the three-column cash book?
- A) Bank: Rs. 200,000; Discount Allowed: Rs. 0
- B) Bank: Rs. 190,000; Discount Allowed: Rs. 10,000
- C) Bank: Rs. 190,000; Discount Received: Rs. 10,000
- D) Cash: Rs. 210,000; Discount Allowed: Rs. 10,000
Show answer & explanation
Answer: B) Bank: Rs. 190,000; Discount Allowed: Rs. 10,000
The customer takes a 5% discount (Rs. 10,000) and pays the net amount (Rs. 190,000). The Rs. 190,000 is entered in the bank column, and the Rs. 10,000 is entered in the discount allowed column on the receipt side.
Question 14
At the end of the financial year, 'Vertex Corp' needs to record its annual depreciation expense of Rs. 150,000. Which book of prime entry is used for this purpose?
- A) Cash book
- B) Purchases day book
- C) General Journal
- D) Petty cash book
Show answer & explanation
Answer: C) General Journal
Year-end adjustments, such as calculating depreciation, accruals, and prepayments, do not involve immediate cash flow or routine inventory trading. Therefore, they are recorded in the general journal.
Question 15
Which of the following activities best describes the fundamental purpose of 'books of prime entry'?
- A) To calculate the final net profit for the year.
- B) To provide a trial balance for auditors.
- C) To initially record and summarize large numbers of similar transactions before posting to ledgers.
- D) To maintain a detailed list of all physical assets owned by the business.
Show answer & explanation
Answer: C) To initially record and summarize large numbers of similar transactions before posting to ledgers.
Books of prime entry act as the first place where transactions are sorted and recorded by type (e.g., all credit sales together). This makes the bookkeeping process highly organized and efficient.
Question 16
'Silverline Merchants' sold goods for physical cash amounting to Rs. 45,000. How is this transaction initially recorded?
- A) In the Sales day book only
- B) In the Cash book only
- C) In the General Journal only
- D) In both the Cash book and the Sales day book
Show answer & explanation
Answer: B) In the Cash book only
All cash receipts, including cash sales, are recorded directly in the cash book. The sales day book is reserved exclusively for sales made on credit.
Question 17
Which of the following is NOT considered a source document for entering data into the accounting system?
- A) A bank statement
- B) A sales invoice
- C) A credit note received
- D) A general ledger account
Show answer & explanation
Answer: D) A general ledger account
Source documents (like invoices, bank statements, and credit notes) provide the original evidence of a transaction. A general ledger is an accounting record created from these documents, not a source document itself.
Question 18
When 'Horizon Builders' receives goods from a supplier, the warehouse staff checks the delivery against the order. Which document do they generate to confirm the physical receipt of goods?
- A) Goods received note
- B) Goods dispatched note
- C) Purchase invoice
- D) Statement of account
Show answer & explanation
Answer: A) Goods received note
A goods received note (GRN) is an internal document produced by the buyer when goods are received, verifying that the delivery matches the order and what was physically unloaded.
Question 19
What is the primary function of a 'Statement of Account' sent by a supplier to a customer?
- A) To request the immediate return of faulty goods.
- B) To serve as a legally binding contract for a new order.
- C) To show the customer the net amount owed at a specific point in time, summarizing invoices and payments.
- D) To automatically authorize the customer to take a trade discount.
Show answer & explanation
Answer: C) To show the customer the net amount owed at a specific point in time, summarizing invoices and payments.
A statement of account provides a summary of all transactions (invoices, credit notes, payments) over a specific period, indicating the current net balance outstanding.
Question 20
If an error is discovered where a cash payment for rent was incorrectly posted in the ledger as a payment for electricity, in which book of prime entry would the correction be formally recorded?
- A) Cash book
- B) Purchases day book
- C) General Journal
- D) Sales day book
Show answer & explanation
Answer: C) General Journal
The correction of bookkeeping errors that do not involve immediate cash flow or belong in the specialized day books are recorded via journal entries in the General Journal.
Question 21
'Glow Cosmetics' uses a computerized accounting system where traditional day books are supported by a voucher system. Which voucher would be used to authorize the initial recording of a credit sale?
- A) Receipt voucher
- B) Journal voucher
- C) Purchase voucher
- D) Sales voucher
Show answer & explanation
Answer: D) Sales voucher
In a voucher system, a sales voucher (often acting as the sales invoice) replaces or supports the function of the sales day book by acting as the direct input for credit sales.
Question 22
Which of the following transactions would exclusively be entered into the Purchases Returns Day Book?
- A) Returning a faulty delivery van (non-current asset) bought on credit.
- B) Returning damaged trading inventory previously bought on credit.
- C) A customer returning damaged inventory to the business.
- D) Refunding cash to a customer for returned goods.
Show answer & explanation
Answer: B) Returning damaged trading inventory previously bought on credit.
The purchases returns day book strictly records the return of trading inventory previously bought on credit. Returning a non-current asset is recorded in the General Journal.
Question 23
Mr. Asad, a sole trader, introduces Rs. 1 million of his personal savings into the business bank account as additional capital. Which book of prime entry records this specific event?
- A) General Journal
- B) Sales day book
- C) Cash book
- D) Petty cash book
Show answer & explanation
Answer: C) Cash book
Any transaction involving the receipt or payment of money through the business bank account, including the introduction of capital, is recorded on the receipt side of the cash book.
Question 24
A 'Goods Dispatched Note' (GDN) is generally sent by the business to the customer. Does the GDN immediately trigger a double-entry accounting record?
- A) Yes, it triggers the recording of cost of sales.
- B) Yes, it triggers the recording of a sales invoice.
- C) No, it simply serves as a notice to the customer that goods have been sent.
- D) No, it is only used to claim trade discounts.
Show answer & explanation
Answer: C) No, it simply serves as a notice to the customer that goods have been sent.
A goods dispatched note is a logistical document informing the buyer of the shipment. The actual accounting double-entry is triggered later by the generation of the sales invoice.
Question 25
'Metro Traders' paid its monthly electricity bill of Rs. 45,000 using an online bank transfer. How is this recorded in a two-column cash book?
- A) Debit the cash column
- B) Credit the bank column
- C) Credit the cash column
- D) Debit the bank column
Show answer & explanation
Answer: B) Credit the bank column
Payments made via bank transfer reduce the bank balance. Therefore, the transaction is recorded on the payment (credit) side of the cash book specifically in the bank column.
Question 26
In a manual accounting system, what is the core role of a 'Purchase Order'?
- A) It records the finalized liability owed to the supplier.
- B) It confirms the receipt of goods in the warehouse.
- C) It is a document sent by the business to a supplier to formally request goods or services.
- D) It triggers the immediate payment of cash to the supplier.
Show answer & explanation
Answer: C) It is a document sent by the business to a supplier to formally request goods or services.
A purchase order is a commercial document issued by a buyer to a seller indicating types, quantities, and agreed prices. It is a request and does not trigger a double entry until the invoice is received.
Question 27
When an entity decides to write off a customer's outstanding balance as an irrecoverable (bad) debt, which book of prime entry must be used?
- A) Sales returns day book
- B) Cash book
- C) General Journal
- D) Purchases day book
Show answer & explanation
Answer: C) General Journal
Writing off a bad debt is a non-routine adjustment that does not involve immediate cash flow or standard inventory trading, so it is processed through the general journal.
Question 28
What specific information is typically found in the 'folio' column of a day book or general journal?
- A) The exact time the transaction occurred.
- B) The signature of the authorizing manager.
- C) A cross-reference to the page or account number in the relevant ledger.
- D) The name of the bank handling the transaction.
Show answer & explanation
Answer: C) A cross-reference to the page or account number in the relevant ledger.
The ledger folio (LF) column provides a vital cross-reference link between the book of prime entry and the specific account in the ledger where the transaction has subsequently been posted.
Question 29
'Urban Cafe' uses a petty cash book based on an imprest of Rs. 5,000. The cashier paid Rs. 400 for office tea, Rs. 1,200 for taxi fares, and Rs. 500 for stationary. Before replenishment, what is the physical cash balance in the tin?
- A) Rs. 5,000
- B) Rs. 2,100
- C) Rs. 2,900
- D) Rs. 7,100
Show answer & explanation
Answer: C) Rs. 2,900
Total expenses incurred are Rs. 400 + Rs. 1200 + Rs. 500 = Rs. 2,100. The cash remaining in the tin is the imprest amount minus the expenses: 5,000 - 2,100 = Rs. 2,900.
Question 30
If 'Delta Distributors' purchases goods on credit from 'Gamma Wholesalers', but the goods are not to the required specification, 'Delta' will return them. Which document should 'Delta' send to 'Gamma' along with the returned goods?
- A) Credit note
- B) Debit note
- C) Purchase invoice
- D) Statement of account
Show answer & explanation
Answer: B) Debit note
When returning goods to a supplier, the buyer issues a debit note to formally request a reduction in the amount owed. The supplier will then respond by issuing a credit note.
Question 31
'Zephyr Tech' sells goods with a list price of Rs. 100,000 to a bulk buyer, offering a 5% trade discount and a 2% settlement discount if the invoice is paid within 10 days. At what amount is this transaction initially recorded in the sales day book?
- A) Rs. 100,000
- B) Rs. 95,000
- C) Rs. 93,100
- D) Rs. 98,000
Show answer & explanation
Answer: B) Rs. 95,000
A trade discount is deducted immediately at the time of sale, so the invoice is generated for the net amount (Rs. 100,000 - 5% = Rs. 95,000). The settlement discount is only recorded later in the cash book if the customer actually pays within the 10-day window.
Question 32
'Coral Boutique' maintains a petty cash float of Rs. 10,000 under the imprest system. During the week, the petty cashier paid Rs. 2,500 for stationary and Rs. 1,500 for staff tea, leaving Rs. 6,000 in the tin. To restore the float, what amount will the main cashier reimburse?
- A) Rs. 6,000
- B) Rs. 10,000
- C) Rs. 4,000
- D) Rs. 8,500
Show answer & explanation
Answer: C) Rs. 4,000
Under the imprest system, the exact amount of the documented expenses incurred during the period (Rs. 2,500 + Rs. 1,500 = Rs. 4,000) is reimbursed to the petty cashier to bring the physical cash balance back to the fixed float of Rs. 10,000.
Question 33
'Star Traders' owes Rs. 50,000 to 'Moon Supplies' for raw materials, and simultaneously 'Moon Supplies' owes Rs. 30,000 to 'Star Traders' for consulting services. They agree to offset the balances. In which book of prime entry is this contra settlement recorded?
- A) Cash book
- B) Purchases day book
- C) Sales day book
- D) General Journal
Show answer & explanation
Answer: D) General Journal
A contra settlement offsets a receivables balance against a payables balance without any actual cash changing hands. Because it is a non-cash, non-routine adjustment, it must be recorded in the General Journal.
Question 34
What is the primary source document used by 'Alpha Retail' to trigger the recording of a transaction in its Purchases Day Book?
- A) A purchase order sent to a supplier.
- B) A purchase invoice received from a credit supplier.
- C) A goods received note prepared by the warehouse.
- D) A cheque counterfoil indicating payment to the supplier.
Show answer & explanation
Answer: B) A purchase invoice received from a credit supplier.
The purchases day book specifically records goods bought on credit. The source document that initiates this accounting entry is the finalized purchase invoice received from the supplier.
Question 35
'Rapid Logistics' purchased a new delivery van on credit for Rs. 3 million from 'City Motors'. Where should 'Rapid Logistics' initially record this transaction?
- A) Purchases day book
- B) General Journal
- C) Cash book
- D) Sales day book
Show answer & explanation
Answer: B) General Journal
The purchases day book is exclusively for recording the purchase of trading inventory on credit. The purchase of a non-current asset (like a delivery van) on credit is recorded in the General Journal.
Question 36
A customer returns defective goods that were originally purchased for physical cash from 'Neon Electronics'. The business refunds the customer immediately. In which book of prime entry is this refund recorded?
- A) Sales returns day book
- B) General Journal
- C) Cash book
- D) Purchases returns day book
Show answer & explanation
Answer: C) Cash book
Because physical cash is refunded to the customer immediately, there is an outflow of money. All cash and bank payments, including cash refunds, are recorded on the payment side of the Cash Book.
Question 37
'Galaxy Traders' received a cheque of Rs. 25,000 from a customer and entered it in the cash book. Three days later, the bank returned the cheque as dishonored due to insufficient funds. How is the dishonor recorded in the books of prime entry?
- A) It is entered in the sales returns day book.
- B) It is entered on the receipt side of the cash book.
- C) It is entered on the payment side of the cash book to reverse the original receipt.
- D) It is recorded as a bad debt in the General Journal.
Show answer & explanation
Answer: C) It is entered on the payment side of the cash book to reverse the original receipt.
When the cheque was received, it was recorded as a receipt. To cancel that entry when the cheque bounces, an equal amount must be entered on the payment (credit) side of the cash book.
Question 38
'Oasis Furniture' uses a computerized voucher system that replaces traditional day books. Which type of voucher would the accountant prepare to record the annual depreciation charge on office equipment?
- A) Payment voucher
- B) Receipt voucher
- C) Sales voucher
- D) Journal voucher
Show answer & explanation
Answer: D) Journal voucher
Depreciation is a non-cash adjustment that would traditionally go in the General Journal. In a voucher-based accounting system, it is processed using a Journal Voucher.
Question 39
In a three-column cash book maintained by 'Sapphire Merchants', what does the memorandum column on the payment (credit) side specifically represent?
- A) Discount Allowed
- B) Bank balance
- C) Discount Received
- D) Cash in hand
Show answer & explanation
Answer: C) Discount Received
The payment side of the cash book records money paid out to suppliers. If a supplier grants a discount for early payment, this 'Discount Received' is recorded in the third memorandum column on that same side.
Question 40
Which of the following documents is most likely to act as the primary source document for an entry on the debit (receipt) side of the cash book?
- A) A purchase invoice received from a supplier.
- B) A copy of a receipt issued to a cash customer, or a cheque counterfoil.
- C) A credit note received from a supplier.
- D) A purchase requisition form.
Show answer & explanation
Answer: B) A copy of a receipt issued to a cash customer, or a cheque counterfoil.
The debit side of the cash book records incoming money. Source documents proving these receipts include copies of receipts given to customers, paying-in slips, or cheque counterfoils.
Question 41
The petty cashier of 'Silver Line' started the month with an imprest of Rs. 5,000. During the month, Rs. 3,200 was spent on minor expenses. Management then decides to permanently increase the imprest limit to Rs. 8,000. What total amount must be transferred to the petty cash tin?
- A) Rs. 3,200
- B) Rs. 5,000
- C) Rs. 8,000
- D) Rs. 6,200
Show answer & explanation
Answer: D) Rs. 6,200
The cashier needs Rs. 3,200 just to restore the original float of Rs. 5,000. To further increase the float limit to Rs. 8,000, an additional Rs. 3,000 is required. Therefore, the total transfer is Rs. 3,200 + Rs. 3,000 = Rs. 6,200.
Question 42
'Emerald Traders' determines that a credit customer's outstanding balance of Rs. 15,000 is irrecoverable and must be formally written off as a bad debt. Which book of prime entry is used to process this transaction?
- A) Sales returns day book
- B) Cash book
- C) General Journal
- D) Purchases day book
Show answer & explanation
Answer: C) General Journal
Writing off a bad debt is an internal, non-routine accounting adjustment that does not involve the flow of cash or the return of inventory. Therefore, it is recorded in the General Journal.
Question 43
Mr. Tariq, the sole owner of a grocery store, takes home trading inventory costing Rs. 8,000 for his family's personal use. How is this event initially recorded in the books of prime entry?
- A) In the Sales day book
- B) In the General Journal
- C) In the Cash book
- D) In the Purchases returns day book
Show answer & explanation
Answer: B) In the General Journal
The withdrawal of goods by the owner is a non-cash transaction (so not the cash book) and is not a sale to a customer or a return to a supplier. It is an adjustment (Drawings and Purchases/Inventory) recorded in the General Journal.
Question 44
'Pioneer Manufacturing' sends a 'Goods Dispatched Note' (GDN) to a customer along with a delivery of products. What is the accounting significance of this GDN in the books of prime entry?
- A) It immediately triggers a double-entry in the General Journal.
- B) It is recorded straight into the Sales day book as revenue.
- C) It serves only as a logistical notice and does not trigger an entry until the sales invoice is issued.
- D) It generates an immediate cash receipt entry in the Cash Book.
Show answer & explanation
Answer: C) It serves only as a logistical notice and does not trigger an entry until the sales invoice is issued.
A GDN is a supporting document proving delivery. It does not act as a source document for the books of prime entry; the actual recording in the sales day book waits for the formal sales invoice to be generated.
Question 45
'Apex Supplies' sells goods with a list price of Rs. 50,000 to a customer, less a 10% trade discount. The customer pays immediately by cheque to avail a further 5% settlement discount. What amount is recorded in the bank column of the cash book?
- A) Rs. 50,000
- B) Rs. 45,000
- C) Rs. 47,500
- D) Rs. 42,750
Show answer & explanation
Answer: D) Rs. 42,750
The invoice is for Rs. 45,000 (after the 10% trade discount). The 5% cash discount on Rs. 45,000 is Rs. 2,250. The customer pays the net amount: Rs. 45,000 - Rs. 2,250 = Rs. 42,750, which goes in the bank column.
Question 46
A supplier sends a 'Statement of Account' to 'Nimbus Traders' at the end of the month showing a total balance due of Rs. 120,000. How should 'Nimbus Traders' record this document in its books of prime entry?
- A) Record it in the Purchases day book to recognize the liability.
- B) Record it in the General Journal as an accrued expense.
- C) It is not recorded in any book of prime entry; it is only used to check and reconcile the ledger balance.
- D) Record it in the Cash book to trigger an immediate payment.
Show answer & explanation
Answer: C) It is not recorded in any book of prime entry; it is only used to check and reconcile the ledger balance.
A statement of account is merely a summary of invoices, payments, and credit notes that have already occurred. It is a reconciliation tool, not a source document for new prime entries.
Question 47
'Titanium Motors' returns defective spare parts to a supplier that were previously purchased on credit. Which document is received from the supplier, and in which book of prime entry is the event recorded?
- A) Debit note; General Journal
- B) Credit note; Purchases returns day book
- C) Debit note; Sales returns day book
- D) Credit note; Cash book
Show answer & explanation
Answer: B) Credit note; Purchases returns day book
When goods are returned to a supplier, the supplier issues a credit note to confirm they have reduced the buyer's debt. The buyer records this document in their purchases returns (returns outward) day book.
Question 48
What is the primary administrative and control advantage of using the imprest system for petty cash?
- A) It allows the petty cashier to write large cheques directly to suppliers.
- B) It eliminates the need to keep physical receipts or vouchers.
- C) It restricts the cash available to a fixed limit, and reimbursement strictly matches documented expenses.
- D) It completely removes small expenses from the statement of profit or loss.
Show answer & explanation
Answer: C) It restricts the cash available to a fixed limit, and reimbursement strictly matches documented expenses.
The imprest system sets a maximum float limit, preventing excessive unmonitored spending. Because reimbursement requires matching vouchers, it inherently forces strict accountability and minimizes the risk of fraud.
Question 49
When credit customers settle their accounts and take advantage of early payment discounts, the amounts are logged in the discount allowed column of the three-column cash book. What is the final double-entry destination for the periodic total of this column?
- A) Debit Discount Allowed account, Credit Trade Payables account
- B) Debit Trade Receivables account, Credit Discount Allowed account
- C) Debit Discount Allowed account, Credit Trade Receivables account
- D) Debit Sales account, Credit Cash account
Show answer & explanation
Answer: C) Debit Discount Allowed account, Credit Trade Receivables account
The total of the discount allowed column represents an expense to the business (Debit Discount Allowed) and reduces the total amount owed by customers (Credit Trade Receivables control account).
Question 50
Which of the following statements best explains why medium-to-large businesses utilize 'books of prime entry' rather than posting source documents directly into the general ledger?
- A) Books of prime entry are legally required for calculating corporate income tax.
- B) They completely eliminate the need for double-entry bookkeeping.
- C) They group and summarize large volumes of similar transactions, significantly reducing clutter in the main ledgers.
- D) They allow the business to record future estimated profits.
Show answer & explanation
Answer: C) They group and summarize large volumes of similar transactions, significantly reducing clutter in the main ledgers.
Books of prime entry act as an initial sorting and summarizing mechanism. By totaling similar transactions (like all credit sales) for the period, only the totals are posted to the main ledgers, making the system highly efficient.
Question 51
Under the imprest system, 'BlueSky Logistics' maintains a petty cash float of Rs. 12,000. During the month, the petty cashier recorded total expenses of Rs. 8,500. What amount must the main cashier provide to replenish the petty cash fund at the end of the month?
- A) Rs. 12,000
- B) Rs. 8,500
- C) Rs. 3,500
- D) Rs. 20,500
Show answer & explanation
Answer: B) Rs. 8,500
In an imprest system, the exact amount of expenses incurred during the period (Rs. 8,500) is reimbursed to the petty cashier to restore the physical cash balance to the original fixed float (Rs. 12,000).
Question 52
'Apex Electronics' sells goods with a list price of Rs. 400,000 on credit to a customer. A 10% trade discount is agreed upon. At what value should this transaction be recorded in the sales day book?
- A) Rs. 400,000
- B) Rs. 440,000
- C) Rs. 360,000
- D) Rs. 40,000
Show answer & explanation
Answer: C) Rs. 360,000
A trade discount is deducted immediately before the transaction is entered into the accounting records. The invoice is generated for the net amount: Rs. 400,000 - 10% = Rs. 360,000.
Question 53
Which of the following documents serves as the primary source document for recording a transaction in the Sales Day Book?
- A) Purchase order received from a customer
- B) Goods dispatched note
- C) Sales invoice issued to a customer
- D) Statement of account
Show answer & explanation
Answer: C) Sales invoice issued to a customer
The sales day book specifically records credit sales. The original source document that triggers this accounting entry is the finalized sales invoice issued by the business.
Question 54
'Crescent Furniture' receives a cheque of Rs. 48,000 from a customer in full settlement of a Rs. 50,000 debt. What is the correct double-entry to record the settlement discount allowed?
- A) Debit Bank Rs. 48,000, Debit Discount Allowed Rs. 2,000, Credit Receivables Rs. 50,000
- B) Debit Bank Rs. 48,000, Debit Discount Received Rs. 2,000, Credit Receivables Rs. 50,000
- C) Debit Receivables Rs. 50,000, Credit Bank Rs. 48,000, Credit Discount Allowed Rs. 2,000
- D) Debit Discount Allowed Rs. 2,000, Credit Bank Rs. 2,000
Show answer & explanation
Answer: A) Debit Bank Rs. 48,000, Debit Discount Allowed Rs. 2,000, Credit Receivables Rs. 50,000
The receipt of Rs. 48,000 increases the bank balance (Debit). The Rs. 2,000 difference is an expense to the business (Debit Discount Allowed). The customer's full Rs. 50,000 obligation is settled (Credit Receivables).
Question 55
Which of the following is NOT classified as a book of prime (original) entry?
- A) Sales returns day book
- B) Petty cash book
- C) Receivables ledger
- D) General Journal
Show answer & explanation
Answer: C) Receivables ledger
A ledger is a destination for summarized data, not a book of prime entry. Transactions are first recorded in day books, cash books, or the journal, and then posted to ledgers like the receivables ledger.
Question 56
'Vertex Traders' owes Rs. 15,000 to 'Horizon Suppliers'. Conversely, 'Horizon Suppliers' owes Rs. 10,000 to 'Vertex Traders'. If they agree to a contra settlement, what is the amount of the offset entry?
- A) Rs. 15,000
- B) Rs. 10,000
- C) Rs. 25,000
- D) Rs. 5,000
Show answer & explanation
Answer: B) Rs. 10,000
A contra settlement offsets a mutual debt between two parties. The offset is always recorded at the lower of the two amounts (Rs. 10,000), leaving a remaining net payable of Rs. 5,000.
Question 57
In a three-column cash book, where are settlement discounts received from credit suppliers recorded?
- A) In the discount column on the receipt (debit) side.
- B) In the discount column on the payment (credit) side.
- C) Directly in the Purchases Day Book.
- D) They are not recorded in the cash book; only in the General Journal.
Show answer & explanation
Answer: B) In the discount column on the payment (credit) side.
When a business pays a supplier and earns a discount, the payment is recorded on the credit side of the cash book, and the associated discount received is logged in the adjacent memorandum discount column on that same side.
Question 58
A cheque received from a credit customer was initially deposited and entered in the cash book. It was subsequently returned by the bank as dishonored. How is this dishonored cheque recorded?
- A) It is entered in the General Journal as a bad debt.
- B) It is recorded on the receipt side of the cash book again.
- C) It is entered on the payment side of the cash book to cancel the original receipt.
- D) It is recorded in the Sales Returns Day Book.
Show answer & explanation
Answer: C) It is entered on the payment side of the cash book to cancel the original receipt.
To reverse the original receipt entry of the cheque, an identical amount must be entered on the payment (credit) side of the cash book, reinstating the customer's debt.
Question 59
'Luminous Merchants' returns defective goods to a credit supplier. Which internal document does 'Luminous' issue to the supplier to formally request a reduction in the amount owed?
- A) Credit note
- B) Debit note
- C) Goods received note
- D) Purchase invoice
Show answer & explanation
Answer: B) Debit note
When returning goods to a supplier, the buyer issues a debit note to notify the supplier of the return and request a reduction in liability. The supplier responds by sending a credit note.
Question 60
When 'Titanium Electronics' receives goods returned by a disappointed customer, which source document does 'Titanium' generate to acknowledge the return and update its Sales Returns Day Book?
- A) Debit note
- B) Credit note
- C) Delivery note
- D) Statement of account
Show answer & explanation
Answer: B) Credit note
A seller issues a credit note to a customer who has returned goods. This document confirms the reduction in the customer's debt and acts as the source document for the Sales Returns Day Book.
Question 61
The owner of 'Galaxy Traders' withdraws Rs. 50,000 cash directly from the business bank account for personal use. Which book of prime entry is used to record this transaction?
- A) General Journal
- B) Petty Cash Book
- C) Purchases Day Book
- D) Cash Book
Show answer & explanation
Answer: D) Cash Book
Any physical cash or bank transaction, including owner withdrawals (drawings) from the bank, must be recorded directly on the payment (credit) side of the cash book.
Question 62
Which of the following statements best describes the 'imprest system' of operating petty cash?
- A) Expenses incurred on a weekly basis are strictly forbidden from exceeding the set limit.
- B) The petty cashier may write large cheques to suppliers.
- C) The petty cash float is restored to its original fixed amount periodically by reimbursing the exact amount of documented expenses.
- D) The petty cash balance is transferred to the main bank account daily.
Show answer & explanation
Answer: C) The petty cash float is restored to its original fixed amount periodically by reimbursing the exact amount of documented expenses.
Under the imprest system, a fixed float (e.g., Rs. 10,000) is maintained. At the end of the period, the main cashier reimburses the petty cashier for the exact total of the expense vouchers to bring the physical cash back to Rs. 10,000.
Question 63
'Urban Manufacturers' buys a specialized heavy machine on credit for Rs. 2 million. In which book of prime entry should this transaction be recorded?
- A) Purchases Day Book
- B) General Journal
- C) Cash Book
- D) Sales Day Book
Show answer & explanation
Answer: B) General Journal
The Purchases Day Book is exclusively for recording trading inventory bought on credit. The purchase of a non-current asset on credit is a non-routine transaction that goes in the General Journal.
Question 64
What is the primary administrative function of a 'Goods Dispatched Note' (GDN) in a business?
- A) It immediately triggers the recording of a credit sale in the ledgers.
- B) It serves as a notice to the customer that goods have been sent and lists the items delivered.
- C) It demands immediate cash payment from the customer upon delivery.
- D) It is an internal request for the purchasing department to buy raw materials.
Show answer & explanation
Answer: B) It serves as a notice to the customer that goods have been sent and lists the items delivered.
A GDN accompanies a delivery to inform the buyer of what is enclosed. It is a logistical document and does not trigger an accounting entry until the formal sales invoice is issued.
Question 65
When 'Pioneer Stores' receives inventory from a supplier, the warehouse staff prepares a document verifying the quantity and condition of the items against the purchase order. What is this document called?
- A) Purchase invoice
- B) Goods received note (GRN)
- C) Debit note
- D) Sales quotation
Show answer & explanation
Answer: B) Goods received note (GRN)
A Goods Received Note (GRN) is an internal document used to confirm the physical receipt of goods. It is later matched against the supplier's invoice to authorize payment.
Question 66
If a customer was excessively overcharged on a sales invoice, what document should the business subsequently issue to correct this error?
- A) A new, higher sales invoice
- B) A debit note
- C) A credit note
- D) A goods dispatched note
Show answer & explanation
Answer: C) A credit note
If a customer is overcharged, their debt must be reduced. The document issued by a seller to formally reduce a customer's debt is a credit note.
Question 67
'Quantum Corp' sold obsolete non-current assets (old office computers) on credit for Rs. 40,000. In which book of prime entry is this transaction recorded?
- A) Sales Day Book
- B) General Journal
- C) Cash Book
- D) Purchases Day Book
Show answer & explanation
Answer: B) General Journal
The Sales Day Book is strictly for recording the credit sale of trading inventory. Selling a non-current asset on credit is a non-routine disposal recorded in the General Journal.
Question 68
What happens if an error in a source document is transferred into a book of prime entry?
- A) The double-entry system automatically blocks the transaction.
- B) The error will be discovered immediately because the trial balance will not balance.
- C) The error will carry through to the ledger accounts, as books of prime entry summarize data directly for ledger posting.
- D) The bank will automatically reverse the transaction.
Show answer & explanation
Answer: C) The error will carry through to the ledger accounts, as books of prime entry summarize data directly for ledger posting.
If the original entry is wrong (error of original entry), the incorrect amounts will be posted to both the debit and credit sides of the ledgers. The trial balance will still balance, masking the error.
Question 69
A petty cashier using the imprest system lost a voucher for Rs. 500. At the end of the month, total vouchers sum to Rs. 4,000, but the physical cash short is Rs. 4,500. How should the main cashier handle the reimbursement?
- A) Reimburse only Rs. 4,000 against the valid vouchers.
- B) Automatically write down the imprest float.
- C) Reimburse the full Rs. 4,500 without question.
- D) Halt petty cash operations entirely.
Show answer & explanation
Answer: A) Reimburse only Rs. 4,000 against the valid vouchers.
Under the strict control of the imprest system, reimbursement is strictly tied to documented expenses (vouchers). The missing Rs. 500 represents a cash shortage/loss that must be investigated and formally written off separately.
Question 70
'Onyx Designs' received a 15% trade discount on goods with a list price of Rs. 200,000. Additionally, they took a 2% settlement discount for paying quickly. What total cost is initially entered in the Purchases Day Book upon receiving the invoice?
- A) Rs. 200,000
- B) Rs. 170,000
- C) Rs. 166,600
- D) Rs. 180,000
Show answer & explanation
Answer: B) Rs. 170,000
The trade discount (15% of 200,000 = 30,000) is deducted before recording. The invoice is for the net Rs. 170,000, which goes in the Purchases Day Book. The 2% settlement discount is recorded later in the cash book only upon payment.
Question 71
What is the key difference between a trade discount and a settlement (cash) discount in terms of books of prime entry?
- A) Trade discounts are recorded in the general journal, while cash discounts are ignored.
- B) Neither discount is recorded in any book of prime entry.
- C) Trade discounts are deducted before entry into day books, while settlement discounts are formally recorded in the cash book.
- D) Settement discounts are deducted before entry into day books, while trade discounts go in the cash book.
Show answer & explanation
Answer: C) Trade discounts are deducted before entry into day books, while settlement discounts are formally recorded in the cash book.
Trade discounts lower the initial invoice value and are not distinctly recorded. Settlement discounts are recognized as an expense or income when payment occurs and are recorded in the memorandum columns of the cash book.
Question 72
'Falcon Security' pays its employees' monthly salaries total of Rs. 800,000 via direct bank transfer. Which book of prime entry captures this data?
- A) General Journal
- B) Petty Cash Book
- C) Purchases Day Book
- D) Cash Book
Show answer & explanation
Answer: D) Cash Book
Any payment made through the banking system must be recorded in the Cash Book on the payment (credit) side, under the bank column.
Question 73
A business agrees to offset a customer's debit balance of Rs. 8,000 against a credit balance of Rs. 12,000 owed to the same party in the payables ledger. What is the entry in the General Journal?
- A) Debit Payables Rs. 12,000; Credit Receivables Rs. 12,000
- B) Debit Payables Rs. 8,000; Credit Receivables Rs. 8,000
- C) Debit Receivables Rs. 8,000; Credit Payables Rs. 8,000
- D) Debit Bank Rs. 8,000; Credit Receivables Rs. 8,000
Show answer & explanation
Answer: B) Debit Payables Rs. 8,000; Credit Receivables Rs. 8,000
A contra entry reduces both balances by the lower matching amount (Rs. 8,000). To reduce the liability, Debit Payables. To reduce the asset, Credit Receivables.
Question 74
In a manual accounting environment, how often are the totals from the Sales Day Book typically posted to the general ledger?
- A) At the end of the financial year only.
- B) Each time a single invoice is entered.
- C) Periodically, such as daily, weekly, or monthly, depending on transaction volume.
- D) Only when a customer pays their invoice.
Show answer & explanation
Answer: C) Periodically, such as daily, weekly, or monthly, depending on transaction volume.
The purpose of day books is to accumulate transactions over a practical period. At the end of that chosen period (week/month), the total is transferred to the Sales account in the general ledger.
Question 75
'Neon Signs' receives an invoice from a supplier that also clearly shows an error in arithmetic, undercharging them by Rs. 5,000. Once communicating this, what document will the supplier send?
- A) A new purchase order
- B) A goods received note
- C) A debit note acting as a supplementary invoice
- D) A credit note
Show answer & explanation
Answer: C) A debit note acting as a supplementary invoice
If a supplier has undercharged, they need to increase the customer’s debt. They do this by issuing a debit note (sometimes acting practically as an additional supplementary invoice).
Question 76
Which of the following is an example of an entry that MUST go through the General Journal?
- A) Payment for office stationery via cheque.
- B) The purchase of inventory on credit.
- C) Withdrawing physical cash from the bank for the petty cash tin.
- D) The calculation and recording of a provision for doubtful debts at year-end.
Show answer & explanation
Answer: D) The calculation and recording of a provision for doubtful debts at year-end.
Year-end accounting estimates and provisions do not involve cash flows or routine inventory buying/selling. Thus, they must be processed via journal entries in the General Journal.
Question 77
When 'Gamma Traders' receives its monthly bank statement, the accountant uses it to update the internal records. Which book of prime entry is immediately updated based on items like bank charges seen on the statement?
- A) General Journal
- B) Petty Cash Book
- C) Cash Book
- D) Purchases Day Book
Show answer & explanation
Answer: C) Cash Book
Bank charges, direct debits, and standing orders that appear on the bank statement represent actual outflows of money. They must be recorded directly on the payment side of the Cash Book.
Question 78
What is the primary function of a 'Delivery Note' accompanied with goods sent to a customer?
- A) It demands immediate payment.
- B) It serves as a formal invoice for accounting purposes.
- C) It allows the customer to check the physical goods received against what is written on the note.
- D) It officially transfers the ownership of a non-current asset.
Show answer & explanation
Answer: C) It allows the customer to check the physical goods received against what is written on the note.
A delivery note (or Goods Dispatched Note) is a logistical document listing what is in the package, enabling the receiving party to verify the contents upon arrival.
Question 79
'Delta Construction' uses a two-column cash book. A debtor pays a Rs. 100,000 balance using a bank transfer. How is this recorded?
- A) Debit Bank column, Credit Receivables
- B) Debit Cash column, Credit Receivables
- C) Credit Bank column, Debit Receivables
- D) Debit Receivables, Credit Bank column
Show answer & explanation
Answer: A) Debit Bank column, Credit Receivables
The bank transfer increases the company's bank balance, so it is entered on the receipt (Debit) side in the Bank column. It reduces the customer's debt (Credit Receivables).
Question 80
If 'Lunar Industries' discovers an error where the purchase of a motor vehicle was wrongly entered into the Purchases Day Book, how is this error corrected?
- A) By tearing out the page in the Purchases Day Book.
- B) By processing an adjusting double-entry through the General Journal.
- C) By recording a negative figure in the Cash Book.
- D) It cannot be corrected until the next financial year.
Show answer & explanation
Answer: B) By processing an adjusting double-entry through the General Journal.
Bookkeeping errors are corrected using formal adjusting entries designed to fix the wrong postings in the ledgers. This is a core function of the General Journal.
Question 81
Which column in a three-column cash book does NOT form part of the formal double-entry system but acts only as a memorandum?
- A) The Cash column
- B) The Bank column
- C) The Discount columns
- D) The Date column
Show answer & explanation
Answer: C) The Discount columns
The cash and bank columns act as actual ledger accounts. The discount columns are merely memorandum lists; their totals are posted periodically to the actual discount ledger accounts.
Question 82
A business receives a 'Credit Note' from a supplier indicating a Rs. 5,000 reduction in liability due to a minor defect in the goods kept by the business. Which book of prime entry records this document?
- A) General Journal
- B) Purchases Day Book
- C) Purchases Returns Day Book
- D) Cash Book
Show answer & explanation
Answer: C) Purchases Returns Day Book
The Purchases Returns Day Book (Returns Outwards Journal) records all credit notes received from suppliers relating to the return of inventory or allowances granted for defective goods.
Question 83
'Pinnacle Enterprises' transferred Rs. 100,000 from its bank account to top up the office cash safe. How is this 'contra entry' represented in the cash book?
- A) Debit Bank, Credit Cash
- B) Debit Cash, Credit Bank
- C) Debit Cash, Credit Drawings
- D) Debit Bank, Credit Sales
Show answer & explanation
Answer: B) Debit Cash, Credit Bank
Money is leaving the bank, so it is a payment (Credit Bank). Money is entering the physical cash tin, so it is a receipt (Debit Cash). Both sides of the transaction stay within the cash book.
Question 84
In the context of the purchases cycle, what is the role of a 'Supplier's Statement of Account' sent at month-end?
- A) It is the source document for the General Journal.
- B) It triggers immediate electronic payment.
- C) It replaces individual purchase invoices for recording in the day book.
- D) It allows the business to reconcile its own payable ledger balance with the supplier's records.
Show answer & explanation
Answer: D) It allows the business to reconcile its own payable ledger balance with the supplier's records.
The statement of account is a summary, not a source document for initial entry. It is used as a checking mechanism to ensure all invoices and payments have been matched correctly.
Question 85
The total of the Sales Day Book for the month of June is Rs. 1,500,000. What is the double-entry required to transfer this total to the general ledger?
- A) Debit Sales account, Credit Receivables Control account
- B) Debit Receivables Control account, Credit Sales account
- C) Debit Cash account, Credit Sales account
- D) Debit Sales account, Credit Cash account
Show answer & explanation
Answer: B) Debit Receivables Control account, Credit Sales account
The total of the credit sales increases the amount owed by customers (Debit Receivables) and increases revenue (Credit Sales). Since credit sales don't involve immediate money, cash/bank is not impacted here.
Question 86
A petty cash system has an imprest limit of Rs. 4,000. Current un-reimbursed expense vouchers total Rs. 2,800. An IOU from a staff member is present for Rs. 500. How much physical cash should be in the tin?
- A) Rs. 4,000
- B) Rs. 700
- C) Rs. 1,200
- D) Rs. 2,300
Show answer & explanation
Answer: B) Rs. 700
Total imprest (Rs. 4,000). Documented outlays are expenses (Rs. 2,800) + IOU (Rs. 500) = Rs. 3,300. The remaining physical cash should be: 4,000 - 3,300 = Rs. 700.
Question 87
Which of the following describes an entry that would be recorded in a 'Journal Voucher' rather than a standard day book in a computerized system?
- A) A standard credit sale of inventory.
- B) The receipt of cash from a customer.
- C) The accrual of unpaid electricity expenses at year-end.
- D) The purchase of raw materials on credit.
Show answer & explanation
Answer: C) The accrual of unpaid electricity expenses at year-end.
Accruals are non-routine, non-cash adjustments that do not fit into the standard sales/purchases/cash categories. Thus, they are processed via the equivalent of a General Journal—a journal voucher.
Question 88
'Saffron Boutique' issues a 'Debit Note' to a supplier. What is the logical next step that the supplier should take upon agreeing with the note?
- A) Pay cash to Saffron Boutique.
- B) Issue a Credit Note back to Saffron Boutique.
- C) Issue a Sales Invoice.
- D) Record it in their Sales Day Book.
Show answer & explanation
Answer: B) Issue a Credit Note back to Saffron Boutique.
A debit note sent to a supplier is a request to reduce liability. If the supplier agrees (e.g., they accept the goods were faulty), they will formalize the reduction by issuing a credit note.
Question 89
If a customer taking goods on credit forgets to take the physical 'Delivery Note', does this legally prevent the transaction from being entered in the seller's Sales Day Book?
- A) Yes, because evidence of physical handover is legally required before invoicing.
- B) No, the Sales Day Book is driven by the issuance of the Sales Invoice, not the delivery note itself.
- C) Yes, because a delivery note acts as the primary accounting voucher.
- D) No, because credit sales do not require source documents.
Show answer & explanation
Answer: B) No, the Sales Day Book is driven by the issuance of the Sales Invoice, not the delivery note itself.
While a signed delivery note is good logistical and legal evidence, the primary accounting document that triggers the entry in the Sales Day Book is the formally generated Sales Invoice.
Question 90
A business purchased goods worth Rs. 50,000 subject to a 10% trade discount. It later returns half of these goods to the supplier. At what value should the return be recorded in the Purchases Returns Day Book?
- A) Rs. 25,000
- B) Rs. 50,000
- C) Rs. 22,500
- D) Rs. 45,000
Show answer & explanation
Answer: C) Rs. 22,500
The initial purchase was recorded at the net amount after the 10% trade discount: Rs. 45,000. Returning half the goods means returning half that net value: 45,000 / 2 = Rs. 22,500.
Question 91
In an automated retail environment, what acts as the source document equivalent for entering daily physical cash sales into the cash book system?
- A) The supplier's goods received note.
- B) The Point of Sale (POS) system terminal totals (till rolls/z-reads).
- C) The general journal voucher.
- D) The bank statement received at month-end.
Show answer & explanation
Answer: B) The Point of Sale (POS) system terminal totals (till rolls/z-reads).
For high-volume retail, individual receipts aren't entered separately in the cash book. Instead, the daily summary totals generated by the till (POS system) act as the source document for a combined entry.
Question 92
Why are trade discounts completely omitted from the formal double-entry accounting records (including ledgers)?
- A) Because they are illegal under accounting standards.
- B) Because they represent money the business has permanently lost.
- C) Because the 'sale' formally takes place at the mutually agreed lower net price, making the list price irrelevant for accounting purposes.
- D) Because only cash discounts are considered real money.
Show answer & explanation
Answer: C) Because the 'sale' formally takes place at the mutually agreed lower net price, making the list price irrelevant for accounting purposes.
A trade discount determines the actual finalized price of the transaction before the exchange happens. Accounting records facts based on the final agreed value, ignoring theoretical catalog prices.
Question 93
What happens to the total of the 'Purchases Returns Day Book' at the end of the accounting period?
- A) It is debited to the Purchases Returns account.
- B) It is credited to the Payables Control account.
- C) It is credited to the Purchases Returns account and debited to the Payables Control account.
- D) It is transferred directly to the Cash Book.
Show answer & explanation
Answer: C) It is credited to the Purchases Returns account and debited to the Payables Control account.
Returning goods reduces the supplier liability (Debit Payables Control) and reverses an expense, creating a credit balance (Credit Purchases Returns/Returns Outwards).
Question 94
If a cheque payment to a supplier is recorded correctly in the cash book, but the supplier later informs the business they destroyed the cheque by accident without cashing it. Which book of prime entry is used to correct the company's records?
- A) General Journal
- B) Cash Book
- C) Purchases Day Book
- D) Petty Cash Book
Show answer & explanation
Answer: B) Cash Book
The original payment was recorded in the cash book. To cancel this payment because the cheque will never clear, an equal amount must be entered on the receipt (debit) side of the cash book.
Question 95
'Meteor Electronics' offers a 5% discount for invoices settled within 14 days. A customer misses the deadline and pays the full list amount on day 20. How is this recorded in the cash book?
- A) Enter the net amount in the bank column and the discount in the discount allowed column.
- B) Enter the full gross amount in the bank column; nothing in the discount column.
- C) Enter the gross amount in the bank column and a penalty in the general journal.
- D) Refuse the payment.
Show answer & explanation
Answer: B) Enter the full gross amount in the bank column; nothing in the discount column.
If the condition for the settlement discount is not met, the discount is forfeit. The customer pays the full invoice value, which is simply recorded in full on the receipt side of the cash book.
Question 96
In a manual bookkeeping system, the 'Folio' column in a Cash Book helps a bookkeeper to do what?
- A) Verify the signature on a cheque.
- B) Cross-reference the specific entry to the corresponding page in the general or personal ledgers.
- C) Calculate the daily cash balance.
- D) Keep track of the date.
Show answer & explanation
Answer: B) Cross-reference the specific entry to the corresponding page in the general or personal ledgers.
A Folio (LF - Ledger Folio) column acts as a mapping index, indicating exactly where the double-entry for that specific transaction has been posted in the ledgers.
Question 97
A petty cashier is assigned an imprest of Rs. 8,000. Under what circumstance would the main cashier reimburse more than Rs. 8,000 to the tin?
- A) If the petty cashier spent Rs. 8,500, temporarily funding it out of pocket.
- B) Only if management decides to permanently increase the float limit above Rs. 8,000.
- C) If the petty cashier lost all the vouchers.
- D) If a cheque was dishonored.
Show answer & explanation
Answer: B) Only if management decides to permanently increase the float limit above Rs. 8,000.
In normal operations, reimbursement only replaces what was spent up to the float limit. Reimbursement can exceed the original limit only if management formally authorizes a permanent increase in the float size.
Question 98
Which of the following is typically NOT a valid source document for entries in the petty cash book?
- A) A taxi driver's handwritten receipt.
- B) A supplier's formal invoice for Rs. 500,000 of raw materials.
- C) A till receipt for coffee and tea supplies.
- D) An internally authorized petty cash voucher filled out by staff.
Show answer & explanation
Answer: B) A supplier's formal invoice for Rs. 500,000 of raw materials.
Petty cash is explicitly for small, minor, incidental expenses. A major purchase of raw materials is a routine trading transaction that would go through the purchases day book or main cash book.
Question 99
When 'Vortex Traders' prepares its monthly accounts, it needs to record the accrual of staff bonuses earned but not yet paid. Which book of prime entry is utilized?
- A) Cash Book
- B) Petty Cash Book
- C) General Journal
- D) Purchases Day Book
Show answer & explanation
Answer: C) General Journal
Accruing for an expense means recognizing a liability without an immediate cash outflow. Since there's no cash movement and it’s an internal adjustment, it goes in the General Journal.
Question 100
The total of the discounts received column in the cash book for May is Rs. 15,000. What is the correct ledger posting for this total?
- A) Debit Payables Control account, Credit Discounts Received account
- B) Debit Discounts Received account, Credit Payables Control account
- C) Debit Bank account, Credit Discounts Received account
- D) Debit Discounts Received account, Credit Bank account
Show answer & explanation
Answer: A) Debit Payables Control account, Credit Discounts Received account
Discounts received act as income/savings (Credit Discounts Received). They are earned because suppliers reduced the amount the business owes, so it reduces liability (Debit Payables Control account).