Recording

Morgan downloads a transaction report showing their bank transactions for the day. The report shows a payment of £860, which the computerised accounting system has not been able to automatically match to a transaction. Which of the following transactions is most likely to have resulted in the payment of £860?

• A bank transfer received from a credit customer to settle an invoice
• An amount paid to purchase new office furniture
• An amount withdrawn to restore the petty cash to its imprest amount of £100
• A bank transfer paid to an electricity supplier in respect of the monthly invoice received

Answer explanation

The only feasible option is that the payment is an amount paid out in respect of furniture. As the purchase of furniture is a one-off transaction, it would not be automatically matched by the computerised accounting system. The expense is too high to be due to restoring the petty cash imprest amount (Option C). Option A is a receipt of cash, not a payment, and Option D is likely to be matched automatically by the system as it is the payment of a regular invoice.

What is the correct double entry to record an invoice raised to a credit customer who is not expected to take advantage of an early settlement discount?

• Debit Revenue, Credit Receivables
• Debit Payables, Credit Revenue
• Debit Receivables, Credit Revenue
• Debit Revenue, Credit Payables

Answer explanation

Debit Receivables, Credit Revenue. An invoice issued to a customer is recorded as Debit Receivables, Credit Revenue regardless of whether an early settlement discount is expected to be taken or not.

What transaction is represented by the entries: Debit Rent, Credit Payables?

• The receipt of rental income by the business
• The issue of an invoice for rent to a tenant
• The receipt of an invoice for rent payable by the business
• The payment of rent by the business

Answer explanation

The receipt of an invoice for rent payable by the business Options A and B are ruled out because they relate to rental income, which would be a credit (not a debit) in a rent account. Option D is ruled out because there is no entry made in the bank account and therefore no payment can yet have been made.

What accounting entries are required to record goods returned outwards if the original transaction was made on credit?

• Debit Payables, and Credit Returns outwards
• Debit Returns outwards, and Credit Payables
• Debit Returns outwards, and Credit Receivables
• Debit Receivables, and Credit Returns outwards

Answer explanation

Returns outwards are returns made to suppliers, perhaps because goods received were damaged i.e. they are ‘negative purchases’. The liability to the supplier must be reduced and the returns outwards account is credited. At the end of the year, the total of returns outwards will be offset against the purchases expense to reduce the net cost of purchases.

Andi started a taxi business by transferring a car, valued at $5,000, into the business. What accounting entries are required to record the transfer of the car into the business?

• Debit Capital/ Credit Motor vehicle
• Debit Motor vehicle/ Credit Drawings
• Debit Motor vehicle/ Credit Capital
• Debit Motor vehicle/ Credit Bank

Answer explanation

This is a transaction that records an increase in non-current assets (motor vehicle) and an increase in capital.

Which of the following is the correct journal entry to write off an irrecoverable debt?

• Debit Sales/ Credit irrecoverable debts
• Debit Irrecoverable debts/ Credit Bank
• Debit Receivables/ Credit Irrecoverable debts
• Debit Irrecoverable debts/ Credit Receivables

Answer explanation

Before the debt was written-off it was recognised in receivables (with or without a related allowance for doubtful debts). To remove the debt receivables will be credited and a charge for irrecoverable debts will be recognised in profit or loss.

What accounting entries are required to record goods returned inwards if the original transaction was made on credit?

• Debit Sales revenue, and Credit Trade payables
• Debit Returns inwards, and Credit Trade payables
• Debit Returns inwards, and Credit Trade receivables
• Debit Trade receivables, and Credit Returns inwards

Answer explanation

Returns inwards are sales returns from customers. They can be thought of as ‘negative sales’or ‘negative income’, so we debit a returns inwards account. The returns reduce the amount owed by credit customers, so we credit the receivables account (reducing an asset = credit entry).

What are the accounting entries required to record the purchase of goods for resale on credit with a gross invoice value of $1,541, which includes sales tax at the rate of 15%? The business is registered to account for sales tax.

• Debit Purchases $1,309.85, Debit Sales tax $231.15, and Credit Payables $1,541.00
• Debit Purchases $1,340, Debit Sales tax $201, and Credit Payables $1,541
• Debit Purchases $1,541.00, Debit Sales tax $231.15, and Credit Payables $1,772.15
• Debit Purchases $1,772.15, Credit Sales tax $231.15 and Payables $1,541.00

What are the accounting entries required to record sales on credit of $10,000, on which sales tax is applied at the rate of 20%?

• Debit Receivables $12,000, Credit Sales revenue $10,000 and Credit Sales tax $2,000
• Debit Receivables $10,000, Credit Sales revenue $8,000 and Credit Sales tax $2,000
• Debit Sales revenue $10,000, Debit Sales tax $2,000 and Credit Suspense $12,000
• Debit Sales revenue $8,000, Debit Sales tax $2,000 and Credit Suspense $10,000

Jo prepared the following journal adjustment: Debit Payables $85 Credit Discount $85 Which of the following is the correct narrative for this journal entry?

• Settlement discount allowed relating to payables
• Trade discount received relating to payables
• Settlement discount received relating to payables
• Trade discount allowed relating to payables

Answer explanation

Trade discount should not be recognised in the general ledger accounts. Settlement discount relating to the early payment of amounts due to suppliers is discount received.