ACCA AK Financial Accounting (FA) Double Entry 2 — Questions and Answers
Question 1: An error of principle occurs when:
- A transaction is recorded in the wrong account of the correct type
- A transaction is completely omitted from the books
- A transaction is recorded in an account of the wrong class or type (Correct answer)
- The wrong amount is entered on both sides of the correct accounts
Correct answer: A transaction is recorded in an account of the wrong class or type
An error of principle occurs when a transaction is posted to the wrong class of account — for example, recording capital expenditure (an asset) as revenue expenditure (an expense). The account type is wrong, not just the specific account within a type.
Question 2: A business receives a telephone bill for £350 but has not yet paid it. What is the correct double entry?
- Debit Cash £350, Credit Telephone Expense £350
- Debit Telephone Expense £350, Credit Accruals £350 (Correct answer)
- Debit Prepayments £350, Credit Cash £350
- Debit Accruals £350, Credit Telephone Expense £350
Correct answer: Debit Telephone Expense £350, Credit Accruals £350
The expense has been incurred (debit Telephone Expense) but not yet paid, creating a liability (credit Accruals). This applies the accruals concept — matching the expense to the period in which it was incurred regardless of payment timing.
Question 3: Which of the following errors would be revealed by a trial balance?
- An error of omission where a transaction is completely left out
- An error of commission where a debit is posted to the wrong personal account
- A single-sided entry where only the debit has been recorded (Correct answer)
- A compensating error where two errors of equal and opposite amount cancel out
Correct answer: A single-sided entry where only the debit has been recorded
A single-sided entry means only one side of the double entry has been recorded, causing total debits to not equal total credits. The trial balance will not balance, revealing the error. The other three errors maintain equal debits and credits.
Question 4: A business pays £1,200 for insurance covering the next 12 months. At the end of the first month, what adjusting entry is needed?
- Debit Insurance Expense £1,200, Credit Prepayments £1,200
- Debit Insurance Expense £100, Credit Prepayments £100 (Correct answer)
- Debit Prepayments £100, Credit Insurance Expense £100
- Debit Cash £1,200, Credit Insurance Expense £1,200
Correct answer: Debit Insurance Expense £100, Credit Prepayments £100
The £1,200 covers 12 months, so £100 per month. After one month, £100 has been used (debit Insurance Expense) and the prepaid asset reduces by £100 (credit Prepayments). The remaining £1,100 stays as a prepayment.
Question 5: The sales day book is used to record:
- All cash sales made during the period
- All credit sales invoices issued during the period (Correct answer)
- Payments received from credit customers
- Returns from customers
Correct answer: All credit sales invoices issued during the period
The sales day book (or sales journal) is a book of prime entry used to record credit sales invoices before they are posted to the sales ledger and general ledger. Cash sales are recorded in the cash book, and returns go in the sales returns day book.
Question 6: A suspense account is used when:
- The business wants to hide transactions from auditors
- The bookkeeper cannot determine the correct account for a transaction or the trial balance does not balance (Correct answer)
- The business has excess cash that needs to be invested
- Trade receivables become irrecoverable
Correct answer: The bookkeeper cannot determine the correct account for a transaction or the trial balance does not balance
A suspense account is a temporary account used when the bookkeeper is unsure where to post a transaction or when the trial balance does not balance and the error cannot be found immediately. It is cleared once the correct treatment is determined.
ACCA AK Financial Accounting (FA) Double Entry 2
An error of principle occurs when: