UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

General Certificate of Education Ordinary Level

PRINCIPLES OF ACCOUNTS 7110/01

Paper 1 Multiple Choice October/November 2008
1 hour
Additional Materials: Multiple Choice Answer Sheet
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Write in soft pencil.

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unless this has been done for you.

There are thirty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C and D.
Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.

Read the instructions on the Answer Sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Any rough working should be done in this booklet.
Calculators may be used.

This document consists of 10 printed pages and 2 blank pages.

IB08 11_7110_01/2RP
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1 What is a disadvantage of a computerised accounting system?

A Anyone with a computer can gain access to the accounting records.

B Data input can only be used for one specific purpose.
C Data output can only be understood by computer programmers.
D Operator error may result in inaccurate information.

2 What is the accounting equation?

A assets – liabilities = capital

B assets + liabilities = capital
C liabilities – assets = capital
D liabilities – capital = assets

3 Winston sold goods on credit to Leroy.

What entries should Winston make in his ledgers?

sales ledger general ledger

A credit Leroy debit sales

B credit sales debit Leroy
C debit Leroy credit sales
D debit sales credit Leroy

4 Omar sends a credit note to Miriam for goods returned.

How will Miriam record the transaction?

account to be debited account to be credited

A purchases returns Omar

B sales returns Miriam
C Omar purchases returns
D Miriam sales returns

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5 Patel sent the following documents to Singh in September.

invoice goods, $1200, less trade discount of 10 %

credit note goods, $160, less trade discount of 10 %

Singh paid a cheque in settlement.

What was the amount of the cheque?

A $920 B $936 C $1040 D $1056

6 How many of the following transactions should be recorded in the general journal?

credit purchase of a fixed asset

credit sale of goods
goods taken by owner for personal use
writing off a bad debt

A 1 transaction
B 2 transactions
C 3 transactions
D 4 transactions

7 A cash book (bank columns) shows an overdrawn balance of $1973 at 31 August. The following
items do not appear in the bank statement at this date.

unpresented cheques 942

cheques banked 865

What balance appears on the bank statement at 31 August?

A $1896 credit
B $1896 debit
C $2050 credit
D $2050 debit

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8 A supplier’s account in a customer’s books has a credit balance of $8000.

What does this mean?

A The customer has paid the supplier $8000.

B The customer owes the supplier $8000.
C The supplier has paid $8000.
D The supplier owes $8000.

9 Carriage outwards, $300, has been shown on the credit side of a trial balance in error.

How will this affect the totals of the trial balance?

A credit side $300 less than debit side

B credit side $600 less than debit side
C debit side $300 less than credit side
D debit side $600 less than credit side

10 John’s financial year ends on 31 December. He pays his annual insurance premium on 1 July. He
provides the following information.

insurance premium paid on 1 July 2006 2400

insurance premium paid on 1 July 2007 3000

How much is transferred from the insurance account to the profit and loss account for the year
ended 31 December 2007?

A $2400 B $2700 C $3000 D $4200

11 Which accounting entry is made to decrease a provision for doubtful debts?

account to be debited account to be credited

A debtors provision for doubtful debts

B provision for doubtful debts debtors
C profit and loss provision for doubtful debts
D provision for doubtful debts profit and loss

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12 A trader’s expenditure for 2007 includes the following.

redecoration of premises 5 000

insurance of motor vehicles 2 000
purchase of machinery 10 000

How much should the trader charge to the profit and loss account for 2007?

A $7000 B $10 000 C $12 000 D $17 000

13 Sam owns an engineering business.

For which fixed asset is he most likely to use the revaluation method of depreciation?

A delivery vehicle
B loose tools
C machinery
D office equipment

14 A machine that originally cost $8000 is now sold for $900. The balance on the provision for
depreciation account for this machine is $6900.

What is the effect of this transaction?

A loss on sale $200

B profit on sale $200
C loss on sale $1100
D profit on sale $1100

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15 The difference on a trial balance is entered in a suspense account.

A payment of $250 for motor expenses had been correctly entered in the cash book but posted to
the credit side of the motor expenses account.

Which journal entry corrects this error?

dr cr
$ $

A motor expenses 250

suspense 250
B suspense 250
motor expenses 250
C motor expenses 500
suspense 500

D suspense 500
motor expenses 500

16 Which would appear in a purchases ledger control account?

A cash discount allowed

B cash paid to creditors
C cash purchases
D cash received from debtors

17 How is gross profit calculated?

A sales less expenses

B sales less purchases
C sales less sales returns less closing stock
D sales less sales returns less cost of goods sold

18 Anna’s balance sheet showed net assets of $22 000 on 1 January and $23 000 on 31 December.

During the year Anna withdrew $5000 for personal use.

What was Anna’s profit for the year?

A $1000 B $4000 C $5000 D $6000

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19 Bale has a bank overdraft and also a bank loan repayable in 2010.

Which are shown as long term liabilities in Bale’s balance sheet at 30 April 2007?

accrued interest on accrued interest on

bank loan
bank loan bank overdraft

A   
B   
C   
D   

20 A trader provides the following information.

fixed assets 30 000

cash 500
bank overdraft 2 000
debtors 4 000
creditors 3 500
stock 5 000

What is the working capital?

A $4000 B $8000 C $34 000 D $39 500

21 Which is a service business?

A business installing computer systems

B business selling computers and printers
C stationery shop
D TV and video shop

22 At the end of his financial year Tom owes $150 rent.

How will the adjustment for this amount affect Tom’s final accounts?

A decrease expenses and increase current assets

B decrease expenses and increase current liabilities
C increase expenses and increase current assets
D increase expenses and increase current liabilities

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23 What is the purpose of a partnership appropriation account?

A to calculate partners’ salaries

B to record partners’ drawings
C to show the distribution of profits between partners
D to show the movement on partners’ capital accounts

24 A partner is entitled to interest on capital, partnership salary and a share of profits.

In which accounts are they credited?

interest on capital partnership salary share of profits

A capital account capital account capital account

B capital account current account current account
C current account capital account capital account
D current account current account current account

25 The following information relates to Abdul’s trade creditors for one financial year.

amount owing to trade creditors at start of year 22 000

purchases on credit 125 000
returns outwards 6 000
payments made to trade creditors 116 000

What is the amount owing to the trade creditors at the end of the year?

A $19 000 B $25 000 C $31 000 D $37 000

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26 Wayne’s trading account for the year was as follows.

$ $

sales 12 800
opening stock 1 000
purchases 10 500
11 500
closing stock 1 600 9 900
gross profit 2 900

What was Wayne’s gross profit margin?

A 22.66 % B 25.22 % C 27.62 % D 29.29 %

27 A business pays a weekly government tax of 10 % on the total weekly wages paid to employees.

For the week ended 30 April, the total paid to employees amounted to $5000.

Which entries will record the payment on 30 April?

wages account government tax account bank account

debit credit debit credit debit credit
$ $ $ $ $ $

A 4500 500 5000

B 4500 500 5000
C 5000 500 5500
D 5000 500 5500

28 A business provides the following information.

stock: 1 January 10 000

31 December 30 000
purchases 140 000
sales 250 000

What is the rate of stock turnover for the year?

A 5.5 times B 6 times C 7 times D 12.5 times

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29 Transactions of a similar nature should be recorded in the same way in the same accounting
period and in all future accounting periods.

Which accounting principle is being applied?

A consistency
B going concern
C materiality
D prudence

30 Waheda updated her information and communications technology equipment and sent her
employees on a training course.

Applying the money measurement principle, which would not be recorded in Waheda’s
accounting records?

A cost of paper and disks

B cost of staff training
C improvement of computer system
D improvement of employees’ knowledge

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7110/01/O/N/08