Practice Chapter 5

How is the total of the purchases day book posted to the nominal ledger?

Purchases

Payables control account

Cash

Debit
Credit

No effect

At 31 October 20X6 Roger's trial balance included the following balances:

$
Machinery at cost	12,890
Accumulated depreciation	8,950
Inventory	5,754
Trade receivables	11,745
Trade payables	7,830
Bank overdraft	1,675
Cash at bank	150

What is the value of Roger's current assets at 31 October 20X6? 

$17,649 = 5,754 + 11,745 + 150

At 30 November 20X5 Jenny had a bank loan of $8,500 and a balance of $678 in hand in her bank account.

How should these amounts be recorded on Jenny's opening trial balance at 1 December 20X5?

A

Credit $7822

B

Debit $8,500 and Credit $678

C

Debit $7822

D

Credit $8,500 and Debit $678

D

The two balances must be separately disclosed

Are these statements about debit entries true or false?

1. A debit entry in the cash book will increase an overdraft in the accounts
2. A debit entry in the cash book will increase a bank balance in the accounts

A

(1) false and (2) true

B

Both false

C

(1) true and (2) false

D

Both true

A

When cash is received by a business, a debit entry is made in the cashbook. A receipt of cash decreases an overdraft and increases a bank balance

The following totals appear in the day books for March 20X8:

	$
Sales day book	40,000
Purchases day book	20,000
Returns inwards day book	2,000
Returns outward day book	4,000

Opening and closing inventories are both $3,000. What is the gross profit for March 20X8? 

$	$
Sales		40000
Returns inwards		(2000)
		38000
Opening inventory	3000
Purchases	20000
Returns outwards	(4000)
Closing inventory	(3000)
		(16000)
Gross profit		22000

The net assets of Altese, a trader 1 January 20X2 amounted to $128,000.

During the year to 31 December 20X2, Atese introduced a further $50,000 of capital and made drawings of $48,000. At 31 December 20X2 Altese's net assets totalled $184,000.

What is Altese's total profit or loss for the year ended 31 December 20X2? 

Increase in net assets = Capital introduced + profit - drawings
184,000 - 128,000      = 50,000+ profit - 48,000
Profit                          = 56,000 - 50,000 + 48,000
                                    = $54,000

Two types of common errors in bookkeeping are errors of principle and errors of transposition. 

Will these errors be revealed by extracting a trial balance?

Errors of Principle - Will not be revealed

Errors of Transposition - Will be revealed

The profit earned by a business in 20X7 was $72,500.

The proprietor injected new capital of $8,000 during the year and withdrew goods for his private use which had cost $2,200
If net assets at the beginning of 20X7 were $101,700. what were the closing net assets? 

= P+C-D
= $(72,500 + 8,000-2,200)
= $78,300
Therefore, closing net assets = $(101,700 + 78,300) = $180,000

Which of the following would be recorded in the sales daybook?

A

Discounts allowed
 

B

Credit notes received

C

Sales invoices

D

Trade discounts

C

Discounts allowed are recorded in the cash book. Credit notes received are to do with returned purchases (not sales). Trade discounts are not recorded as they are deducted on the sales invoices and only the net sale is recorded.

A business sells $100 worth of goods to a customer, the customer pays $50 in cash immediately and will pay the remaining $50 in 30 days time.

What is the double entry to record the purchase in the customer's accounting records?

A

Dr Purchases        $100
Cr Payables             $50
Cr Cash                   $50

B

Dr Cash                $100
Cr Payables           $50
Cr Purchases         $50

C

Dr Payables           $50
Dr Cash                 $50
Cr Purchase        $100    

D

Dr Purchase        $100
Cr Cash               $100

A

Debit cash $50, credit payables $50, credit purchases $50" is incorrect as the debits and credits don't equal each other
"Debit payables $50, debit cash $50, credit purchases $100" is incorrect as the debits and credits are the wrong way round.
"Debit purchases $100, credit cash $100" is incorrect as the credit purchase has been ignored.

A trader's net profit for the year may be computed by using which of the following formulae?

A

Opening capital - drawings + capital introduced - closing capital

B

Closing capital + drawings - capital introduced - opening capital

C

Opening capital - drawings - capital introduced - closing capital

D

Opening capital + drawings - capital introduced-closing capital

B

Closing capital - opening capital = increase (1) in net assets.

This means that "Closing capital + drawings - capital introduced-opening capital is equivalent to

P = I + D - C

This is the correct form of the business equation.

Jones Co has the following transactions:

1. Payment of $400 to J Bloggs for a cash purchase
2. Payment of $250 to J Doe in respect of an invoice for goods purchased last month
What are the correct ledger entries to record these transactions?

A

Dr Purchases             $400
Dr Trade Payables     $250
    Cr Cash                  $650
 

B

Dr Cash                              $650
      Cr Trade Payables        $250
      Cr Purchases                $400
 

C

Dr Cash                     $650
    Cr Purchases         $650
 

D

Dr Purchases        $650
    Cr Cash            $650

A

A payment is a credit to the cash account. The payment to J Bloggs is a cash purchase and so the double entry is Dr Purchases, Cr Cash. Remember that the purchase from JDoe has already been recorded as Dr Purchases, Or Cr Trade Payables, so the payment of cash to clear the invoice should now be recorded as Dr Trade Payables, Cr Cash.

Which of the following documents should accompany a return of goods to a supplier?

A

Purchase invoice

B

Credit note

C

Debit note

D

Remittance advice

C

A debt note is sent to a supplier with a return of goods. A debit note is in effect a request for a credit note.

Mew Ling has the following transactions:

1. Receipt of cash from R Singh in respect of an invoice for goods sold three weeks ago
2 Receipt of cash from S Kalu for cash sales
What are the ledger entries required to record the above transactions?

Sales

Cash 

Trade receivables

Credit

Debit

Credit

A sole trader took some goods costing $800 from inventory for his own use. The normal selling price of the goods is $1,000

Which of the following journal entries would correctly record this?

A

Dr Drawing account         $800
    Cr Sales account           $800
 

B

Drawing account                   $800
    Cr Purchase account          $800
 

C

Inventory account                   $800
    Cr Purchases account         $800
 

D

Dr Sales account                $1600
    Cr Drawing account       $1600
 

B

The selling price is not relevant to this adjustment.