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PRINCIPLES OF ACCOUNTING
* Group of Question 1 (3 marks)
Question 1. Choose the best answer
1.1. Enhancing qualitative characteristic include all the following except.
A. Understandability
B. Timeliness
C. Conservatism => Verifiability
D.Verifiability
1.2. Which of the following is the best description of fair presentation in accordance with
IAS 1, Presentation of Financial Statements?
A. The financial statements are accurate.
B. The financial statements are asaccurate as possible given the accounting systems of the
organisation.
C. The directors of the company have stated that the financial statements are accurate and
correctly prepared.
D. The financial statements are reliable in that they reflect the effects of transactions, other
events and conditions.
1.3. Which one of the following list contains only of items which would be included
in the statements of Financial position value of such Inventories, according to cost basis?
A. Supervisor’s wages, import duties, carriage outwards, waste of materials.
B. Carriage inwards, raw materials, supervisor’s wage, depreciation of equipment.
C. Carriage inwards, carriage outwards, raw materials, supervisor’s wage.
D. Import duties, carriage outwards, training employees, waste of materials.
1.4.Which one of the following best describes the purpose of a purchase invoice?
A. It is issued by a supplier as a request for payment
B. It is sent to supplier as a request for a supply
C. It is issued by supplier listing details of recent transactions

D. It is sent to the supplier as notification of payment

1.5. Which one of the following statements best describes the purpose of a goods despatched
note (delivery note)?

A. It is issued by a customer returning faulty goods to their supplier.

B. It is issued by a customer to their supplier and specifies the quantity and type of goods
they require to be dispatched.

C. It is issued by a supplier to their customer and specifies the quantity and type of goods
delivered to that customer.

D. It is issued by a supplier to their customer and specifies what goods will be provided to
them at a specified future date.

1.6. An invoice is best defined by which one of the following statements?

A. An invoice is raised by a business and confirms only the amount due to be paid for goods
and services provided.

B. An invoice is raised by business and issued to a supplier as recognition of goods and

services received from that supplier.

C. An invoice is raised by a business and issued to a customer to confirm amounts not yet
paid.
D. An invoice is raised by a business and issued to a customer to request payment for goods
and services provided.

- Question 2. Choose the best answer

1.1. Which financial statement is assets, liabilities and equity shown on?
A. Statement of financial position
B. Statement of profit or loss
C.

1.2. How is the total of the purchases day book posted to the nominal ledger?
A. Debit inventory, Credit cash

B. Debit payables control, Credit purchases

C. Debit cash, Credit purchases

D. Debit inventory, Credit payables control

1.3. When the company receives the money from its customer that was billed in the prior
month, the company should

(1) Increase bank

(2) Decrease Liabilities

A. Statement of financial position

B. Statement of profit or loss

C. Loan Statement

D. Cash Flow Statement

(3) Decrease receivables

(4) Increase assets

A. (1) and (3)

B. (1) and (2)

C. (1) and (4)

D. (2) and (3)

1.4. What is the basic accounting equation?

A. Assets equals liabilities plus equity

B. Assets equals income plus expenses

C. Assets equals the cash in the bank

D. None

1. 5. Which financial statement will allow you to determine the gross profit margin for
a retailer or manufacturers
A. Statement of retained earnings

B. Statement of Financial Position

C. Statement of the total Comprehensive Income (Statement of Profit /Loss)

D. Statement of Cash Flows

1.6. Which one of the following statements best describes the purpose of a purchase order?
A. It is issued to a supplier to request aupply of goods from them on terms specified
within the order.
B. It is issued to a customer to confirm the supply of goods to them on terms specified in
the order.

C. It is issued to a supplier as notification of payment.

D. It confirms the price that will be charged by a supplier for goods supplied

-Question 3. Choose the best answer

1.1. Which accounting concept should be considered if the owner of a business takes
goods from inventory for his own personal use?
A. The fair presentation concept

B. The business entity concept

C. The going concern concept

D. The accruals concept

1.2. Company Asmith borrowed money from bank; this transaction involves which
items of the following accounts of Asmith Co?
A. Cash & Bank Loan

B. Bank & Debtors

C. Drawing & Cash

D. Cash & Bank

1.3. Which of the following stalements is false?

A. A debit records an increase in liabilities.

B. A debit records an increase in assets.

C. A credit records an increase in liabilities.

D. A credit records an increase in capital.

1.4. Which of the following is the objective of financial statements?

A.To assist management and those charged wilh governance in making timely economic
decisions about deployment of the entity's resources
B. To provide a basis for valuing the entity

C. To provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic decisions
D. To facilitate comparison of financial performance between entities operating in
different industries

1.5. Which of the following types of account would normally appear on the debit
side of the initial trial balance?
A. Asset

B. Liability

C. Income

D. Equity

1.6.The cost principle requires that when assets are acquired, they be recorded at

A. Appraisal value.

B. Exchange price paid.

C. Selling price.

D. List price.

* Group of Queitlon 2 (3 marks):

- Queitlon 1: Selected transactions fot Evergreen Lawn Care Company are listed below.

1. Made cash investment to start business.

2. Paid monthly rent.

3. Purchased equipment on account.

4. Billed customers for services perfomied.

5. Withdrew cash for owner's personal use.

6. Received cash from customers billed in (4).

7. Incurred advertising expense on account.

List the numbers of the above transactions and describe the effect of each transaction on
assets, liabilities, and owner's equity.
For example, the first answer is: (1 ) Increase in assets and increase in owner's equity

- Quectlon 2: Transaction made by Victoty Co., for the month of August are shown
below. Prepare a tabular analysis which shows the effects of these transactions on
the expanded accounting equation.
( 1) The owner invested $25.000 cash in the business.

(2) The company purchased $7,000 of office equipment on credit.

(3) The company received $8,000 cash in exchange for services performed.

(4) The company paid $8850 for this month's rent.

(5) The owner withdraws $1,000 cash fot personal use.

(6) The company purchased 810,000 of goods on credit.

- Question 3:

Fill in the Blanks with following options below

Sales Order Goods Received Note Bank statements

Cash register receipts Bank or Credit advice Goods Dispatched Note

1. The customer may have sent a purchase order to the company from which the company
will then generate a
2. is a business paper that listed the money coming in from customers.

3. They are debit or credit bank advice. is bank documents informing

the business of an increase made in the business's bank account. Unlike bank debit advice
that is opposite to bank credit advice.
4. is source document that shows the goods that a business has
received from a supplier.
 5. This a document of the company that lists the goods sent out to a customer. Without
a doubt, the company will keep one record of
6. This is a silmmary of financial transactions that occurred at a certain institution during a
specific

time period. For example. a typical may show your deposits and withdrawals
for a certain month.

- Question 4:

The accounts in the ledger of Prompt Helivery Service contain the following balances on
July 31, 202X.

Instruction

Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the
missing amount for Cash.

- Question 5:

Consider the following accounting terms and definitions, and match each term to the
definition:
1. Accounting equation (e) a. An economic resource that is expected to be
of benefit in the future
2. Asset b. Debts that are owed to creditors
c. Excess of total expenses over total revenues
3. Balance sheet (SOFP) d. Excess of total revenues over total expenses
e. The basic tool of accounting, stated as
4. Expense Assets = Liabilities + Equity
f. Decreases in equity that occur in the course
5. Income statement of selling goods or services
g. Increases in equity thal occur in the course
G. Liability of selling goods or services
h. Reports on a business's cash receipts and
7. Net income cash payments during a period.
 i. Reports on an entity's assets, liabilities, and
8. Net loss stockholders' equity as of a specific date
j. Reports on an entity's revenue s, expenses,
9. Revenue and net income or loss for the petiod
k. Reports how the company's retained
earnings balance changed from the beginning
to the end of the period
11. Statement of retained earnings

*Group of question (4 marks)

At the beginning of May, 20XX, Alpha Company commenced business with the following
asaets and capitals:
Dr ($) Cr ($)
Sales 250.000
Tools and jigs 10,000
Goods 105,000
Office equipment 5,500
Salaries expense 10,500
Trade Receivables 145,000
Trade Payables 105,300
Cash l26,800
Owner's Capital 47.500
Total 402,800 402,800

During May, 20XX of operations of this business, the following transactions occurred.

2. Additional goods acquired on cash, $14,000.

3. Utilities expenses, paid in cash, $2,000.

5. Purchased Tools and jigs, $5,000 cash.

6. Paid office rent of $1.900 cash for the month

7: Sales on credit to HC company $15,000, cost of sale:13,500.

15. Cash paid to creditors for accounts payable due $25,000.

l8. Cash Received from customers in payment of accounts receivable $18,000.
 24. Salaries for May, paid in caah, $10,500.

26. Advertising expense of $5,100 on credit.

29. Owner's drawings during May were $2,500.

Requirement:

i. Recording these above transactions in general journal as this sample. Sample:

Date Description Debit $ Credit
C

ii. Balance the accounts of Alpha Company. Then prepare the trial balance fot Alpha
Company on 31 May 20XX as the following aample:
Trial Balance of.. .. .. .. ... ... . on..................XX

Cr $

- Question 2:

At the beginning of May, 20XX, Smitlison Co commenced business with the following
assets and capitals:
Dr ($) Cr ($)
Sales 250.000
Tools and Jigs 10,000
Goods 105,000
Office equipment 5,500
Salaries and wages 20,500
Trade Receivables 135,000
Trade Payables
Cash I 36,800
Owner's Capital 47,500
Total 412,800 412,800

During May, 20XX of operations of this business, the following transactions

occurred.
5/5 Smithson Co purchased office equipment on credit for business use for
 $2000
7/5 Sales to C Matthews $500, cost of sale: 350$, C Matthew was allowed to make
payment within October, 20XX.
15/5 Sold goods to a formal employee on cash $150, cost of goods sold: $150

17/5 A credit customer, P. Holden made the payment of $10 for previous sale 19/5
Smithson Co repaid to Overseas Bank Ltd: 3000$ of principle
24/5 The business paid a trade creditor $700 in cash
31/5 Bought a machine on credit from A, cost $2.500

Requirement:

i. Recording these above transactions in general journal as this sample

Sample:

Debit $ Credit $

2
ii. Record the information into the relevant T format accounts in the General Ledget of
Frontier Park company as the format below. Balance all the accounts in the General
Ledger of Smithson company. Note: show clearly the Balance c/d and the Balance b/d
for each account

Debit $ Date

Account name
iii. Prepare the trial balance for Smithson Company on 31 May 20XX as the following
sample:

Trial Balance of.. .. .. .. ... .... on .. ... ., ..,.....XX

Dr $