AAT L3 Advanced Bookkeeping 1 — Questions and Answers
Question 1: Which accounting concept requires transactions to be recorded in the period to which they relate, not when cash is received or paid?
- Going concern concept
- Accruals concept (Correct answer)
- Prudence concept
- Consistency concept
Correct answer: Accruals concept
The accruals concept (also called the matching concept) requires income and expenditure to be recognised in the accounting period to which they relate, irrespective of when cash is exchanged.
Question 2: A debit entry on a customer's account in the sales ledger indicates:
- The customer has paid their invoice
- The customer owes money to the business (Correct answer)
- The business owes money to the customer
- A credit note has been issued
Correct answer: The customer owes money to the business
In the sales ledger, debit entries represent amounts owed by customers — sales invoices increase the debit balance, payments and credit notes reduce it.
Question 3: Which of the following would be recorded as a debit in the cash book?
- A payment to a supplier
- A bank charge
- A receipt from a customer (Correct answer)
- A dishonoured cheque
Correct answer: A receipt from a customer
Receipts of cash increase the bank balance, which is an asset — assets increase with debit entries. Payments decrease the bank balance (credit entries).
Question 4: The trial balance checks the arithmetic accuracy of the ledger. Which error will NOT be revealed by a trial balance?
- A transposition error in posting a debit
- Posting the correct amount to the wrong account type (Correct answer)
- A single-sided entry omitting the credit
- An incorrect balance on the sales ledger
Correct answer: Posting the correct amount to the wrong account type
Posting the correct amount to the wrong class of account (e.g., debit to the wrong expense account) keeps debits equal to credits, so it does not cause a trial balance difference — this is an error of commission.
Question 5: Contra entries in the sales and purchase ledgers occur when:
- A customer is also a supplier and the balances are set off (Correct answer)
- A credit note is issued to a customer
- A supplier gives a discount
- Two invoices are combined into one payment
Correct answer: A customer is also a supplier and the balances are set off
A contra entry reduces both the trade receivable balance (in the sales ledger) and the trade payable balance (in the purchase ledger) when the same entity is both a customer and a supplier.
Question 6: What is the double entry for recording depreciation in the general ledger?
- Debit Non-current Asset, Credit Depreciation Expense
- Debit Depreciation Expense, Credit Accumulated Depreciation (Correct answer)
- Debit Accumulated Depreciation, Credit Cash
- Debit Retained Earnings, Credit Non-current Asset
Correct answer: Debit Depreciation Expense, Credit Accumulated Depreciation
Depreciation is recorded as debit Depreciation Expense (increases the expense) and credit Accumulated Depreciation (increases the contra-asset, reducing the net book value of the asset).
AAT L3 Advanced Bookkeeping 1
Which accounting concept requires transactions to be recorded in the period to which they relate, not when cash is received or paid?