Understanding Bookkeeping

Answer to Accounting Test Question No. 1: 

1-D ;  2-D;  3-B;   4-D;   5-A;    6-C;   7-A;   8-C;  9-B;  10- C

11-D;  12-B;  13-D;  14-A;  15- A.

  Answer to Accounting Test Question No.2: 

1. FALSE;  2. TRUE;  3. FALSE;   4. FALSE;  5. FALSE;  6. FALSE;  7. TRUE

8. TRUE;  9. FALSE;   10.TRUE;  11.TRUE;  12. TRUE;  13 FALSE

Accounting Test Question No 1:PLEASE INDICATE THE CORRECT ANSWER:

1.     The accounting process involves all of the following EXCEPT:

         a. Analyzing and interpreting financial reports

b. Communicating financial information to users by preparing financial reports

c. Identifying economic transactions that are relevant to the business

d. Recording non-transaction economic events.

e. Recording transaction of economic events.

2.    Which of the following is an internal user of accounting for a company:

         a. Creditor

b. Customer

c. Investor

d. Production manager

e. Inland Revenue

3.      One of the following statements about users of accounting information is incorrect. The incorrect statement is:

         a. debtors are external users

b. investor is an internal user

c. management is an internal user

d. present creditors are external users

e. regulatory authorities are external users

4.    Which of the following statements about an account is true?

        a. In its simplest form, an account consists of two parts.

b. The left side of an account is the credit or decrease side.

c. There are separate accounts for specific assets and liabilities but only one account for owner’s equity items

d. An account is an individual accounting record of increases and decreases in specific asset, liability, and owner’s equity items.

e. Is an information system that identifies, records and communicates the non-economic events of an organization to interested users.

5.    A qualitative characteristics of accounting information do not include:

        a. accuracy

b. comparability

c. consistency

d. relevancy

e. reliability

6.      A credit may signify the following EXCEPT:

         a. An increase in a liability account

b. A decrease in cash account

c. An increase in an asset account

d. An increase in the owner’s capital account

7. The type of account with a normal debit balance is

         a. An asset

b. A revenue

c. A liability

d. An owner’s capital account

8. The journal entries to record the payment of account payable by cash is:

         a. Debit cash, credit account payable

b. Debit account receivable, credit account payable

c. Debit account payable, credit account receivable

d. Debit account payable, credit cash

9. One of the entries in recording the payment of note payable account is:

         a. Credit note payable account

b. Debit note payable account

c. Credit owner’s capital account

d. None of the above.

10. Liability, debts owed to outsiders, includes all of the following EXCEPT:

         a. Notes payable

b. Wages payable

c. Account receivables

         d. Account payable

11.   What would be the effect on the basic of accounting equation if Mr A as the owner of the company withdraw cash from the business and use the money to entertain his family members?

         a. Increase assets and decrease owner’s equity

b. Increase owner’s equity and decrease assets

c. The effect whether increase or decrease will be both on asset

d Decrease assets and decrease owner’s equity

12.   Which of the following events are NOT considered as business transaction?

         a. Pay rental in advance $1000

b. Received bank statement which showed debit balance of $12,000

c. Purchase supplies on account $5,000

d Receive invoice from supplier for the purchase of raw materials last week for $3,000

13.  Which of the following would be the best EXPLANATION for ledger?

         a. An accounting record in which transactions are initially recorded in chronological order

b. A list of accounts and their balances at a given time

c. A statement that summarizes the company’s assets and liabilities

d A list of accounts and the account numbers that identify their location in the ledger.

14.   Asset is a

         a. Resource owned by the business entity

b. Debts owned to outsiders

c. The owner’s right to the assets of the business

d None of the above.

15.  Which is the statement that BEST explained owner’s equity statement?

        a. Is a comprehensive statement which detail the causes of equity to increase or decrease since it starts the business

b. Is a statement which details the causes of equity to increase or decrease for certain period of time

c. Is a statement which details the equity planning to be incurred in the future

d Is a comprehensive statement regarding the equity planning in the past, current and future.

Accounting Test Question No 2

TRUE OR FALSE

1. The example of internal accounting user is a bank that has lent money to the business

         True False

2. Three types of businesses that operate for profit are manufacturing, merchandising and service business

          True. False

3. Independence is one of the characteristic of qualitative account information

         True. False

4. Accounting depends on concepts and principles that are independent from particular users

         True. False

5. Debit always increase account balances

        True. False

6. The statement that reports the financial position of the company is called Income Statement

        True. False

7. Financial accounting is governed by Generally Accepted Accounting Principles (GAAP)

         True. False

8. Bring personal asset into business will increase asset and increase owner’s equity

         True. False

9. Unearned revenue is one of the examples for asset account

         True. False

10. An example of liability account is a bank overdraft

         True. False

11. Owner’s equity is decreased by withdrawing made by the owner

           True False

12. The form listing the title and balances of the accounts in the ledger on a given date is the trial balance.

   True False

The Cash Book Of Jim Co. showed a Bank Overdraft at 31 Jan 2007 of $1,800

When you checked the Bank Statement as at that date with the Cash Book , you discovered the following:

(a) the following items appearing in the Cash Book do not appear in the Bank Statement:-

Jan

16 Cheque No 123 John $350

18 Cheque No 145 Tim $185

23 Cheque No 156 Sean $215

31 Lodgement at bank $400

(b) the following items appear in the Bank Statement but NOT ENTERED in the Cash Book:-

Jan

15 Raymond’s cheque dishonoured $120

24 Interest on overdraft $10

25 Cheque book charge $20

26 Dividends collected $110

27 Credit transfer - Ronald $810

31 Roy’s cheque dishonored $45

Question:

You are required to:-

( i) make the necessary entries in the Cash Book and bring down the adjusted balance

(ii) prepare a Bank Reconciliation Statement to show the balance as per Bank Statement.

[Answer: ADJUSTD CASH BOOK BALANCE-$1,075 OVERDRAFT & BALANCE AS PER BANK STATEMENT $725 OVERDRAFT]

On 30 April 2007, the Cash Book Of Jim showed a balance at bank amount to $812

You found that:

(a) a cheque for $360 received by Jim and entered in his Cash Book on 30 April 2007 was not credIted by the bank until 3 May 2007

(b) Cheques issued by Jim on 27 April amounting to $289 were not paid by the bank until 2 May 2007

(c)On 30 April, the bank debited Jim’s account with $15 bank charges. No entry has been made in Jim’s Cash Book

(d) A customer settled his debt by credit transfer. The amount $394 was credited by the bank to Jim’s account on 20 April . but not entry has been made in Jim’s Cash Book.

Question:

Prepare:

( i) the adjusted Cash Book showing the balance in Jim’s account at 30 April 2007

(ii) a reconciliation of the balance shown by the Bank Statement with the adjusted Cash Book balance as at 30 Apri 2007

[ANSWER: ADJUSTED CASH BOOK BALANCE-$1,191 AND BANK STATEMENT BALANCE-$1,120]

The below question is testing the candidate on the understanding on the recording process. You are required to understand the debit and credit rules, how to journalize and post to 3 column ledger as well as on the preparation of a trial balance .

The following is the unadjusted accounts of ABC Co as at 31 December 2006 :

Additional information:

1. Rent expense is $500 per month. Rent expense for the month of December is still unpaid
2. The company received $12,000 at the early month of December for services performed until end of May 2007. The charge rate for the services is equally distributed among those months
3. Prepaid insurance represented one year premiums purchased April 1, 2006
4. Fee earned but unbilled on Dec 31 are $4,250
5. Supplies on hand at December 31 are $1,750
6. Depreciation of equipment is based on straight line method. The equipment has 10 years estimated life with no scrap value

Required:

1. Journalize the adjusting entries at 31 December 2006
2. Prepare an adjusted trial balance as at 31 December 2006

The following is the unadjusted accounts of ABC Co as at 31 December 2006 :

All the accounts’ balances are checked at the end of the accounting period and the following items are found to be omitted:-

1. supplies on hand at 31 Dec amounted to $2,350
2. prepaid insurance represented premiums purchased on 1 April 2006 for a period of one year
3. depreciation of office equipment based on the straight-line method. The office equipment has a 8 year estimated life with no scrap value
4. utilities expenses amount to $2,680
5. salaries expense for the month of Dec is $1,500 and only be paid early next year
6. unearned revenue on 31 Dec is $21,250

Question:

(1) Prepare the adjusting journal entries

(2) Prepare an adjusted trial balance as at 31 December 2006