A/L Accounting Revision 1

The primary objective of accounting is ...

• to record all transactions of an entity in the books of accounts.

• to record, categorize and summarize transactions of an entity.

• to analyze the information presented in financial statements of an entity.

• to provide a detailed analysis of transactions of an entity to its managers.

• to provide information about an entity to its users for decision making.

Which of the following transactions is recorded in the Purchase Journal of an entity?

• All assets purchased on credit

• All purchases made with the intention of resale

• All credit purchases made with the intention of resale

• All purchases made with the intention of resale on credit

• All property, plant and equipment purchased on credit.

Answer explanation

Goods purchased on credit to resell =

Purchase invoice ----> Purchases Journal

The following transactions took place in Nihal's business. 

01.03.2018 - Purchase of goods costing Rs. 150 000 from Upasena on credit

05.03.2018 - Return of goods costing Rs. 30 000 to Upasena

20.03.2018 - Sale of goods costing Rs. 100 000 for Rs. 160 000 on credit

20.03.2018 - Payment of sales commission of Rs. 10 000 

02.04.2018 - Settlement of the full amount due to Upasena 

The accounting equation which shows the net impact of the above transactions in Nihal's business 

as at 31.03.2018: 

• Assets (Rs.) + 50 000 

  = Equity (Rs.) + 50 000

• Assets (Rs.) + 60 000 

  = Equity (Rs.) + 60 000

• Assets (Rs.) + 170 000 

  = Liabilities (Rs.) + 120 000 

  + Equity (Rs.) + 50 000

• Assets (Rs.) + 170 000 

  = Liabilities (Rs.) + 150 000  + Equity (Rs.) + 20 000

• Assets (Rs.) + 180 000 = Liabilities (Rs.) + 120 000  + Equity (Rs.) + 60 000 

The following transactions took place in Nihal's business. 

01.03.2018 - Purchase of goods costing Rs. 150 000 from Upasena on credit

05.03.2018 - Return of goods costing Rs. 30 000 to Upasena

20.03.2018 - Sale of goods costing Rs. 100 000 for Rs. 160 000 on credit

20.03.2018 - Payment of sales commission of Rs. 10 000 

02.04.2018 - Settlement of the full amount due to Upasena 

Owing to the above transactions the increase in the balance of creditors control account of Nihal's business as at 31.03.2018: 

• Rs. 20 000 

• Rs. 150 000

• Rs. 160 000

• Rs. 120 000 

• Rs. 100 000

What is the correct sequential order of the following activities in the accounting process? 

A-Entries are made in prime entry books.

B- Source documents are prepared.

C-Business transactions take place.

D-Trial balance is prepared. 

E- Entries are posted to the ledger.

• B, D, C, A, E 

• C, B, A, E, D

• C, B, A, D, E

• C, A, B, E, D

• D, B, C, A, E

What are the two underlying assumptions of financial statements according to the Framework for Preparation and Presentation of Financial Statements?

• Entity and Accruals

• Entity and Going Concern

• Entity and Periodicity

• Accruals and Going Concern.

• Periodicity and Money Measurement

The Income statement of a retail business reported the following information for the year ending 31.03.2018. 

Description  Rs.'000

Sales  2000

Interest earned  250

Gain on sale of motor vehicles   150

Interest expenses 300

Operating expenses  500

Cost of sales  1 200

Drawings-goods  200 

The total income and total expenses to be recognized by this business for the year ending 31.03.2018: 

• 1 200 & 800

• 1 200 & 1000

• 2 250 & 2 000

• 2 400 & 2000

• 2 200 & 2400 

 During the year the assets of a sole trader increased by Rs. 400.000 and the liabilities increased by Rs. 50 000. If the profit for this year was Rs. 250 000.

How much additional capital was introduced by the owner?

 (Rs.) (a)  

Which stakeholders of a business entity would be most interested in

"The amount of taxes paid by the entity" ?

(a)  

An entity carries out all its cash transactions through a bank account.

Its monthly bank statement showed a credit balance of Rs. 270 000 as at 31.01.2012.

On this date, cheques deposited but not realized and cheques issued but not presented for payment were Rs. 85 000 and Rs. 45 000 respectively.

The bank balance (debit) in the books of the entity as at 31.01.2012 is,

• Rs. 225 000

• Rs. 230 000

• Rs. 270 000

• Rs. 310 000

• Rs. 355 000