qs i got wrong 6 DO AGAIN Flashcards
1 Which three of the following situations are likely to result in a suspense account being used to record
a transaction?
A A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3% prompt
payment discount.
B A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%.
C A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.
D A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in which the
bookkeeper was unsure where to record the credit entry.
E A payment made to a supplier for £90.25 in respect of an invoice for £95 on which a prompt
payment discount of 5% was expected to be taken.
1 Correct answer(s):
A A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3% prompt
payment discount.
C A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.
D A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in which the
bookkeeper was unsure where to record the credit entry.
In A, where a discount is taken unexpectedly, the transaction would not be automatically matched
against the amount recorded on the invoice and a suspense account would be used. In C the
disposal of a van is not a regular transaction and therefore the computerised system is unlikely to be
able to match it and a suspense account would be used. In D, if the bookkeeper is unsure of one side
of a transaction, the suspense account is used to enable the posting to take place and then
investigated and corrected later. In B, the payment made of £84 (which is equal to £70 plus VAT at
20%) appears to be a regular transaction, and so this receipt would be matched. In E, £95 less 5% is
£90.25 and the discount was expected to be taken, so this payment would also be matched.
2 Indicate whether the following statements are true or false.
Requirements
The owner’s drawings are shown on the initial trial balance.
True A
False B
The closing inventory balance is included in the final trial balance.
True C
False
2 Correct answer(s):
True A
Owner’s drawings will be a debit balance in an initial trial balance.
Correct answer(s):
True C
Closing inventory is a debit balance in the final trial balance.
When performing a reconciliation between the bank transaction report and the cash at bank account,
which two of the following would require an entry in the cash at bank account?
A Deposits credited after date
B Direct debit shown on bank transaction report only
C Bank charges
D Bank error
E Cheque presented after date
3 Correct answer(s):
B Direct debit shown on bank transaction report only
C Bank charges
Cash at bank account: The direct debit shown on bank transaction report only (B) will need to be
recorded in the accounting system, as will the bank charges (C).
Deposits credited after date (A) and cheque presented after date (E) have already been accounted
for correctly and would appear on the bank reconciliation. The bank error would also appear on the
bank reconciliation and would require correction by the bank.
4 Epsilon Ltd’s cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn. On
comparing this with the transaction report downloaded from the electronic banking system, the
accountant discovers the following:
(1) A payment of £57 made by Epsilon Ltd on 31 December 20X3 has not yet cleared its bank.
(2) An electronic funds transfer of £92 from a customer, which was paid into the bank on
30 December 20X3, has been dishonoured by the customer’s bank on 31 December 20X3.
Requirement
The correct balance in Epsilon Ltd’s cash at bank account as at 31 December 20X3 is:
A £473 debit
B £714 credit
C £657 credit
4 Correct answer(s):
C £657 credit
The dishonoured funds transfer needs to be deducted from Epsilon Ltd’s cash at bank account.
£(565) – 92 = £(657). The payment of £57 is already included in the cash at bank account.
5 Smock Ltd’s draft profit for the year is £324,700. After the draft profit was calculated, the following
issues were discovered.
* Debts of £6,800 should have been written off as irrecoverable at the year end, but the journal
entry was not posted.
* The accounting software had automatically calculated and recorded depreciation, but the
standing data was found to be incorrect. The depreciation rate for cars should have been updated
to 20% straight-line at the start of the year but, was left as 25% straight-line in error. The balance
on the car cost account at the year-end was £24,000. There were no additions or disposals of cars
in the year.
Requirement
What is Smock Ltd’s corrected profit for the year after accounting for the above issues?
A £323,500
B £319,100
C £313,100
D £316,700
The following information relates to a bank reconciliation. The balance in the cash at bank account
before taking the items below into account was £8,970 overdrawn.
(1) Bank charges of £550 on the bank statement have not been entered in the cash at bank account.
(2) The bank has credited the account in error with £425 which belongs to another customer.
(3) Electronic payments totalling £3,275 made shortly before the year end have been entered in the
cash at bank account but have not yet cleared the bank statement.
(4) Cash receipts totalling £5,380 have been correctly entered on the debit side of the cash at bank
account but have not been paid into the bank.
Requirement
What was the overdrawn balance as shown by the bank statement?
A £6,990
B £10,650
C £11,200
D £11,625
8 Which two of the following statements about bank reconciliations are correct?
A In preparing a bank reconciliation, unpresented cheques must be deducted from the balance
shown in the bank statement.
B An electronic payment from a customer, which was dishonoured due to a lack of funds in the
customer’s bank account, must be corrected making a debit entry in the cash at bank account.
C An error by the bank must be corrected by an entry in the cash at bank account.
D An overdraft is a debit balance on the bank statement.
E Bank charges that only appear on the bank statement must be debited to the cash at bank
account.
8 Correct answer(s):
A In preparing a bank reconciliation, unpresented cheques must be deducted from the balance
shown in the bank statement.
D An overdraft is a debit balance on the bank statement.
A dishonoured payment needs to be removed (credited) from the cash at bank account as the
amount will not be received. An error made by the bank does not require correction in the cash at
bank account. Bank charges on the bank statement would be credited to the cash at bank account,
not debited.
Correct answer(s):
B Debit Revenue £300, Credit Suspense account £300
The suspense account entry has to be reversed (credited) and the amount debited to revenue to
reduce revenue recorded for this sale to the amount net of the early settlement discount taken by the
customer
