101 O Level Accounting Paper 1 (Topical & Yearly)

O-LEVEL ACCOUNTING
MULTIPLE CHOICE QUESTIONS (TOPICAL& YEARLY)

(2019-20 edition)
Article # 101
Muhammad Nauman Malik

FCMA,MS Accounting (Gold Medalist), MBA (Finance), PIPFA, DCMA, B.Com (Gold Medalist)
Keynesian Institute of Management & Sciences (KIMS)
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for their accuracy or suitability for the examinations.
Title Accounting O Level - Multiple Choice Questions (Topical& Yearly)
Author Muhammad Nauman Malik

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PREFACE
Cambridge University has adopted MCQs as a part of O Level Accounting Examinations since 2000. Now almost
33.3% of weightage is allocated to MCQs.
Each topic of the syllabus has been covered in a separate chapter containing MCQs from the past papers. All
the MCQs have been compiled according to the year in which they were set in the O Level Cambridge
examinations. For the better understanding of the questions detailed answers are also given at the end of each
chapter. Students will find “Student Evaluation Card” quite useful. This will enable them to compare their
performances and focus on the weaker areas.
The correct answers to the Questions are given in the answer key at the end of each chapter.
In the current edition Financial statements of sole traders has been subdivided into four topics so that students
may focus on each sub topic independently.
Constructive criticism and suggestions to make the subsequent editions more useful would be appreciated and
thankfully acknowledged.

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4
TABLE OF CONTENTS
PREFACE 3
CHAPTER 1 ACCOUNTING BASICS 8
ANSWER KEY ............................................................................................................................................. 18
DETAILED ANSWERS ................................................................................................................................. 18
CHAPTER 2 BOOKS OF ORIGINAL ENTRY 22
ANSWER KEY ............................................................................................................................................. 35
CHAPTER 3 CASH BOOK AND DISCOUNTS 42
ANSWER KEY ............................................................................................................................................. 49
CHAPTER 4 BANK RECONCILIATION STATEMENTS 54
ANSWER KEY ............................................................................................................................................. 58
CHAPTER 5 BAD DEBTS & PROVISION FOR DOUBTFUL DEBTS 62
ANSWER KEY ............................................................................................................................................. 68
CHAPTER 6 ACCOUNTING FOR NON-CURRENT ASSETS 72
ANSWER KEY ............................................................................................................................................. 82
CHAPTER 7 TRIAL BALANCE 90
ANSWER KEY ............................................................................................................................................. 92
CHAPTER 8 INCOME STATEMENTS OF SOLE TRADERS 94
ANSWER KEY ........................................................................................................................................... 100
DETAILED ANSWERS ............................................................................................................................... 100
CHAPTER 9 BALANCE SHEETS OF SOLE TRADERS 104
ANSWER KEY ........................................................................................................................................... 114
CHAPTER 10 ADJUSTMENTS IN FINANCIAL STATEMENTS 120
ANSWER KEY ........................................................................................................................................... 130
CHAPTER 11 ACCOUNTING CONCEPTS & CONVENTIONS 136
ANSWER KEY ........................................................................................................................................... 142
CHAPTER 12 CAPITAL AND REVENUE 144
ANSWER KEY ........................................................................................................................................... 150
CHAPTER 13 ERRORS NOT AFFECTING AGREEMENT OF TRIAL BALANCE 154
ANSWER KEY ........................................................................................................................................... 162
CHAPTER 14 SUSPENSE ACCOUNT 168
ANSWER KEY ........................................................................................................................................... 178
CHAPTER 15 CONTROL ACCOUNTS 184
ANSWER KEY ........................................................................................................................................... 194
CHAPTER 16 ACCOUNTS FROM INCOMPLETE RECORDS 200
ANSWER KEY ........................................................................................................................................... 207
CHAPTER 17 ACCOUNTS OF NON PROFIT ORGANISATIONS 214
5
ANSWER KEY ........................................................................................................................................... 222

CHAPTER 18 MANUFACTURING ACCOUNTS 228
ANSWER KEY ........................................................................................................................................... 234
CHAPTER 19 PARTNERSHIP 238
ANSWER KEY ........................................................................................................................................... 245
CHAPTER 20 COMPANY ACCOUNTS 250
ANSWER KEY ........................................................................................................................................... 256
CHAPTER 21 INTERPRETATION OF ACCOUNTS 260
ANSWER KEY ........................................................................................................................................... 271
MAY/JUNE 2016 PAPER 12 280
ANSWER KEY ........................................................................................................................................... 285
OCTOBER/NOVEMBER 2016 PAPER 12 286
ANSWER KEY ........................................................................................................................................... 290
ANSWER KEY ........................................................................................................................................... 295
ANSWER KEY ........................................................................................................................................... 300
ANSWER KEY ........................................................................................................................................... 305
ANSWER KEY ........................................................................................................................................... 311
ANSWER KEY ........................................................................................................................................... 318
6
Blank Page
Accounting O Level P-1 Topical -7- Ch-1: Accounting Basics
Read & Write Publications
CHAPTER-1 Topics
Answer Key
Detail Answer
ACCOUNTING
BASICS
O-Level
Accounting Paper 1
Multiple Choice Questions (Topical & Yearly)

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CHAPTER 1 ACCOUNTING BASICS

1 The owner of a business takes inventory for her own use.
What are the ledger account entries to record this?
A debit drawings, credit purchases
B debit drawings, credit inventory
C debit capital, credit sales
D debit inventory, credit drawings
Specimen 2000 Q8
2 In a business’s books, the ledger account of J Brown, a customer, shows a debit balance of $450. What
does this mean?
A Brown has paid $450 to the business B Brown owes the business $450
C the business has paid Brown $450 D the business owes Brown $450
Specimen 2000 Q9/ May 06 P1 Q7/ Nov 06 P1 Q10
3 A supplier’s account in a customer’s books, has a credit balance of $8 000. What does this mean?
A the customer owes the supplier $8 000
B the customer has paid the supplier $8 000
C the supplier has paid $8 000
D the supplier owes $8 000
May 00 P1 Q7/ May 07 P1 Q10/Nov 08 P1 Q8
4 Bob returns goods bought on credit from Tariq.
Which ledger account entries record this in Tariq’s books?
Debit Credit
A Bob sales returns
B Bob purchases returns
C sales returns Bob
D purchases returns Bob
May 00 P1 Q8/ Nov 03 P1 Q1/Nov 05 P1 Q8/ May 10 P1 Q2/ Nov 13 P12 Q3
5 Which ledger entries record the purchase of a machine bought on credit?

A debit trade payables, credit machinery
B debit machinery, credit trade payables
C debit trade payables, credit purchases
D debit purchases, credit trade payables
Nov 00 P1 Q7/ Specimen 2008 Q7
6 What is the purpose of double entry bookkeeping?
A to apply the dual aspect concept
B to avoid errors
C to prepare books of prime entry accurately
D to record revenue and capital transactions correctly
May 01 P1 Q1/ May 04 P1 Q1
7 The owner of a business has taken goods for personal use but not recorded this in the books.
Which journal entries must be made at the end of the year?
Debit Credit
A drawings Purchases
B drawings sales
C purchases drawings
D sales drawings
May 01 P1 Q8/ May 05 P1 Q30 /Nov 06 P1 Q31/ May 08 P1 Q21
8 How should the cash purchase of supplies be entered in the ledger?

Account debited Account credited
A cash purchases
B cash supplier
C purchases cash
D supplier cash
Nov 01 P1 Q7/ Nov 04 P1 Q9/ Nov 16 P12 Q4
9 A sole trader takes cash and also goods for his own use from his business.
Which of these will affect his capital?
A the cash only B the goods only
C both the cash and the goods D neither the cash nor the goods
Nov 01 P1 Q30
10 A business bought a computer for the office and paid by cheque. How will the business record this
transaction?
Debit Credit
A bank account office equipment account
B office equipment account bank account
C bank account purchases account
D purchases account bank account
May 02 P1 Q1/ May 07 P1 Q1/ May 14 P12 Q3
11 Y’s account appears in the ledger of X as follows.

$ $
Jan 1 Balance b/d 100 Jan 10 Bank 100
Jan 20 Sales 400 Jan 31 Balance c/d 400
500 500
Which statement is true?
A On 1 January Y was owed $100 by X
B On 10 January Y paid $100 into the bank
C On 20 January Y supplied goods $400 to X
D On 31 January Y was a trade receivable of X for $400
May 02 P1 Q8
12 The owner of a business takes goods costing $6 000 from his shop for his own use.
What are the book keeping entries?
Debit Credit
A drawings account $6 000 purchases account $6 000
B drawings account $6 000 inventory account $6 000
C purchase account $6 000 drawings account $6 000
D inventory account $6 000 drawings account $6 000
May 02 P1 Q28/ Nov 07 P1 Q31/ Nov 13 P12 Q20/ May 14 P12 Q19
13 A trader takes goods that have a selling price of $200 from his shop for his own use. The cost price of
these goods is $150.
How is this transaction recorded in his accounting records?
Account(s) debited Account(s) credited
$ $
A drawings 200 purchases 200
B purchases 200 drawings 200
C drawings 150 purchases 150
D purchases 150 drawings 150
May 03 P1 Q30/May 13 P12 Q20
14 The owner of a business takes inventory for her own use.

What are the ledger account entries to record this?
A capital drawings
B capital sales
C drawings purchases
D drawings inventory
Nov 03 P1 Q27/ May 07 P1 Q28
15 Brown charged Jones for carriage on goods delivered to Jones’ premises.
What entries will Brown make in his ledger?
Debit Credit
A carriage inwards Jones
B carriage outwards Jones
C Jones carriage inwards
D Jones carriage outwards
May 04 P1 Q8
16 Which entry records a cheque paid to a supplier for goods bought on credit?
A bank trade payable
B bank purchases
C trade payable bank
D purchases bank
Nov 04 P1 Q1
17 What is the correct entry for office furniture bought on credit from X?
Account to be debited Account to be credited
A bank office furniture
B office furniture bank
C office furniture X
D X office furniture
May 05 P1 Q1/ Nov 10 P1 Q10
18 Which is a personal account?
A trade receivable B office computers
C plant and machinery D wages
May 05 P1 Q10
19 A cheque has been received from X, a trade receivable.
How is this transaction recorded in the books?
account debited Account credited
A bank X
B X bank
C sales X
D X sales
May 06 P1 Q1
20 A business buys goods on credit.
Which entries should be made?
account debited account credited
A bank purchases
B purchases bank
C purchases supplier
D supplier purchases
May 06 P1 Q8
21 Which statement is correct?

A An asset is always a credit entry.
B An expense is always a credit entry.
C An expense is always a debit entry.
D A liability is always a debit entry.
Nov 06 P1 Q1
22 Carl is a customer of Jason. The balance on Carl’s account in Jason’s books is $200 debit. Carl sends Jason a
cheque for $50.
What is the balance on Carl’s account after this transaction?
A $150 credit B $150 debit

C $250 credit D $250 debit
Nov 07 P1 Q9
23 What is the accounting equation?
A assets less liabilities equal capital
B assets plus liabilities equal capital
C capital less liabilities equals assets
D capital plus assets equals liabilities
Specimen 2008 Q2/ Nov 08 P1 Q2/ May 10 P1 Q1/May 13 P12 Q2/May 18 P12 Q3
24 The following account appears in the ledger of Ahmed.

Sara account
2006 Debit ($) Credit ($) Balance ($)
June 01 Balance 100 dr
14 Sales 300 400 dr
16 Bank 100 300 dr
18 Sales returns 25 275 dr
A Ahmed owed Sara $100 on 1 June 2006.
B Ahmed returned goods to Sara on 18 June 2006.
C Sara owed Ahmed $275 on 18 June 2006.
D Sara sold goods to Ahmed on 14 June 2006.
Specimen 2008 Q8
25 Which is a service business?
A garage selling petrol and diesel B motor insurance agency
C second-hand car trader D shop dealing in motor parts
Specimen 2008 Q18
26 A trader prepares a ledger account using the running balance method.
Which statement is correct?
A The balance is shown after each transaction.
B The balance is shown only after a credit transaction.
C The balance is shown only after a debit transaction.
D The balance is shown only at the month end.
May 08 P1 Q10
27 Which is a service business?
A business installing computer systems
B business selling computers and printers
C stationery shop
D TV and video shop
Nov 08 P1 Q21/Nov 11 P1 Q20/ Nov 14 P12 Q21
28 Which best describes the assets of a business?

A cash and items that should turn into cash in the near future
B cash invested by the owner of the business
C items bought for long term use by the business
D items owing to or owned by the business
May 09 P1 Q1
29 Which businessman is operating a trading business?
A accountant B computer software developer
C hairdresser D second hand car dealer
May 09 P1 Q23
30 Javed had the following assets and liabilities.
$
Equipment 10 000
motor vehicle 8 000
bank balance 2 000 credit
amount owing to suppliers 4 000
amount owing by customers 5 000
Inventory 6 000
loan to Davinder 3 000
What was Javed’s capital?
A $20 000 B $24 000 C $26 000 D $30 000
Nov 09 P1 Q2
31 Tony owns a bookshop. He sells a book to Susie who pays cash.
How will Tony record this transaction?
account to be debited account to be credited
A cash Sales
B cash Susie
C sales Cash
D Susie Sales
Nov 09 P1 Q3
32 A trader prepares a ledger account using the running balance method.
A The balance is shown after each transaction.
B The balance is shown only at the month end.
C There are fewer calculations than in a traditional 'T' account.
D This method is not suitable for computerised accounts.
May 10 P1 Q7
33 Which group contains only trading businesses?
A driving school, motor insurance agent, motor vehicle repairer
B driving school, motor insurance agent, petrol station
C motor parts shop, motor repairer, used car dealer
D motor parts shop, petrol station, used car dealer
May 10 P1 Q18/ May 14 P12 Q18
34 Which does not reduce the owner’s capital?
A business expenses paid using a personal cheque
B cash withdrawn from the business bank account for personal use
C goods taken from inventory (stock) for personal use
D personal expenses paid using business cash
Nov 10 P1 Q2/ May 19 P12 Q2
35 A customer returns goods to a supplier.

How does the supplier record this in his ledger?
A customer purchases returns
B customer sales returns
C purchases returns customer
D sales returns customer
Nov 10 P1 Q3/ May 12 P11 Q3
36 The following incomplete account appears in Singh’s sales ledger.

Bashir account
2010 Debit $ Credit $ Balance $
5 Sales 620 ?
12 Sales returns 30 ?
29 Bank 800 ?
What was the balance on Bashir’s account on 30 June?
A $590 credit B $590 debit
C $1010 credit D $1010 debit
Nov 10 P1 Q11/ Nov 13 P12 Q24
37 The following account appears in the ledger of Chan.

Fu account
2010 $ 2010 $
Aug 28 Bank 100 Aug 01 Balance b/d 100
31 Balance c/d 250 12 Purchases 250
350 350
A Chan is owed $100 by Fu on 1 August.
B Chan paid Fu $100 by cheque on 28 August.
C Fu is a debtor of Chan for $250 on 31 August.
D Fu purchased goods, $250, from Chan on 12 August.
Nov 10 P1 Q12/Nov 15 P12 Q9/ May 19 P12 Q8
38 Businesses make use of both book-keeping and accounting procedures. What is the purpose of book-
keeping?
A to interpret the double entry records
B to prepare financial statements at regular intervals
C to record all the financial transactions of the business
D to summarise the financial position of the business
May 11 P1 Q2/ Nov 14 P12 Q1
39 Which would be recorded by a credit entry in an account?

A a decrease in capital B a decrease in liabilities
C an increase in assets D an increase in capital
May 11 P1 Q3/Nov 15 P12 Q3
40 Which is the accounting equation?

A assets − current liabilities = owner’s equity (capital)
B assets − liabilities = owner’s equity (capital)
C current assets − current liabilities = owner’s equity (capital)
D non-current assets − liabilities = owner’s equity (capital)
May 11 P1 Q5
41 Jane, a trader, withdrew $50 from the business bank account for office use. How is this recorded in Jane's
books?
A bank cash
B bank drawings
C cash bank
D drawings bank
May 11 P1 Q9
42 Which is not a service business?

A hairdresser B manufacturer
C private tutor D window cleaner
May 11 P1 Q20
43 Melanie provided the following information at the end of her financial year.
$
non-current assets at cost 14 000
amount owing by customers 1 250
amount owing to suppliers 850
inventory 1 875
bank overdraft 365
What was Melanie's capital?

A $12 160 B $15 110 C $15 910 D $16 640
Nov 11 P1 Q1/Nov 16 P12 Q3
44 Which statements about book-keeping and accounting are correct?

1 Accounting is performed periodically rather than daily.
2 Accounting relies on having accurate book-keeping records.
3 Book-keeping involves the preparation of financial statements.
4 Book-keeping is based on the double entry system of recording.
A 1, 2 and 4 B 1 and 3
C 2, 3 and 4 D 2 and 4
May 12 P11 Q1/Nov 18 P11 Q1//Nov 18 P12 Q1
45 Padma started a business on 1 April 2011 with $30 000 of her own money. On 31 March 2012 her
assets and liabilities were:
$
machinery at net book value 38 000
other assets 15 000
long-term loan from bank 16 500
What was Padma’s capital on 31 March 2012?
A $30 000 B $36 500 C $46 500 D $53 000
May 12 P11 Q2
46 A company began trading on 1 January 2012. During that month, the following transactions took place.
received capital from shareholders, $10 000
received goods for resale, $4 000
despatched goods to customer, $5 000
paid $3 000 for goods received
What was the total in the bank account on 31 January 2012?
A $7 000 B $8 000 C $11 000 D $12 000
May 12 P11 Q8
47 Which is an intangible asset?

A goodwill B inventory
C machinery D trade receivables
May 12 P11 Q21/ Nov 14 P12 Q19/ May 18 P12 Q17
48 Which is not a service business?

A accountant
B insurance company
C motor trader
D travel agent
May 12 P11 Q22
49 Which task would not be carried out by an accountant?

A comparing one year’s results with those of previous years
B interpreting the accounting records
C preparing financial statements
D recording the financial transactions
May 12 P12 Q1
50 Jane made a payment to a supplier for goods bought on credit. Jane does not have a bank overdraft.
What is the effect on the accounting equation?
A decrease capital and decrease assets
B decrease liabilities and decrease assets
C increase assets and decrease liabilities
D increase liabilities and decrease capital
May 12 P12 Q2
51 On 1 January Tan, a sole trader, lent Chan$4 000. On 1 November Chan repaid part of the loan leaving an
amount outstanding of $1 000.
Which entry was made in the accounts of Tan on 1 November?
account to be debited $ account to be credited $
A Bank 1 000 Chan loan 1 000
B Bank 3 000 Chan loan 3 000
C Chan loan 1 000 Bank 1 000
D Chan loan 3 000 Bank 3 000
Nov 12 P12 Q3
52 Melissa made payments to the following suppliers.
Which suppliers is a service business?
name of business reason for payment
A M1 Insurance Company Cost of motor insurance
B Music & Move Company purchase of car radio
C PJ Garages Ltd Cost of motor vehicle
D The Petrol Station purchase of petrol
May 13 P12 Q19
53 How is owner’s equity calculated?

A money invested in the business by the owner, plus the net current assets
B money invested in the business by the owner, plus the non-current liabilities
C total of non-current assets and working capital, less the non-current liabilities
D total of non-current assets, long term liabilities and net current assets
Nov 13 P12 Q2
54 The following account appeared in a trader’s ledger.
equipment account
debit credit balance
2013 Details
$ $ $
July 31 Balance 4 000 Dr
August 2 Bank 7 500
What was the balance on the account on 2 August?
A $3 500 credit B $3 500 debit
C $11 500 credit D $11 500 debit
Nov 13 P12 Q7
55 A trader purchased a motor vehicle for his business using a cheque from his personal bank account. How
is this recorded in the books of the business?
A Bank motor vehicles
B capital motor vehicles
C motor vehicles Bank
D motor vehicles capital
Nov 14 P12 Q3
56 What is prepared by a book-keeper?

A appropriation account
B cash book
C income statement
D statement of financial position
Nov 15 P12 Q1
57 Which task would not be carried out by a book-keeper?
A posting cash receipts
B preparing financial statements
C recording entries in the purchases ledger
D writing up the sales returns journal
May 16 P12 Q1
58 Which statement is not true about reasons for using international accounting standards?
A helps when making comparisons between companies
B improves the reliability of accounting information
C narrows the areas of difference between companies
D makes the preparation of financial statements less time consuming
May 16 P12 Q30
59 A company employs a book-keeper and an accountant.

Which task would the accountant perform?
A extracting balances from the ledger accounts to produce a trial balance
B making entries in the journal to adjust a provision for doubtful debts
C preparing a monthly report that analyses the profit ability of the company
D recording sales and purchase invoices in the books of prime (original) entry
Nov 16 P12 Q1
60 Which is a trading business?

A food store B hairdresser
C investment adviser D motor vehicle repairer
Nov 16 P12 Q20
61 Which accounts all have debit balances?

A capital, insurance, purchases
B drawings, sales, purchases returns
C inventory, motor vehicles, cash
D rent received, drawings, wages
May 17 P12 Q7
62 A trader invested $4 000 into the business. $2 000 was used to pay a credit supplier. The rest of the
money was paid into the business bank account.
What changes would take place within the accounting equation?
assets owner’s equity liabilities

(capital)
A –$2 000 –$4 000 +$2 000
B +$2 000 +$2 000 no effect
C +$2 000 +$4 000 –$2 000
D +$4 000 +$4 000 no effect
Nov 18 P11 Q2
63 The balance of which account will appear in the debit column of a trial balance?
A carriage inwards
B discounts received
C provision for doubtful debts
D purchases returns
Nov 18 P11 Q8
64 Ava had $4 000 in the bank. She paid a supplier $575 by cheque in full settlement of $600 owing.
Which changes would take place within the accounting equation?
assets owner’s equity liabilities
(capital)
A –$600 –$25 –$625
B –$600 +$25 –$625
C –$575 +$25 –$600
D +$575 –$25 +$600
Nov 18 P12 Q2
65 What is the main function of book-keeping?

A communicating information
B interpreting information
C recording information
D summarising information
May 19 P12 Q1
66 What would be recorded by a debit entry in a ledger account?

A a decrease in an asset
B an increase in a liability
C an increase in an asset
D an increase in capital employed
May 19 P12 Q3
ANSWER KEY
1 A 18 A 35 D 52 A
2 B 19 A 36 B 53 C
3 A 20 C 37 B 54 D
4 C 21 C 38 C 55 D
5 B 22 B 39 D 56 B
6 A 23 A 40 B 57 B
7 A 24 C 41 C 58 D
8 C 25 B 42 B 59 C
9 C 26 A 43 C 60 A
10 B 27 A 44 A 61 C
11 D 28 D 45 B 62 C
12 A 29 D 46 A 63 A
13 C 30 C 47 A 64 C
14 C 31 A 48 C 65 C
15 D 32 A 49 D 66 C
16 C 33 D 50 B
17 C 34 A 51 B
DETAILED ANSWERS
2 Question shows position (balance) of an account at a particular date. “A” and “C” options are examples of
accounting transactions and do not represent balances, whereas “D” option represents a liability on part
of the business. Moreover debit balance indicates an asset (receivable) so “B” option is correct.
3 “D” option shows that amount is payable by the supplier to the customer whereas opposite is true. “B”
and “C” options are the examples of accounting transactions (not balances).
4 Although for Bob this return is Purchases return but for Tariq this is Sales return so when Bob will return
the goods, then sales income of Tariq will decrease (debited) with decrease in amount receivable from
Bob (credited).
11 Balance on 1 January represents amount receivable by X as part of X whereas opposite was given in option
“A”. Transaction on 10 January (“B” option) shows cheque received by X from Y. Transaction on 20 January
(“C” option) shows that X supplied goods to Y. “D” option is correct as debit side is more than the credit
side so represents an asset (receivable) by X.
13 Drawings of goods are always recorded at cost price and that is $150.
15 As amount of carriage outwards is charged to Jones, so his account will be debited as the amount
receivable from him has increased whereas carriage outwards expense will decrease and will be credited.
16 “C” option is correct as payment is made to a trade payable (supplier). “A” option represents receipt from
a trade payable whereas “D” option is the entry to record cash purchases.
18 Personal accounts simply mean accounts of persons i.e. “A” option is correct.
22 Carl’s account
$ $
Balance b/f 200 Bank 50
___ Balance c/d (Dr) 150
200 200
25 “B” option is correct whereas businesses in other three options are trading organisations.
27 “A” option is correct as business installing computer systems is not selling anything rather it is giving
services to others whereas businesses in other three options are trading organisations.
28 “D” option is correct. “A” option describes definition of current assets only whereas “C” option tells
definition of non-current assets only. “B” option, on the other hand gives definition of owner’s capital.
29 “D” option is correct. Items in other three options are examples of trading businesses.
30 Assets $ $
Equipment 10 000
Motor vehicle 8 000
Amount owing by customers 5 000
Inventory 6 000
Loan to Davinder 3 000 32 000
Liabilities
Bank balance 2 000
Amount owing to suppliers 4 000 (6 000)
Javed’s capital 26 000
33 “D” option is correct as driving school, motor insurance agent and motor vehicle repairer are all service
businesses.
34 “A” option is correct whereas items in “B”, “C” and “D” options show withdrawals by partners and will
reduce their capitals.
36 Bashir account
2010 Debit $ Credit $ Balance $
5 Sales 620 1 420 dr
12 Sales returns 30 1 390 dr
29 Bank 800 590 dr
38 “C” option is correct whereas items in other three options are purposes of Accounting.
39 “D” option is correct whereas items in other three options are recorded by a debit entry.
41 “C” option is correct as the amount is withdrawn from bank so involves credit entry in bank account. In
addition as amount is withdrawn for office (business) use so should not be recorded as Drawings.
43 $
Assets ($14 000 + $1 250 + $1 875) 17 125
Less Liabilities ($850 + $365) (1 215)
Capital 15 910
45 Assets at 31 March 2012 $ $

Machinery at net book value 38 000
Other assets 15 000 53 000
Liabilities at 31 March 2012
Long-term loan from bank (16 500)
Capital at 31 March 2012 36 500
46 Bank account
$ $
Capital 10 000 Purchases 3 000
____ Balance c/d 7 000
10 000 10 000
48 “C” option is correct as accountant, insurance company and travel agent are all service businesses.
50 Effects of this transaction are:

Trade payable (liabilities)
Bank  (assets)
51 As asset of loan has been decreased by $3 000 (from $4 000 to $1 000) so bank would have been
increased (debited) and Asset of Chan’s loan would have been decreased (credited) by $3 000.
53 Owner’s equity is equal to non-current assets + working capital –non-current liabilities (option C).
54 The account has an opening debit balance and there is a debit entry on 2 August, so the balance after this
transaction must be a debit of $11 500.
56 “B” option is correct whereas statements in “A”, “C” and “D” options are prepared by accountants.
57 A book-keeper would not prepare financial statements as this is the responsibility of accountants.
58 The statements made in options ‘A’, ‘B’ and ‘C’ are correct. Statement ‘D’ is not true as the application of
international accounting standards has no effect on the time taken to prepare financial statements.

Bank $4 000  (assets) Capital $4 000  (capital)
Trade payable $2 000  (liabilities) Bank $2 000  (assets)

Trade payable $600  (liabilities) Bank $575  (assets) Dis. Received $25  (income/capital)
Accounting O Level P-1 Topical -21- Ch-2: Books of Original Entry
CHAPTER-2 Topics
Answer Key
Detail Answer
BOOKS OF
ORIGINAL
ENTRY
O-Level
Accounting Paper 1
Multiple Choice Questions (Topical & Yearly)

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CHAPTER 2 BOOKS OF ORIGINAL ENTRY

1 H buys goods on credit from J. The goods are unsuitable and H returns them to J.
What is the name of the document, which H sends to J with the goods?
A credit note B debit note
C invoice D statement of account
Specimen 2000 Q1/ May 07 P1 Q2/ Nov 10 P1 Q5/Nov 15 P12 Q4/May 18 P12 Q4
2 Why is the General journal used to correct errors in the ledger?

A to avoid making alterations in the ledger
B to complete the double entry
C to provide a record explaining ledger entries
D to save the book-keeper’s time
Specimen 2000 Q2/ May 07 P1 Q8/Nov 11 P1 Q8
3 Which book of prime entry is part of the double entry system?

A cash book B general journal
C purchases journal D sales journal
Specimen 2000 Q3/ Nov 04 P1 Q7/ May 08 P1 Q6
4 Goods bought on credit by X from Y are returned before they are paid for. X keeps a full double entry
system.
Where will X record the return of goods?
A cash book and purchases ledger
B general ledger only
C general ledger and purchase ledger
D purchase ledger only
May 00 P1 Q1/ May 08 P1 Q3/May 12 P12 Q3/May 16 P12 Q2
5 A firm buys goods on credit.

Which document does the firm use to record this?
A credit note B purchase invoice
C sales invoice D supplier’s statement
May 00 P1 Q2 / Nov 03 P1 Q2
6 X sends back $800 of faulty goods to Y.

In which book of prime entry would Y record this transaction?
A general journal B purchases returns journal
C sales journal D sales returns journal
May 00 P1 Q3/ Nov 04 P1 Q3
7 A bookkeeper discovers that an amount paid to a supplier has been wrongly entered in another supplier’s
account.
Which book of original entry will the bookkeeper use when correcting this error?
C purchases day book D sales day book
May 00 P1 Q6
8 X invoices goods to Y. They are found to be damaged.
Which document will X then send to Y?
A copy invoice B credit note
C debit note D statement of account
Nov 00 P1 Q2/ Nov 04 P1 Q2/ Nov 14 P12 Q5
9 Which transaction is entered in the general journal?

A credit sale of goods
B goods returned to supplier
C purchase of a non-current asset on credit
D purchase of inventory for cash
Nov 00 P1 Q6
10 X sells goods on credit to Y. Y returns some of these goods to X.

Which document will X send to Y?
C invoice D statement of account
May 01 P1 Q2
11 Which of the following is part of the double entry system?

A cash book
B general journal
C sales journal
D trial balance
May 01 P1 Q4 / Nov 02 P1 Q3/ May 05 P1 Q3
12 Which item will be entered in the General Journal?

A a correction of an error
B a sale on credit
C discount received
D goods returned to supplier
May 01 P1 Q7/Nov 05 P1 Q7
13 Y returns goods to X.
Which document will Y send to X?
C invoice D receipt
Nov 01 P1 Q1/ Nov 07 P1 Q2
14 Y sells goods on credit to X.

How is this recorded in Y’s books?
book of prime entry account to be debited account to be credited
A purchases Y Purchases
B purchases purchases Y
C sales X sales
D sales Sales X
Nov 01 P1 Q2
15 X buys goods on credit from Y.
What is the name of the document used by X to settle the liability to Y?
A cheque B credit note
C receipt D statement of account
May 02 P1 Q2
16 Which should be recorded in the general journal?

A debt written off as bad
B goods returned to supplier
C goods sold for cash
D trade discount allowed to customer
May 02 P1 Q6
17 Which transaction is recorded in the sales ledger?

A cash sales
B cheque paid to a trade payable
C cheque received from a trade receivable
D sale of non-current assets
Nov 02 P1 Q1/ May 10 P1 Q3/ May 13 P12 Q3
18 In which book is a credit note from a supplier entered?

A purchases journal B purchases returns journal
C sales journal D sales return journal
Nov 02 P1 Q2/ May 09 P1 Q6/ Nov 13 P12 Q4/May 17 P12 Q3
19 Which transaction is entered in the general journal?

A cash paid to supplier B cash received from customer
C machinery bought on credit D inventory bought on credit
Nov 02 P1 Q7 /Nov 06 P1 Q9
20 A business has purchased inventory on credit and received the goods. At the end of the year the business
had not received an invoice from the supplier, Harvey.
Which adjustment is necessary at the year-end?
Debit Credit
A purchases account inventory account
B purchases account Harvey account
C inventory account bank account
D Harvey account bank account Nov 02 P1 Q22
21 X keeps a full set of books of account.

Where will the Sales account appear?
A general journal B general ledger
C sales journal D sales ledger
May 03 P1 Q2
22 A firm has received the following business documents from X, a supplier.

$
October 5 Invoice 650
October 10 invoice 120
October 12 credit note 150
October 22 invoice 230
November 4 invoice 790
There was no opening balance on X’s account and the firm made no payments to X during October.
What was the balance on the supplier’s statement of account at 31 October?
A $850 B $1 150
C $1 640 D $1 940
May 03 P1 Q3/ May 08 P1 Q5
23 X buys goods on credit from Y, who issues an invoice. The goods are unsuitable and X returns them to Y
without paying for them.
Which document should Y issue to X on receipt of the returned goods?
C purchase invoice D receipt
May 03 P1 Q4
24 Ben a trader started purchasing goods on credit from David on 1 March.

Transactions during March were as follows:
$
Purchases 1 600
Cash paid 1 200
Purchases returns 90
Discount received 18
What is the closing balance of David’s account in the books of Ben?
A $292 credit B $328 credit
C $472 credit D $508 credit
May 03 P1 Q11
25 Which item is recorded in the General Journal?

A cash sales B non-current assets bought on credit
C goods sold on credit D petty cash payments
Nov 03 P1 Q6
26 There is a debit balance of $100 on Yasmin’s account in Shula’s sale ledger.

What does this mean?
A Yasmin has paid $100 to Shula B Yasmin has returned goods, $100 to Shula
C Yasmin owes $100 to Shula D Shula owes $100 to Yasmin
Nov 03 P1 Q7
27 George sent an invoice for $4 500 to a customer. He entered the amount correctly in the Sales Journal but
posted it to the customer’s account as $5 400.
Which book of prime entry does George use to correct the error?
Nov 03 P1 Q15
28 What is the original document for sales returns?

A credit note from the purchaser B a credit note from the supplier
C invoice from the purchaser D invoice from the supplier
May 04 P1 Q2
29 Goods returned to a supplier were entered in the supplier’s appropriate journal.

Which account should be debited in the supplier’s general ledger?
A purchases B returns inwards
C returns outwards D sales
May 04 P1 Q4
30 New shop fittings are bought on credit for $4 000.

Where is this transaction entered first?
C purchases journal D purchases ledger
May 04 P1 Q6/ May 07 P1 Q4/ Specimen 2008 Q6
31 What is the purpose of a credit note?

A to allow for cash discount
B to ask for payment in advance
C to increase the amount due on an invoice
D to reduce the amount payable on an invoice
May 05 P1 Q2
32 A business maintains a full set of books of prime entry.

Which book is written up from credit notes received?
A purchases journal
B purchases returns journal
C sales journal
D sales returns journal
May 05 P1 Q4
33 X keeps a full set of books of account.

Where will the purchases account appear?
A general journal B general ledger
C purchases journal D purchases ledger
Nov 05 P1 Q1
34 Which source document is used to make an entry in the purchases returns journal?
A credit note issued by the business
B credit note issued by the supplier
C invoice issued by the business
D invoice issued by the supplier
Nov 05 P1 Q2
35 Which is entered in the purchases journal?

A invoices from suppliers B invoices to customers
C payments from customers D payments to suppliers
Nov 05 P1 Q4
36 What would a business use to pay for goods?

A cheque B invoice
May 06 P1 Q2
37 What is entered in a business’s general journal?

A purchase of a new motor vehicle on credit
B return of faulty goods by a credit customer
C standing order for payment of insurance premium
D transfer of surplus office cash into the bank
May 06 P1 Q3/ May 10 P1 Q6
38 A provision for doubtful debts is to be reduced.

Which book of prime entry will be used?

C purchases journal D sales journal
May 06 P1 Q4
39 X receives a credit note from one of his suppliers. How would X record this?

A purchases supplier
B purchases returns supplier
C supplier purchases
D supplier purchases returns
Nov 06 P1 Q2
40 X purchases goods on credit from Y. How will Y record this?
Book of prime entry account to be debited account to be credited

A purchases purchases Y
B purchases Y purchases
C sales sales X
D sales X Sales
Nov 06 P1 Q3/ May 12 P11 Q7
41 Powell returns goods purchased on credit from Wilson. Where will this transaction be entered in Wilson’s
books?
book of prime entry account debited Account credited
A sales journal Powell Sales
B sales journal sales Powell
C sales returns journal Powell sales returns
D sales returns journal sales returns Powell
May 07 P1 Q3
42 Which transaction is recorded in the purchases ledger?

A cash purchases
B cheque paid to a trade payable
C cheque received from a trade receivable
D purchase of non-current assets
Nov 07 P1 Q1/May 09 P1 Q5/ Nov 10 P1 Q4
43 Smith returns goods purchased on credit from Jones. Where will this transaction be entered in Smith’s
books?
book of prime entry account debited account credited

A purchases Jones Purchases
B purchases purchases Jones
C purchases returns Jones purchases returns
D purchases returns purchases returns Jones
Nov 07 P1 Q3
44 Which is recorded in the general journal before it is entered in the ledger?

A bad debt written off
B cash sales
C equipment purchased by cheque
D purchases returns
Nov 07 P1 Q7/May 12 P12 Q9
45 Which document is issued by a supplier when a customer returns goods?

C invoice D statement
Specimen 2008 Q3
46 Which statement about a debit note is correct?

A It is sent to a customer to request payment of an account.
B It is sent to a customer when his order cannot be supplied in full.
C It is sent to a supplier to order additional goods.
D It is sent to a supplier when goods are received damaged.
May 08 P1 Q4/May 15 P12 Q5
47 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
Nov 08 P1 Q3/ May 12 P11 Q4/May 15 P12 Q2/Nov 16 P12 Q5
48 Omar sends a credit note to Miriam for goods returned.
How will Miriam record the transaction?
A purchases returns Omar
B sales returns Miriam
C Omar purchases returns
D Miriam sales returns
Nov 08 P1 Q4
49 How many of the following transactions should be recorded in the general journal?
1. credit purchase of a non-current asset
2. credit sale of goods
3. goods taken by owner for personal use
4. writing off a bad debt
A 1 transaction B 2 transactions
C 3 transactions D 4 transactions
Nov 08 P1 Q6
50 The following account appears in the ledger of Melissa. Julia account
2008 $ 2008 $
Jan 01 Sales 100 Jan 14 bank 95
19 Sales 50 discount 5
__ Dec 31 bad debts 50
150 150
A On 14 January Julia allowed Melissa trade discount.
B On 14 January Melissa allowed Julia trade discount.
C On 31 December Julia wrote off Melissa’s account.
D On 31 December Melissa wrote off Julia’s account.
May 09 P1 Q12
51 Dipankar often trades with Ashok.
In which order would the following documents be issued?
A cheque, credit note, invoice, receipt
B credit note, receipt, invoice, cheque
C invoice, credit note, cheque, receipt
D receipt, cheque, invoice, credit note
Nov 09 P1 Q4
52 Which is entered in the general journal?

A cash payment to an employee for expenses
B correction of an error
C credit purchase of goods for resale
D return of goods by a customer
Nov 09 P1 Q5
53 Sally supplies goods to Jake.

In Sally’s books the account of Jake shows a debit balance of $350. Jake sends Sally a cheque for $75.
What is the balance on Jake’s account after this transaction?
A $275 debit B $275 credit
C $425 debit D $425 credit
Nov 09 P1 Q8
54 Which document does a trader send to a credit customer to summarise the transactions for the
month?
May 10 P1 Q4/May 11 P1 Q7/May 16 P12 Q3
55 Where is the total of the purchases journal posted?

A credit income statement (trading account)
B debit income statement (trading account)
C credit purchases account
D debit purchases account
Nov 10 P1 Q6/ May 13 P12 Q5
56 Wayne has sent the following business documents to Len, a customer.
$
Jan 01 invoice 250
Jan 12 invoice 370
Jan 14 credit note 90
Jan 18 invoice 480
Feb 02 invoice 670
There was no opening balance on Len’s account and no payments made by Len during January.
What is the amount to be paid by Len to clear his January account?
A $1 010 B $1 190 C $1 680 D $1 860
May 11 P1 Q6
57 Hassan maintains a sales journal, purchases journal, sales returns journal and a purchases returns
journal. At the end of his first month’s trading, Hassan transfers the total of each of these journals to the
general ledger. Which entries will Hassan make in his general ledger to record these totals?
A purchases returns purchases
sales sales returns
B purchases returns Purchases
sales returns sales
C purchases purchases returns
sales sales returns
D purchases purchases returns
sales returns sales
May 11 P1 Q8/May 15 P12 Q4
58 Ann is a trader. On 1 April 2011 Cindy’s account in Ann’s ledger showed a credit balance of $520. The
following transactions took place during April 2011.
April 02 Ann returned goods, $30, to Cindy
14 Ann bought goods, $210, from Cindy, and paid in cash
Which statement is true about the balance on Cindy’s account in Ann’s ledger on 30 April 2011?
A Ann owes Cindy $490. B Ann owes Cindy $700.
C Cindy owes Ann $490. D Cindy owes Ann $700.
May 11 P1 Q10
59 Eli buys goods on credit from Mona.

What entries should Eli make in his ledgers?
general ledger purchases ledger
A credit Mona debit purchases
B credit purchases debit Mona
C debit Mona credit purchases
D debit purchases credit Mona
Nov 11 P1 Q3
60 Raoul trades with Christine. They exchange the following documents.

Which document would normally be issued first?
C invoice D statement
Nov 11 P1 Q4
61 There is a credit balance of $100 on Yasmin's account in Shula's purchases ledger.

What does this mean?
A Shula owes $100 to Yasmin
B Shula has returned goods, $100, to Yasmin
C Yasmin has paid $100 to Shula
D Yasmin owes $100 to Shula
Nov 11 P1 Q10
62 Dave supplies goods to Peter on credit. On 1 April, Peter owed Dave $440. Dave sent or received the
following documents in April.
$
April 07 Invoice 360
12 Cheque (after deducting $11 cash discount) 429
13 Debit note 50
15 Credit note 50
What was the closing balance on the statement of account on 30 April 2011?
A $260 B $310
C $321 D $421
May 12 P11 Q6
63 Sukesh’s account in the books of Jack showed the following.

Sukesh account
date Debit ($) Credit ($) Balance ($)
May 1 balance 450 dr
4 Sales 200 650 dr
8 Bank 432 218 dr
8 discount 18 200 dr
Which statements about the transactions on 8 May are correct?
1 Jack made a payment to Sukesh.
2 Jack received a payment from Sukesh.
3 Sukesh allowed a discount to Jack.
4 Sukesh received a discount from Jack.
A 1 and 3 B 1 and 4
C 2 and 3 D 2 and 4
May 12 P11 Q11/May 17 P12 Q8
64 What is true about a statement of account issued by a business?

1 It is a source document for the purchases journal.
2 It is a source document for the sales journal.
3 It is sent by a customer to a supplier.
4 It is sent by a supplier to a customer.
A 1 and 3 B 2 and 4
C 3 only D 4 only
May 12 P12 Q4
65 What is the purpose of an invoice?
A to confirm that a payment has been received
B to confirm that damaged goods have been returned
C to show details of all transactions with a customer during the month
D to show details of goods that have been supplied on credit
Nov 12 P12 Q4
66 A customer received an invoice for $98 for goods priced at $88.
Which document will the customer use to inform the supplier of this error?
A credit note
B debit note
C receipt
D statement of account
May 13 P12 Q4
67 The following partly-completed account appeared in Edward’s sales ledger.
Ann account
2013 debit Credit balance
$ $ $
Jan 04 Sales 21 500
11 sales returns 500
On 30 January, Ann paid $10 000 by cheque and was given a cash discount of $200. Which is correct on 31
January?
A Ann owesEdward$10 800. B Ann owesEdward$11 200.
C Edward owes Ann $10 800. D Edward owes Ann $11 200.
May 13 P12 Q8/ May 18 P12 Q7
68 A trader divides his ledger into sales, purchases and general ledgers.
Which statement is not correct?
A It is easier to locate and refer to ledger accounts.
B Maintaining the ledger can be divided between several people.
C The same type of accounts can be kept together.
D There are fewer entries in the sales and purchases accounts.
May 14 P12 Q4
69 On 1 April Jane sold goods on credit to Martha subject to a trade discount of 25%. Martha returned
goods, list price $200, to Jane on 7 April.
How will Martha record the transaction of 7 April?
book of prime (original) entry account to be debited account to be credited
A purchases returns journal Jane $150 purchases returns $150
B purchases returns journal Jane $200 purchases returns $200
C sales returns journal sales returns $150 Martha $150
D sales returns journal sales returns $200 Martha $200
May 14 P12 Q5/ May 19 P12 Q5
70 The following account appeared in Sue’s ledger.

Tony account
$ $
May 1 balance b / d 400 May 16 returns 21
12 sales 590 28 bank 284
discount 6
––– 31 balance c / d 679
990 990
A On 12 May Tony sold goods, $590, to Sue.
B On 16 May Sue returned goods, $21, to Tony.
C On 28 May Tony received discount, $6, from Sue.
D On 31 May Sue owed $679 to Tony.
May 14 P12 Q8/May 15 P12 Q7/Nov 17 P12 Q6
71 Arnold’s ledgers contain an account for Jim, a credit supplier, and a purchases account.
In which ledgers will these accounts appear?
Jim account purchases account
A general ledger general ledger
B general ledger purchases ledger
C purchases ledger general ledger
D purchases ledger purchases ledger
Nov 14 P12 Q4
72 Logan records his sales invoices in a sales journal.
What happens at the end of the month?
A Each customer’s account is credited with the total of that customer’s invoices for the month.
B Each customer’s account is debited with the total of that customer’s invoices for the month.
C The sales account is credited with the total of the sales invoices.
D The sales account is debited with the total of the sales invoices.
Nov 14 P12 Q6
73 Alex issued a credit note to Marcus.
In which book of prime (original) entry would Alex record this?
A purchases journal B purchases returns journal
Nov 16 P12 Q6
74 A trader sends a monthly statement to a credit customer.

What is the purpose of sending this statement?
A to demand immediate payment in cash
B to inform the customer of his credit limit
C to provide a summary of transactions
D to notify the customer of goods a waiting delivery
Nov 16 P12 Q7
75 A trader provided the following extract from his sales journal.
sales journal
2017 $ $
October 7 J Sango
Goods 100
trade discount 20 80
Which entry was made in the account of J Sango in the sales ledger?
A credit $80 B credit $100 C debit $80 D debit $100
Nov 17 P12 Q3
76 Which transaction is recorded in the general journal?

A payment of cash into a business bank account
B purchase of a motor vehicle on credit
C receipt of a cheque from a customer
D sale of goods on credit
Nov 17 P12 Q5
77 Mark sold goods on credit to Paul for $5000. Paul returned goods costing $200 to Mark.
What were the balances in Paul’s ledger accounts after these transactions?
purchases purchases Mark account
account returns account
$ $ $
A 4 800 credit 200 credit 5 000 debit
B 4 800 debit 200 debit 5 000 credit
C 5 000 credit 200 debit 4 800 debit
D 5 000 debit 200 credit 4 800 credit
Nov 17 P12 Q7
78 On 1 September 2018 Chan owed Tan $570. During September 2018 the following transactions took
place.
Tan sold goods, $380, on credit to Chan
Chan returned goods, $150, to Tan
Chan paid Tan $500 by cheque
What was the balance brought down on Chan’s account in Tan’s ledger on 1 October 2018?
A $300 credit
B $300 debit
C $840 credit
D $840 debit
Nov 18 P11 Q7/ Nov 18 P12 Q7
79 Winston returned goods to Hanif.

Which entries will Winston make in his ledgers?
debit entry credit entry
Ledger account Ledger Account
A General Hanif Purchases purchases returns
B General purchases returns Purchases Hanif
C purchases Hanif General purchases returns
D purchases purchases returns General Hanif
Nov 18 P12 Q3
80 Andy purchases goods from Charles.

The account of Charles in Andy’s books for the month of September showed the following entries.
$ $ $
Sept 1 purchases 625 625 cr
8 returns 27 598 cr
17 purchases 317 915 cr
30 bank 598 317 cr
Which document would be issued by Charles on 8 September?
A cheque B credit note
C debit note D invoice
Nov 18 P12 Q4
81 Lisa is a credit customer of Daniel. Her account in Daniel’s ledger showed the following entries.
$ $ $
Aug 1 balance 10 cr
Aug 8 sales 300 ?
On 10 August Lisa returned goods, list price $140, subject to a 20% trade discount.
What was the debit balance on Lisa’s account after this transaction?
A $150 B $170
C $178 D $198
Nov 18 P12 Q8
82 In April Meena sent Ralph invoices for $170, $240, $125 and a credit note for $63. In the same month
Ralph sent Meena a debit note for $70 and a cheque for $107.
What was the balance on Meena’s account in Ralph’s books on 1 May?
A $295 credit
B $295 debit
C $365 credit
D $365 debit
May 19 P12 Q4
ANSWER KEY
1 B 22 A 43 C 64 D
2 C 23 A 44 A 65 D
3 A 24 A 45 A 66 B
4 C 25 B 46 D 67 A
5 B 26 C 47 C 68 D
6 D 27 B 48 C 69 A
7 B 28 B 49 C 70 C
8 B 29 B 50 D 71 C
9 C 30 B 51 C 72 C
10 A 31 D 52 B 73 D
11 A 32 B 53 A 74 C
12 A 33 B 54 D 75 C
13 B 34 B 55 D 76 B
14 C 35 A 56 A 77 D
15 A 36 A 57 D 78 B
16 A 37 A 58 A 79 C
17 C 38 B 59 D 80 B
18 B 39 D 60 C 81 C
19 C 40 D 61 A 82 C
20 B 41 D 62 B
21 B 42 B 63 D
DETAILED ANSWERS
1 As H is buyer of goods so when he returns goods to J; then he will send J a debit note to indicate that J’s
account has been debited.
3 Option “A” is correct as it has two sides of debit and credit and also acts as an account.
4 Return of credit purchases involves the following entry:

Debit : Trade payable
Credit : Purchases returns
We know that trade payables’ accounts are kept in Purchases ledger; whereas all impersonal accounts
(including purchases returns) are maintained in general ledger so both will be used to record the
transaction.
5 As evident from the name, purchase invoice will be used to record purchases of goods.
6 As X is returning goods to Y so for Y this is a sale return and will be entered in the sales return journal.
7 “B” option is correct. Cash book (“A” option) is used to record receipts and payments of cash and bank.
Purchases day book (“C” option) records credit purchases whereas sales day book (“D” option) is used to
record credit sales.
8 As goods sold by X are found to be damaged so amount receivable from Y by X on account of sales will
reduce and X will credit Y’s account by sending him a credit note.
9 “C” option is correct, "A”, “B” and “D” transactions are respectively entered in the sales journal, general
journal and in the cash book.
10 For X this transaction is sales return so it will result in crediting Y’s account in X’s books by issuing Y a credit
note.
11 "A" option is correct, as it has both debit and credit sides whereas trial balance (“D” option) is a list of
balances and is not an account.
12 "A" option is correct. Credit sales (“B” option) are recorded in sales journal. Discount received (“C” option)
is shown in cash book. Return to suppliers (“D” option) is entered in purchases return journal.
13 As for Y this is purchase returns, so to record this transaction Y will debit X account and issue him a debit
note.
14 As Y is selling gods to X, so he will record this transaction in sales book. He will debit X (being an asset) and
credit sales account (being an income).
15 Cheque will be used to make payment by X to settle his liability to Y.
16 "A" option is correct. Return to supplier (“B” option) is recorded in purchase returns journal. Cash sales
(“C” option) are recorded in cash book. Trade discounts (“D” option) are not recorded anywhere in the
books.
17 Sales ledger is the book in which accounts of individual trade receivables are kept. Cheque received from a
trade receivable (“C” option) is the only transaction relating to trade receivables so is recorded in the sales
ledger.
18 “B” option is correct; as used to record credit note received. In Purchase journal ("A" option), purchase
invoices are entered. In Sales journal (“C” option) sales invoices are entered. In Sales return journal (“D”
option) debit notes received are entered.
19 “C” Option is correct. Items in “A” and “B” options are recorded in cash book and item in “D” option is
recorded in purchase journal.
20 Purchases are recorded in purchase journal when invoices are received. As invoice was not received by the
year-end but goods have been bought and amount of purchases is given so complete entry for purchases
should be made.
21 Ledger is the book in which accounts are kept, so sales account can only appear in the ledger (i.e. “A” and
“C” options are incorrect). Moreover, sales ledger keeps individual accounts of all customers whereas all
impersonal accounts appear in the general ledger so “B” option is correct.
22 X’s account
$ $
Oct 05 Invoice 650 Oct 12 Credit note 150
Oct 10 Invoice 120 Oct 31 Balance c/d 850
Oct 22 Invoice 230 ____
1 000 1 000
24 David Account
$ $
Discount received 18 Purchases 1 600
Purchase returns 90
Cash paid 1 200
Balance c/d (Cr.) 292 ____
1 600 1 600
25 “B” option is correct. Items in “A” and “D” options are examples recorded in cash book whereas item in
“C” option is shown in sales journal.
26 “C” option is correct. “A” and “B” options are examples of accounting transactions and not showing
position of the account (as balances show). “D” option represents a liability for Shula whereas balance
given in question is debit.
28 When goods sold are returned by a customer then the seller or supplier issues his customer a credit note
to tell him that his account has been credited an account of the sales return.
29 Purchases returns (returns outwards) to a supplier will be returns inwards for him (supplier). So he will
pass the following entry to record this transaction.
Dr: Returns inwards
Cr: Trade receivable’s account
30 “A” option is incorrect as cash is not involved in the transaction “C” option is wrong as “purchase journal”
only records purchases of goods for resale purposes “D” option is also not correct as “purchase ledger” is
the book of second entry. So “B’ option is correct as general journal is used to record all the transactions
not recorded in special journals.
31 “D” option is correct because credit note is issued to reduce the amount on an invoice as this involves the
following entry.
Sales Returns xx
Trade receivable’s account xx
32 “B” option is correct as receipt of credit note indicates that our suppliers have credited our account due to
return of goods to them.
33 “A” and “C” options are incorrect as ledger accounts are not kept in Journals. “D” option is also wrong as
“purchases ledger” is used to keep individual accounts of trade payables. “B” option is correct as all
accounts with the exception of individual accounts of trade receivables and trade payables are kept in
“General ledger”.
34 “A” option is incorrect as credit note is issued by a business for sales returns whereas invoices given in “C”
and “D” options are used to record credit sales and credit purchases respectively.
35 “A” option is correct. Invoices in “B” option are entered in the sales journal whereas items in “C” and “D”
options are entered in the cash book.
37 “A” option is correct. Item in “B” option is entered in “Returns inward journal”; whereas items in “C” and
“D” are recorded in cash book.
38 All adjusting entries including reduction in provision for doubtful debts are entered in “general journal” so
“B” option is correct.
41 As Powell is returning goods to Wilson so for Wilson this is sales returns and will be recorded as
Dr. Sales Returns
Cr. Powell
Moreover the first book in which this transaction is recorded is “Sales Journal”.
42 “Purchase ledger” is the book in which individual accounts of trade payables are kept. In view of this “B”
option is correct as this is the only option which contains a transaction relating to trade payables.
43 “A” option is correct, Items in “B” and “C” options are recorded in the cashbook whereas
purchase returns (“D” option) are recorded in purchases returns journal.
47 “C” option is correct as goods sold to Leroy on credit should be recorded as

Debit Leroy
Credit Sales
Leroy’s account would be debited in the “sales ledger” in which all individual trade receivables’ accounts
including “Leroy” are kept whereas sales would be credited in “general ledger” where all impersonal
accounts including sales account are kept.
48 “C” option is correct as receipt of credit note indicates that Omar has credited Miriam’s account due to
return of goods to him. However for Miriam this is purchases returns. Miriam therefore would pass the
following entry on receipt of credit note from Omar.
Debit Omar Credit Purchases returns
49 The first and last two transactions should be recorded in the “general journal” whereas the second
transaction is entered in the “sales journal”.
50 Trade discount is not recoded in ledger accounts so “A” and “B” options are incorrect. As Julia’s account is
credited (written off) in the question on account of bad debts so “D” option is correct.
51 “C” option is correct as first a business receives or issues invoice on trade of goods then a credit note may
be sent or received on account of return of goods; afterwards a cheque is issued or received to settle the
account and then receipt is used in the last to account for receipt or payment of cash on settlement.
52 “B” option is correct. Item in “A” option is recorded in the cashbook, credit purchase of goods for resale in
“C” option is recorded in purchase journal whereas sales returns (“D” option) are recorded in returns
inwards journal.
53 David Account
$ $
Balance b/f 350 Bank 75
___ Balance c/d 275
350 350
55 “D” option is correct. As purchases have debit nature so total of the purchases journal is posted to the
debit side of purchases account.
56 Len’s account
$ $
Jan 01 Invoice 250 Jan 14 Credit note 90
Jan 12 Invoice 370 Jan 31 Bank (balancing figure) 1 010
Jan 18 Invoice 480 ____
1 100 1 100
58 Cindy’s account
2011 $ 2011 $
Apr 02 Return outwards 30 Apr 01 Balance b/f 520
Apr 30 Balance c/d 490 ___
520 520
Transaction on 14 April will not be recorded in Cindy’s account as it has been paid in cash by Ann.
59 “D” option is correct as goods purchased from Mona on credit should be recorded as
Debit Purchases
Credit Mona
Purchases would be debited in “general ledger” where all impersonal accounts including purchases
account are kept whereas Mona’s account would be credited in the “purchases ledger” in which all
individual trade payables’ accounts including “Mona” are kept.
60 Credit and debit notes in “A” and “B” options are used for return inwards and return outwards whereas
statement is a document which is sent to a credit customer to summarise the transactions for a period. In
the light of above discussion “C” option is correct as invoices are issued for sales and purchases which
happens before returns.
61 “A” option is correct. “B” and “C” options are examples of accounting transactions and not showing
position of the account (as balances show). “D” option represents an asset for Shula whereas balance
given in question is credit.
62 Peter’s account
$ $
Apr 01 Balance b/f 440 Apr 12 Bank 429
Apr 05 Invoice 360 Apr 12 Discount allowed 11
Apr 15 Credit note 50
____ Apr 30 Balance c/d 310
800 800
63 As Sukesh account is credited so it means that bank and discount account are debited. As we know that
bank account is debited on receipt of cash whereas discount is debited when it is allowed to customers so
it means that “D’: option is correct.
65 “D” option is correct. For transaction in ”A” option, pay-in slip or receipt voucher is used. For item in “B”
option, credit or debit note would be used. For transaction in ”C” option, statement of account is used.
66 "B" option is correct as customer will issue the supplier a debit note to reduce the amount owing to him.
67 Ann account
2013 debit credit balance
$ $ $
Jan 04 Sales 21 500 21 500
11 Sales returns 500 21 000
30 Bank 10 000 11 000
30 Discount allowed 200 10 800
69 For Martha this is purchases returns as she is returning goods to Jane (the supplier). In addition, as the
transactions should be recorded net of trade discount so purchases returns will be recorded at $150 i.e.
[$200  ($200 × 25%)].
70 ‘C’ option is correct as for Sue this is discount allowed to be credited to Tony’s account. ‘A’ option is
incorrect as for Sue this is purchases from Tony. ‘B’ option is incorrect as for Sue this is purchases returns
and should appear on the debit side of Tony’s account. ‘D’ option is incorrect as this is Tony who owes Sue
the amount of $679.
73 A credit note is issued by the seller when goods are returned. The seller would enter this in the sales
returns journal.
74 At the end of each month a supplier may issue a statement of account to the customer. As well as
notifying the customer of the amount due, this also provides a summary of the transactions in the month.
The customer’s credit limit is already established before trading takes place.
75 Sales are recorded in the books net of trade discount so sales should be debited to J Sango account in the
sales ledger at $80
76 Item in ‘B’ option is correct as this was the only transaction which would not be recorded in another book
of prime (original) entry. Items in ‘A’ and ‘C’ options will be entered in the cash book whereas item in ‘D’
option will be entered in sales journal.
78 Chan Account
$ $
Balance b/d 570 Sales returns 150
Sales 380 Bank (payment) 500
___ Balance c/d (Cr.) 300
950 950
Balance b/d 300
82 Meena’s account
April $ April $
Credit note received 63 Invoice 170
Bank 107 Invoice 240
Balance c/d 365 Invoice 125
535 535
No entry should be made for a debit note in the books of either the supplier or the customer. At the end
of the month the balance of Meena’s $365 (the total of the invoices issued less the credit note and less
the cheque paid). This was an amount owed by Meena to Ralph, so it would be a credit balance.
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O-LEVEL ACCOUNTING

MULTIPLE CHOICE QUESTIONS (TOPICAL& YEARLY)

Muhammad Nauman Malik

Title Accounting O Level - Multiple Choice Questions (Topical& Yearly)

Author Muhammad Nauman Malik

Published by Read & Write Publications

Printed by Sadaat Printers Urdu Bazar Lahore

Composed by Sharjeel Khan, Salman Buksh, Hayat, Shahab, Waqas, M. Awais,

Title designed by Rashid Mehmood, Khalid Khursheed

Legal Advisor Mian Tariq Ahmad (Advocate Supreme Court)

Muhammad Nauman Malik

ANSWER KEY ........................................................................................................................................... 222

Muhammad Nauman Malik

Sale Point: Shop # 25-28 Lower Ground Floor, Haadia

CHAPTER 1 ACCOUNTING BASICS

5 Which ledger entries record the purchase of a machine bought on credit?

8 How should the cash purchase of supplies be entered in the ledger?

11 Y’s account appears in the ledger of X as follows.

14 The owner of a business takes inventory for her own use.

21 Which statement is correct?

A $150 credit B $150 debit

24 The following account appears in the ledger of Ahmed.

28 Which best describes the assets of a business?

35 A customer returns goods to a supplier.

36 The following incomplete account appears in Singh’s sales ledger.

37 The following account appears in the ledger of Chan.

39 Which would be recorded by a credit entry in an account?

40 Which is the accounting equation?

42 Which is not a service business?

What was Melanie's capital?

44 Which statements about book-keeping and accounting are correct?

47 Which is an intangible asset?

48 Which is not a service business?

49 Which task would not be carried out by an accountant?

53 How is owner’s equity calculated?

54 The following account appeared in a trader’s ledger.

56 What is prepared by a book-keeper?

59 A company employs a book-keeper and an accountant.

60 Which is a trading business?

61 Which accounts all have debit balances?

assets owner’s equity liabilities

65 What is the main function of book-keeping?

66 What would be recorded by a debit entry in a ledger account?

45 Assets at 31 March 2012 $ $

50 Effects of this transaction are:

62 Effects of this transaction are:

64 Effects of this transaction are:

Muhammad Nauman Malik

Sale Point: Shop # 25-28 Lower Ground Floor, Haadia

CHAPTER 2 BOOKS OF ORIGINAL ENTRY

2 Why is the General journal used to correct errors in the ledger?

3 Which book of prime entry is part of the double entry system?

5 A firm buys goods on credit.

6 X sends back $800 of faulty goods to Y.

9 Which transaction is entered in the general journal?

10 X sells goods on credit to Y. Y returns some of these goods to X.

11 Which of the following is part of the double entry system?

12 Which item will be entered in the General Journal?

14 Y sells goods on credit to X.

16 Which should be recorded in the general journal?

17 Which transaction is recorded in the sales ledger?

18 In which book is a credit note from a supplier entered?

19 Which transaction is entered in the general journal?

21 X keeps a full set of books of account.

101 O Level Accounting Paper 1 (Topical & Yearly)

101 O Level Accounting Paper 1 (Topical & Yearly)