Deck 3: The Double-Entry System

Question 1

Using the following information, calculate net profit before tax.

A) $100 000
B) $180 000
C) $200 000
D) None of the above

Answer 1

B

Question 2

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
At the end of the accounting period, three months' interest is owing to the company from the bank on a term deposit with the bank.

A) An asset decreases and a liability decreases.
B) An asset increases and revenue increases.
C) An asset increases and another asset decreases.
D) None of the above

Answer 2

B

Question 3

Given the following information, how much revenue would be recognised in June?

A) $30 000
B) $100 000
C) $180 000
D) $220 000

Answer 3

B

Question 4

If the owner contributed cash as additional capital:

A) one asset increased and another asset decreased.
B) a liability increased and shareholders' equity decreased.
C) an asset increased and shareholders' equity increased.
D) a liability decreased and shareholders' equity increased.

Question 5

Consider the following transactions. How much did total assets increase by?

A) $220 000
B) $230 000
C) $380 000
D) $460 000

Question 6

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
An account for advertising was received. It related to an advertisement appearing on TV in the current accounting period. There was no previous record of the charge.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Question 7

Consider the following information: What is the profit for the period?

A) $100 000
B) $250 000
C) $350 000
D) None of the above

Question 8

Using the following information, calculate total expenses for the month of June.

A) $55 000
B) $60 000
C) $65 000
D) $75 000

Question 9

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
An account was paid for stationery purchased in the previous accounting period.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset decreased and an expense increased.

Question 10

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
Inventory was purchased on credit.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an asset increased.

Question 11

Identify the journal entry required to correctly record the following transaction. Received cash from customer.

A) DR Accounts receivable
CR Cash
B) DR Cash
CR Accounts payable
C) DR Cash
CR Accounts receivable
D) None of the above

Question 12

If land is purchased for cash:

A) one asset increases and another asset decreases.
B) an asset increases and a liability increases.
C) an asset decreases and a liability decreases.
D) an asset decreases and shareholders' equity decreases.

Question 13

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
A new CEO was appointed to commence in three months' time on a salary of $400 000 per annum.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) This had no effect on the accounting equation.

Question 14

Using the following information, calculate net profit before tax.

A) $160 000
B) $200 000
C) $220 000
D) None of the above

Question 15

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
A payment was made to accounts payable.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset decreased and an expense increased.

Question 16

An invoice from a consultant was received for work done in May 2019. There was no previous record of the transaction. It will be paid in July 2019. In May 2019:

A) an asset decreased and an expense increased.
B) an asset decreased and a liability decreased.
C) a liability increased and an expense increased.
D) no entry is required until the next accounting period.

Question 17

ABC has no opening inventory. During the year, it buys 2000 microwave ovens at $300 each and sells 1500 of them for $500 each. Cash operating expenses are $40 000 and it owes wages of $10 000 at year-end. What is accrual profit for the year?

A) $100 000
B) $110 000
C) $250 000
D) None of the above

Question 18

Using the following information, calculate accrual profit for the year ended 30 June 2019.

A) $296 000
B) $176 000
C) $180 000
D) None of the above

Question 19

If a payment is received from accounts receivable:

A) one asset increases and another asset decreases.
B) an asset increases and a liability increases.
C) an asset decreases and a liability decreases.
D) shareholders' equity increases and an asset decreases.

Question 20

Consider the following transactions: Which of the above transactions do NOT increase revenue?

A) i and ii only
B) ii and iii only
C) i and iii only
D) i, ii and iv

Question 21

The amount of income tax previously estimated now paid. The correct journal entry is:

A) DR Taxes payable
CR Income tax expense
B) DR Income tax expense
CR Taxes payable
C) DR Income tax expense
CR Cash at bank
D) DR Taxes payable
CR Cash at bank

Question 22

Inventory was purchased by a business for $3 000; $2 000 was paid in cash and the rest was put on account. The journal entry will include:

A) a credit to inventory of $1 000.
B) a credit to accounts payable of $2 000.
C) a credit to cash of $3 000.
D) a credit to accounts payable of $1 000.

Question 23

A credit balance in which of the following accounts would indicate a likely error?

A) Sales revenue
B) Inventory
C) Share capital
D) Accounts payable

Question 24

Consider the following transactions: Which of the above transactions do NOT increase revenue?

A) ii and iii only
B) i and ii only
C) i and iii only
D) i, ii and iii

Question 25

A customer provides a deposit of $500 000 near year-end. The product will not be delivered until next year. This transaction will:

A) increase net profit, total assets and cash.
B) increase net profit and cash but not total assets.
C) increase total assets and cash but not net profit.
D) increase cash but not increase net profit or total assets.

Question 26

A business sells inventory for $220, receiving $100 cash as a deposit with the customer owing the remainder. The journal entry will include:

A) a credit to inventory for $220.
B) a debit to inventory of $120.
C) a credit to accounts receivable of $100.
D) a debit to accounts receivable of $120.

Question 27

A debit balance in which of the following accounts would indicate a likely error?

A) Salaries expense
B) Accounts receivable
C) Share capital
D) Equipment

Question 28

Additional sales of $2 million (cost price $1.5 million) are made on credit. This transaction will:

A) increase net profit, increase cash and increase total assets.
B) increase net profit, increase total assets but not affect cash.
C) increase net profit, and not affect cash or total assets.
D) None of the above.

Question 29

Retained profits of Livermore Pty Ltd at 1 July 2018 were $5 500. The accounting records for year ended 30 June 2019 showed the following information: What were Livermore's retained profits at 30 June 2019?

A) $3 750
B) $7 250
C) $8 750
D) None of the above

Question 30

Identify the journal entry required to correctly record the following transaction. Purchased goods on credit.

A) DR Inventory
CR Accounts payable
B) DR Inventory
CR Accounts receivable
C) DR Accounts receivable
CR Inventory
D) DR Purchases
CR Cash at bank

Question 31

Which of the following accounts does NOT normally have a credit balance?

A) Accounts payable
B) Retained profits
C) Cost of goods sold
D) Accumulated depreciation