Financial Accounting Practice Questions:

1. Suppose a small business’ transactions during the month include:

a. Made sales during the month for Rs. 5,700; Rs. 2,500 of them were cash sales & the rest
on credit
b. purchased inventory during the month for Rs. 12,000; 75% of it was on credit
c. cost of goods sold during the month was Rs. 10,000
d. incurred Rs. 2,000 in operating expenses but not all of it has been paid, yet.
e. borrowed Rs. 10,000 from bank (ignore any interest expense)
f. paid 50% of the operating expenses (from point d. above) through a check at the month
end
g. owner bought a computer for his own personal use at home

How should these transactions be recorded in the business’ accounts?

a. Cash / Bank 2,500

Accounts Receivable 3,200
Sales Revenue 5,700

OR

Cash / Bank 2,500

Sales Revenue 2,500

Accounts Receivable 3,200

Sales Revenue 3,200

b. Inventory 12,000
Cash / Bank 3,000
Accounts Payable 9,000

OR

Inventory 3,000
Cash / Bank 3,000

Inventory 9,000
Accounts Payable 9,000

c. Cost of Goods Sold 10,000

Inventory 10,000
(Cost of Goods Sold is an account to record the cost of that inventory which has been sold to
the customers. Don’t worry, if you couldn’t do this entry. We will study about this account &
how to do this entry in Lecture 4.)
d. Operating Expenses 2,000
Accounts Payable 2,000

e. Cash / Bank 10,000

Bank Loan 10,000

f. Accounts Payable 1,000

Cash / Bank 1,000

g. No entry required in business’ accounting records, because, as per the “Economic

Entity Assumption,” the affairs or transactions of the business are to be kept
separate from the personal affairs or transactions of its owners.

You didn’t need to do this part. This is just to help you understand T-accounts & how
transactions are booked in T-accounts.
Accounts
Sales Revenue Cash Receivable
5700 2500 3000 3200
10000 1000
5700 8500 3200

Inventory Cost of goods sold Accounts Payable

12000 10000 10000 1000 9000
2000
2000 10000 10000

Operating
Expenses Bank Loan
2000 10000

2000 10000

2. Complete the gaps in the following table:

Owner’s Equity Assets Liabilities

A 10,700 12,500 1,800

B 39,750 51,400 11,650

C 12,500 16,800 4,300

D 19,200 25,500 6,300

E 23,100 28,000 4,900

 F 16,450 19,600 3,150

G 4,100 9,700 5,600

H 8,800 16,500 7,700

I 14,300 19,100 4,800

3. Classify the following into assets or liabilities.

a. Classify them into Asset or Liability.
b. Further classify them as Current or Non-Current

Transaction Description Part A Part B

A Money owed to suppliers Liability Current

B Vehicles used by the business Asset Non-Current

Goods bought with the intention of
C Asset Current
them being sold for a profit
D Computer used in the business Asset Non-Current
Bank loan to be repaid within the next 5
E Liability Non-Current
years
Amount owing for office fixtures bought
F Liability Current
on credit
G Cash in bank account Asset Current

H Delivery truck Asset Non-Current

I Interest to pay on the bank loan Liability Current

Printing paper to be used for business
J Asset Current
purposes
K Goods sold on credit Asset Current

L Mortgage on business building Liability Non-Current

4. For the following transactions state which accounts should be debited, and which should
be credited.
Debit (Dr.) Credit (Cr.)

(a) Equipment bought on credit from Mr. Saeed Equipment Accounts

Payable

(b) Motor car bought and payment made by cheque. Motor Car Cash

(c) Owner pays own money into business bank account Cash Owner’s
Equity

(d) Machinery sold on credit to Mr. Khan. Accounts Receivable Machinery

(e) Cheque sent to Mr. Abbas, a creditor. Accounts Payable Cash

(f ) Cash received from Mrs. Tanveer, a debtor. Cash Accounts

Receivable

5.
Selected transactions for Amir Lawn Care Company are listed below:
i. Sold common stock for cash to start business. B.
ii. Paid monthly rent. D.
iii. Purchased equipment on account. C.
iv. Billed customers for services performed. B.
v. Received cash from customers billed in (iv). A.
vi. Incurred advertising expense on account. F.
vii. Purchased additional equipment for cash. A.
viii. Received cash from customers when service was performed. B.

6.
a. June 1 Cash / Bank 100,000
Common Stock 100,000

June 2 Equipment 140,000

Cash / Bank 20,000
Note Payable 120,000

OR
June 2 Equipment 20,000
Cash / Bank 20,000

Equipment 120,000
Cash / Bank 120,000
June 3 Expenses (Rent) 5,000
Cash / Bank 5,000

June 5 Accounts Receivable 48,000

Revenue 48,000

June 12 Supplies 1,500

Accounts Payable 1,500

June 15 Cash / Bank 12,500

Accounts Receivable 12,500

June 17 Expenses (Gasoline) 1,000

Accounts Payable 1,000

June 20 Cash / Bank 15,000

Revenues 15,000

June 23 Notes Payable 5,000

Cash / Bank 5,000

June 26 Expenses (Utilities) 2,500

Cash / Bank 2,500

June 29 Accounts Payable 1,000

Cash / Bank 1,000

June 30 Expenses (Salaries) 10,000

Cash / Bank 10,000

b. we will complete this table in the class.

7:a. Similar entries to be done as 6:a.

7:b. similar table as in 6:b.

Solution for Example Question in Lecture 1, Slide 15 (Bushra opening a business):

Sep 1 Cash / Bank 10,000

Owner’s Equity 10,000

Sep 3 Machinery 2,000

Cash / Bank 2,000

Sep 9 Equipment 1,000

Accounts Payable 1,000
Sep 10 Inventory 2,500
Cash / Bank 2,500

Sep 14 Accounts Payable 1,000

Cash / Bank 1,000

Sep 15 Cash / Bank 4,000

Inventory 4,000

Sep 30 Salaries Expense 1,500

Cash / Bank 1,500

Sep 30 Utilities Expense 750

Utilities Payable OR 750
Accounts Payable

Solution for Practice Questions in Lecture 1, slides 30 – 33

1. Assets = Liabilities + Owner’s Equity

= 175,000 + (250,000 + 190,000)
= 615,000

2. Assets = Liabilities + Owner’s Equity

Assets = Liabilities + [Owner’s Initial Investment + Net Income]
Assets = Liabilities + [Owner’s Initial Investment + Revenues – Expenses]
175,000 = 100,000 + [200,000 + 190,000 – Expenses]
175,000 = 100,000 + [390,000 – Expenses]
175,000 = 490,000 – Expenses
Expenses = 490,000 – 175,000
Expenses = 315,000

3.
a. Asset = Rs. 29,400
b. Liabilities = Rs. 2,290
c. Liabilities = Rs. 9,000
d. Asset = Rs. 3,323
e. Capital = Rs. 4,200

4.
March 1 Cash / Bank 5,000
Owner’s Equity 5,000

March 4 Inventory 2,000

Cash / Bank 2,000
March 8 Machinery 1,000
Cash / Bank 1,000

March 12 Shop Fittings 2,000

Accounts Payable 2,000

March 13 Cash / Bank 500

Machinery 500

March 19 Computer OR 10,000

Office Equipment
Owner’s Equity 10,000

March 20 Cash / Bank 4,000

Accounts Receivable 2,500
Inventory 6,500
OR
March 20 Cash / Bank 4,000
Inventory 4,000
Accounts Receivable 2,500
Inventory 2,500

March 25 Salary Expense 2,000

Cash / Bank 2,000

March 26 Accounts Payable 2,000

Cash / Bank 2,000

March 30 Owner’s Drawings 1,500

Cash / Bank 1,500

March 31 Cash / Bank 2,500

Accounts Receivable 2,500

5.
a. Non-Current Asset b. Current Liability

c. Current Asset d. Non-Current Asset

e. Non-Current Liability f. Current Asset

g. Current Liability h. Current Liability

i. Current Asset j. Non-Current Asset