All 40 questions from the National Business and Technical Examinations Board (NABTEB) Book Keeping 2015 Objective paper, with the correct answer and a full explanation for each. Free, no signup needed.
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A distinguishing feature of the FIFO method of stock valuation is that
The First-In-First-Out (FIFO) method's key distinguishing feature is its simplicity and ease of operation. It follows the logical flow of inventory where the first items purchased are assumed to be the first ones sold.
A source of fund available to a partnership is
Partnerships can obtain operating loans from financial institutions as a source of funding for their business; they cannot issue shares, as that is a characteristic of companies/corporations.
A ledger is a
The ledger is the principal book of accounts where all transactions are posted in a classified manner after being recorded in journals (books of original entry).
Profit and loss account is prepared to ascertain
The primary purpose of a profit and loss account is to determine the net profit or net loss of a business over a specific period.
Use the information below to answer this question and the next. A sum of #2,000 received from a customer was posted to the debit side of his account and credited to the cash book. This is an error of
When a sum received from a customer (which should be debited to cash and credited to the customer) is incorrectly posted as credited to cash and debited to the customer, this represents a complete reversal of the correct entry.
To correct this error: debit
To correct a complete reversal error, the correcting entry must be for double the original amount: Debit Cash Account #4,000 (to cancel the wrong credit of #2,000 and record the correct debit of #2,000), and credit Customers Account #4,000.
The fundamental principles underlying the preparation and presentation of financial statements are accounting
The fundamental principles underlying financial statement preparation and presentation are known as accounting concepts (such as going concern, accrual, prudence, etc.).
When the sales day book is undercast, the entries to correct the error are: debit
When the sales day book total is undercast (too low), the Sales account credit total is understated. The correcting entry debits the Suspense account and credits the Sales account to increase it to the correct figure.
Acquisition of fixed assets on credit is recorded in
Non-routine transactions like the acquisition of fixed assets on credit are recorded in the journal (journal proper), not the purchases day book, which is reserved for credit purchases of trading goods.
An advantage of cooperative society is that
Cooperative societies often enjoy tax exemptions on their profits/surplus, which is an advantage of this form of business organisation.
The effect of a reduction in the provision for doubtful debts is a(n)
A reduction in the provision for doubtful debts is credited to the profit and loss account, resulting in an increase in net profit.
Kolins failed to record the #6,000 paid for rent in the books. This is an error of
Failing to record a transaction at all in the books is an error of complete omission.
Quick decision making is an advantage of a
With a sole owner making all decisions without needing to consult partners or a board, sole proprietorships can make decisions quickly - a key advantage of this business structure.
An advantage of the FIFO method of stock issue is that
A key advantage of the FIFO method is that it is easy to understand and operate, following the logical flow of inventory usage.
When returns inwards are overstated, the
Since net sales = Sales - Returns inwards, an overstatement of returns inwards (subtracting too much) results in net sales being understated.
The excess of expenditure over income of a not-for-profit making organization would be
An excess of expenditure over income represents a deficit, which is deducted from (reduces) the organization's accumulated fund.
Examples of items posted in the impersonal nominal account include: I. postage expenses II. purchase of desktop computer III. purchase of office furniture IV. travelling expenses
Nominal (impersonal) accounts record expenses and incomes; postage expenses and travelling expenses (I and IV) are nominal account items, while purchases of computers and furniture are real (asset) account items, not nominal.
Discount received would be recorded in the
Discount received reduces the amount owed to creditors, and is recorded on the debit side of the total creditors (purchases ledger control) account.
Use the following information to answer this question and the next. Table: Cost of machinery = #325,000; Useful life = 8 years; Salvage value = #25,000. The net book value at the end of the first year is
Annual depreciation (straight line) = (Cost - Salvage value)/Useful life = (325,000-25,000)/8 = #37,500. Net book value at end of year 1 = 325,000 - 37,500 = #287,500.
Depreciation to be charged to profit and loss account in the second year is
Under the straight line method, the annual depreciation charge remains the same each year: #37,500.
A cheque drawn and made payable at a time within the year is
A post-dated cheque is one made payable at a future date within the year, rather than being payable immediately.
The loss made by a not-for-profit making organization is
A not-for-profit making organization's loss (excess of expenditure over income) is termed a deficit.
The main source of capital for a not-for-profit making organization is
Donations are typically the main source of capital/funding for not-for-profit making organizations.
The concept that cost and benefit in a period should be matched to determine profit or loss is in line with
The accrual (matching) concept requires that costs and benefits (revenues) relating to a period be matched together to determine profit or loss for that period.
Use the following information (Total Creditors Control Account Extract) to answer this question and the next. Total Creditors Control Account Extract: Balance b/d = #28,400; Cash = #23,000; Purchases = #13,640; Discount received = #1,900; Returns = #900. The net purchases is
Net purchases = Purchases - Returns = 13,640 - 900 = #12,740.
The balance carried down at the end of the year is
Balancing the total creditors control account (Balance b/d and Purchases on the credit side against Cash, Discount received, Returns and the balancing figure on the debit side) gives a balance c/d matching option D.
All transactions paid for are first recorded in the
Cash transactions (payments and receipts) are first recorded in the cash book, a book of original entry.
The entries for cash withdrawn from the bank for office use are: debit
Withdrawing cash from the bank for office use (a contra entry, not personal drawings) is recorded by debiting Cash Account and crediting Bank Account.
Carriage outwards is charged to the
Carriage outwards is a selling/distribution expense charged to the debit side of the profit and loss account, unlike carriage inwards which is charged in the trading account.
A payment of #10,040 to a creditor entered in the books as #10,400 is an error of
Recording an incorrect figure from the outset (entering #10,400 instead of #10,040) is an error of original entry.
A contra entry in the double column cash book is indicated in the
A contra entry (representing a transfer between cash and bank) is typically indicated by the letter 'C' in the bank/cash column of a double column cash book.
Use the following information to answer this question and the next two. Table: Opening stock = #50,000; Sales = #100,000; Purchases = #65,000; Expenses = #35,000; Closing stock = #75,000. The cost of goods sold is
Cost of goods sold = Opening stock + Purchases - Closing stock = 50,000 + 65,000 - 75,000 = #40,000.
The gross profit is
Gross profit = Sales - Cost of goods sold = 100,000 - 40,000 = #60,000.
The net profit is
Net profit = Gross profit - Expenses = 60,000 - 35,000 = #25,000.
Accounts of debtors are contained in the
The sales ledger (debtors ledger) contains the individual accounts of debtors (customers who owe the business money).
Subscription in advance in the balance sheet of a not-for-profit making organization is classified as
Subscription received in advance represents an amount owed back to members (unearned income), so it is classified as a current liability.
The ledger entries for the purchases day book are: debit
Credit purchases recorded in the purchases day book are posted by debiting the Purchases Account and crediting the Supplier's (creditor's) Account.
Prepayments are shown in the balance sheet as
Prepayments (expenses paid in advance) represent a future economic benefit to the business and are classified as a current asset.
The records in the sales day book are debited to
Credit sales recorded in the sales day book are posted by debiting the Customer's (debtor's) Account and crediting the Sales Account.
The double entry principle is applied in a trial balance by debiting
In preparing a trial balance, expenses (and assets) are listed as debit balances, while incomes (and liabilities) are listed as credit balances, reflecting the double entry principle.
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