AAT L2 Bookkeeping Controls 2 — Questions and Answers
Question 1: A direct debit appearing on the bank statement but not in the cash book is an example of:
- An unpresented cheque
- An outstanding lodgement
- An item requiring adjustment to the cash book (Correct answer)
- A bank error
Correct answer: An item requiring adjustment to the cash book
Direct debits are set up with the bank and appear on the statement when paid. If they have not been recorded in the cash book, the cash book needs to be updated. This is a cash book adjustment, not a timing difference.
Question 2: A purchase ledger control account reconciliation revealed that a contra entry of £250 was recorded in the purchase ledger control account but not in the individual supplier account. To correct this, the entry required is:
- Debit the supplier's account with £250 (Correct answer)
- Credit the supplier's account with £250
- Debit the purchase ledger control account with £250
- No entry is needed in the control account
Correct answer: Debit the supplier's account with £250
A contra entry reduces the balance owed to a supplier (debit in the control account). Since it was recorded in the control account but not the individual supplier account, the supplier's account needs to be debited with £250 to match.
Question 3: Which of the following is the correct journal entry to write off an irrecoverable debt of £600 (net of VAT) where VAT at 20% was charged on the original sale?
- Debit Irrecoverable Debts £600, Debit VAT £120, Credit Trade Receivables £720 (Correct answer)
- Debit Irrecoverable Debts £720, Credit Trade Receivables £720
- Debit Irrecoverable Debts £600, Credit Trade Receivables £600
- Debit Trade Receivables £720, Credit Irrecoverable Debts £600, Credit VAT £120
Correct answer: Debit Irrecoverable Debts £600, Debit VAT £120, Credit Trade Receivables £720
When writing off an irrecoverable debt for a VAT-registered business, the net amount goes to irrecoverable debts expense, the VAT is reclaimed by debiting the VAT control account, and the full amount is removed from trade receivables.
Question 4: The purpose of a journal is to:
- Record daily cash transactions
- Record non-regular transactions and provide a narrative explanation (Correct answer)
- List the closing balances of all accounts
- Record all credit purchases
Correct answer: Record non-regular transactions and provide a narrative explanation
The journal is a book of prime entry used to record non-routine transactions such as opening entries, correction of errors, irrecoverable debt write-offs, and year-end adjustments. Each journal entry includes a narrative explaining the reason.
Question 5: After completing a bank reconciliation, the adjusted cash book balance should agree with:
- The opening balance on the next bank statement
- The bank statement balance after accounting for timing differences (Correct answer)
- The purchase ledger control account balance
- The petty cash balance
Correct answer: The bank statement balance after accounting for timing differences
After adjusting the cash book for items on the bank statement not yet in the cash book, and accounting for timing differences (unpresented cheques, outstanding lodgements), the two balances should agree. The reconciliation statement shows how they are reconciled.
Question 6: An error of commission occurs when:
- A transaction is recorded at the wrong amount
- A transaction is posted to the correct type of account but the wrong specific account (Correct answer)
- A transaction is posted to the wrong type of account entirely
- A transaction is completely left out of the books
Correct answer: A transaction is posted to the correct type of account but the wrong specific account
An error of commission occurs when a transaction is posted to the wrong account, but it is the right type of account. For example, posting a payment to Supplier A's account instead of Supplier B's account. The trial balance still balances.
AAT L2 Bookkeeping Controls 2
A direct debit appearing on the bank statement but not in the cash book is an example of: