QUIZ

Question 1
During the three months ended 30 June 20X2, John makes sales (including sales tax) of $55,000 and
purchases (excluding sales tax) of $33,000.

Assuming that all transactions are subject to sales tax at 10%, how much does John owe the tax
authority at 30 June 20X2?

A.$1,700

B.$2,000

C.$2,200

D.$2,500

Question 2
Which of the following statements about discounts received is/are true?

1. When a settlement discount is offered the purchase is recognised net of the discount
2. When a trade discount is received a purchase is recognised at the net amount

A.1 only

B.2 only

[Link] 1 and 2

[Link] 1 nor 2

Question 3
A purchase has been recorded on the receipt of goods obtained on credit terms.

Which of the following is the correct journal entry to record the subsequent return to the supplier of
these goods?

● A. Dr Trade payables Cr Purchases

 ● B. Dr Trade payables Cr Sales returns

● C. Dr Cash Cr Trade payables

● D. Dr Purchases Cr Trade receivables

Question 4
A clothes manufacturer offers clothes to retailer customers with a 10% trade discount on list price. It expects
all major customers to take advantage of a further 5% prompt payment discount for settlement within 10 days.

Goods with a list price of $1,000 are sold to a major customer.

What entry, if any, will be required to the revenue account if the discount is not taken?

[Link] entry

[Link] $45

[Link] $45

[Link] $50

Question 5
Which of the following concerning recording petty cash is true?

[Link] record of petty cash transactions in the ledger does not collect information valuable to the operations of
the manager

[Link] petty cash acts as a means of internal control

[Link] for petty cash transactions should be provided by the owner of the business

[Link] is no need to record petty cash if it is replenished using the imprest system

PRACTICE
Question 1
Jai had the following cash transactions:

Date Narrative Total Receipts from customer Cash sales

$ $ $

03 Jan J. Hoskins 2,000 2,000

10 Jan Daily sales 800 800

Total 2,800 2,000 800

What journal entries will be made in the ledger accounts for these cash transactions?

A. DR Sales $800, DR Trade Receivables $2,000, CR Bank $2,800

B. DR Bank $2,000, CR Trade Receivables $2,000
C. DR Bank $2,800, CR Trade Receivables $2,000, CR Sales $800
D. DR Bank $800, CR Sales $800

Question 2
Kin uses $34 in petty cash to pay a window cleaner, to buy postage stamps and to buy some coffee for the
office. Kin uses the imprest petty cash system. At the end of the month, he prepares the petty cash ledger
from his collection of vouchers and post the totals spent.

Which of the following statements describe what will happen to the petty cash balance at the end of
the month?

A. Kin will continue to use whatever cash remains

B. Kin will draw out sufficient cash to ensure he has enough petty cash for next month
C. Kin will draw out $34 cash to replace the amount spent during the month
D. Kin will draw out the same amount as last month
Question 3
Mingyue purchased goods with a price of $500 before any available trade discount. Due to the volume of
goods Mingyue expects to purchase, her supplier has agreed a trade discount of 10%.

Which is the correct journal entry for Mingyue to account for this purchase in her ledger accounts?

A. DR Purchases $500, CR Trade payables $500

B. DR Purchases $500, CR Trade payables $450, CR Discounts received $50
C. DR Purchases $450, DR Discounts allowed $50, CR Payables $500
D. DR Purchases $450, CR Trade payables $450

Question 4
State whether each of the following statements concerning accounting for discounts is TRUE or
FALSE.

Statement True False

Settlement discount claimed by customers who consistently pay promptly should be charged
○ ○
to interest expenses

Trade discounts given to customers are not separately recognised within the accounts ○ ○

Question 5
Liu purchased goods for $560 net of sales tax. Sales tax is 20%. Which of the following statements
about Liu’s sales tax is true?

A. Liu paid $112 output tax

B. Liu paid $112 input tax
C. Liu paid $93 direct tax
D. Liu paid $93 cumulative tax
Question 6
Vlad sells his goods with a settlement (prompt payment) discount of 5% if his customers pay within 14 days.
Vlad invoices customers who have a record of paying within 14 days net of settlement discount. Customer A
always pays in time to obtain the discount. On May 10, Vlad received a payment for $285 from Customer A.
The payment was in respect of an invoice which was issued on May 2.

What journal entry should Vlad post in his ledger accounts in respect of this payment?

A. DR Bank $285, CR Trade Receivables $285

B. DR Trade Receivables $285, CR Bank $285
C. DR Bank $300, CR Trade Receivables $300
D. DR Trade Receivables $300, CR Bank $300

Question 7
Fred sold goods for $180 including sales tax. Sales tax is 20%. How much sales tax did Fred receive
as part of this sale?

$_____

Question 8
Mona purchased goods on credit for $450 plus sales tax. Sales tax is 20%.

What journal entry would be posted to record this purchase transaction?

A. DR Purchases $540, CR Trade payables $540

B. DR Purchases $540, CR Sales tax control account $90, CR Trade payables $450
C. DR Purchases $450, CR Trade payables $450
D. DR Purchases $450, DR Sales tax control account $90, CR Trade payables $540
Question 9
Sales returns of $500 have arrived at Akash‘s business. These sales were made on credit. What
impact will these sales returns have on the accounts?

A. Sales balance will decrease and the bank balance will decrease
B. Sales returns account will increase and the bank balance will decrease
C. Sales returns account will increase and trade receivables balance will decrease
D. Sales balance will decrease and trade receivables balance will increase

Question 10
Hussan made the following payments during May:

Date Narrative Total ($) Payment to suppliers ($) Stationery ($) Taxation ($)

08 May PD Suppliers 890 890

10 May AA Stationers 240 240

12 May Tax Authorities 12,200 12,200

14 May PD Suppliers 650 650

Total 13,980 1,540 240 12,200

State whether each of the following ledgers is debited or credited because of Hussan’s payments.

Ledger Debit Credit

Bank ○ ○

Trade Payables ○ ○

Taxation ○ ○

Stationery ○ ○
Question 11
Shadi has purchased goods for $600 with a prompt payment discount of 10% if she settles the debt within 10
days.

Which TWO of the following statements are true if Shadi settles the debt within 10 days?

A. Shadi will pay $600

B. Shadi will credit the bank ledger account $540
C. Shadi will debit trade payables $540
D. The purchase invoice will be recorded as $600

Question 12
Desmond purchased goods for $600 including sales tax and sold them for $800 net of sales tax. He has no
outstanding liabilities or receivables due to or from the tax authorities and sales tax is 20%.

What balance is now owed to or due from the tax authority?

$_____

Question 13
Saleem sold goods on credit for $2,600 net of sales tax. Sales tax is 20%. How much should be
recorded for sales and sales tax?

A. Sales: CR $2,600. Sales tax: CR $520

B. Sales: CR $3,120. Sales tax: CR $520
C. Sales: CR $2,600. Sales tax: DR $520
D. Sales: CR $3,120. Sales tax: DR $520
Question 14
Which ONE of the following items represents a payment out of petty cash?

A. Purchase of a printer for office use for $800

B. Purchase of milk for office use for $5
C. Payment of a permanently employed part-time employee’s wages of $200
D. Receipt of $1 from staff for postage stamps

Question 22
Jai has not kept complete records of his business transactions. He has managed to gather the following
information concerning trade receivables from previous financial statements, bank statements and other
evidence:

Total receipts from customers (cash and credit receipts) $34,560

Trade receivables balance 31 July 20X4 $16,800

Trade receivables balance 31 July 20X5 $17,450

Credit sales $21,600

Jai makes 40% of his sales for cash. How much prompt payment discount did Jai give his credit
customers (that were not expected to take the discount) during the year ended 31 July 20X5?

A. $790
B. $2,090
C. $13,610
D. $1,440

Question 23
At the year-end 31 December 20X3, Said had a trade payables balance of $3,236. During the first ten days of
the next accounting period, he received the following supplier (purchase) invoices:

Supplier Delivery date $

 AJ Supplies 2 January 20X4 350

BB Traders 28 December 20X3 1,200

CD Outlet 4 January 20X4 680

EF Warehouse 29 December 20X3 550

What amount should Said show for trade payables as at 31 December 20X3?

A. $3,236
B. $4,436
C. $4,986
D. $6,016

Question 24
Ravi sold $1,800 of goods on credit, including sales tax, which is charged at 20%. A customer returned 25%
of these goods.

What journal entry will be made in Ravi's general ledger to record the goods that have been returned?

A. DR Sales $450, CR Trade receivables $450

B. DR Sales returns $450, CR Trade receivables $450
C. DR Sales $450, CR Sales tax $75, CR Trade receivables $375
D. DR Sales returns $375, DR Sales tax $75, CR Trade receivables $450

Question 25
Ming has the following trade receivables ledger at the end of March 20X5.

Trade receivables

DR CR

Date Narrative $ Date Narrative $

Balance b/d 56,345

Bank 39,520
 Sales 43,890 Irrecoverable receivables 7,100

A A

Ming has yet to record credit sales returns of $3,560.

In order to balance and close this trade receivables ledger what amount should be shown in the space
indicated with 'A' and what balance should be carried down?

A. Number in 'A': $100,235. Balance c/d: $53,615 credit side.

B. Number in 'A': $100,235. Balance c/d: $53,615 debit side.
C. Number in 'A': $100,235. Balance c/d: $50,055 credit side.
D. Number in 'A': $103,795. Balance c/d: $57,175 credit side.

Question 27
On 1 March, Joe has purchased goods for his business with a retail price of $500. His supplier has given him
a trade discount of 10% off the retail price. The terms of the purchase are that if Joe settles the debt within 14
days he will be entitled to a settlement discount of 5% on the invoiced amount. Joe settles the debt on 10
March.

Which of the following journal entries reflect how the purchase will be recorded in Joe’s accounts on
1 March?

A. DR Purchases $450, CR Trade payables $450

B. DR Purchases $500, CR Trade payables $450, CR Discounts received $50
C. DR Purchases $450, DR Discounts received $50, CR Trade payables $500
D. DR Purchases $450, CR Trade payables $427.50, CR Discounts received $22.50

Question 28
Pierre is a sole trader who is registered for sales tax. During March he sold goods for cash for $7,000 not
including sales tax. Sales tax is charged at 20%.

For each of the following journal entries identify the value of the transaction.
 Statement $5833 $7000 $8400

Sales credited ○ ○ ○

Bank debited ○ ○ ○

Question 29
Paolo was given the option of $250 in settlement discounts by his suppliers during March. He decided to take
the settlement discounts offered.

Which of the following statements regarding how these discounts will be recorded in Paolo's ledger
accounts is TRUE?

A. The discount received account will be credited with $250 at the time of payment
B. The discount received account will be debited with $250 at the time of payment
C. The discount received account will be credited with $250 when the supplier (purchase) invoice is
recorded
D. The discount received account will be debited with $250 when the supplier (purchase) invoice is
recorded

Question 32
North, which is registered for sales tax, received an invoice from a supplier (purchase) advertising agency for
$4,000 plus sales tax. The rate of sales tax is 20%.

What are the correct ledger entries for this transaction?

Debit $ Credit $

● A. Advertising 4,000 Payables 4,000

● B. Advertising 4,800 Payables 4,800

● C. Advertising 4,800 Payables 4,000 and Sales tax 800

● D. Advertising 4,000 and Sales tax 800 Payables 4,800

Question 34
Which TWO of the following are reasons for maintaining a petty cash record?

A. To provide managers with valuable information on business transactions such as the transactions
leading to fluctuations in petty cash expenses
B. Petty cash records acts as an internal control whereby the risk of theft and fraud is totally eliminated
C. To provide evidence and support items of tax deductible transactions to tax authorities
D. To comply with legal requirements of each local jurisdiction

Question 35
George has made the following statements regarding some transactions in his business.

For each statement made below indicate whether it is TRUE or FALSE.

Statement True False

Credit sales are recorded in the individual receivables ledger accounts ○ ○

Payments made to credit suppliers are recorded in the purchases ledger account. ○ ○

The general ledger is a list of business transactions ○ ○

Question 36
Ravi is confused over some accounting entries made to the accounts in the general ledger. He has made the
following statements.

For each statement below state whether it is TRUE or FALSE.

Statement True False

Cash receipts are posted to the credit side of the trade receivables ledger account. ○ ○

Credit purchases are posted to the debit side of the trade payables ledger account. ○ ○

Cash sales are not recorded in the trade receivables ledger account. ○ ○

Question 38
Which of the following statements regarding sales tax are TRUE?

i. Output tax is sales tax on sales

ii. Input tax is sales tax on sales
iii. A liability for sales tax will arise where output tax exceeds input tax
iv. A liability for sales tax will arise where input tax exceeds output tax

A. i) and iv)
B. i) and iii)
C. ii) and iii)
D. ii) and iv)

Question 39
Kim’s business purchases building supplies from a manufacturer (the supplier) and sells them directly to
customers.

Which of the following would be recorded as a deduction from revenue in the Statement of Profit or
Loss for Kim’s business?

A. Trade discount allowed to a customer

B. Trade discount received from a supplier
C. Settlement discount allowed to a customer, who had not been expected to take the discount
D. Settlement discount received from a supplier
Question 41
Which of the following is the correct journal entry for making a credit sale?

● A. Dr Cash Cr Revenue

● B. Dr Revenue Cr Trade receivables

● C. Dr Trade receivables Cr Revenue

● D. Dr Cash Cr Trade receivables

Question 42
Which of the following statements about discounts allowed is/are true?

1. When a settlement discount is allowed revenue can be recognised net of the discount
2. When a trade discount is allowed a sale is recognised at the gross amount
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

Question 47
Indicate whether each of the following statements about receipts and payments is TRUE or FALSE.

Statement True False

A cash receipt is a credit entry in the cash account. ○ ○

Payments made to credit suppliers are debited to purchases. ○ ○

 ACTIVITY
Activity 1

State whether the following statements regarding sales tax are True or False.

1. The difference is paid to the tax authority if the output tax for a period is greater than the input tax.
2. Input tax is sales tax charged on sales to customers.
3. All businesses charge output tax on sales to customers.
4. The business must keep copies of sales tax invoices for sales and purchases for a statutory
minimum period.

Activity 2

1. Binta works at a luxury car dealership. She makes a sale to a customer for $23,500, excluding sales
tax. The sales tax rate is 25%.
How much sales tax is charged on this transaction, and what is the total amount due from the
customer?
Sales Tax Amount due from
($) customer ($)

a) 5,875 23,500

b) 4,700 23,500

c) 5,875 29,375

d) 4,700 28,200

2. Lisha also works at a car dealership in a different country. She makes a sale to a customer for
$33,000, including sales tax. The sales tax rate for this car is 10%.
How much sales tax is charged on this transaction, and what is the total amount due from the
customer?
 Sales Tax ($) Amount due from
customer ($)

a) 3,000 33,000

b) 3,300 36,300

c) 3,000 36,000

d) 3,300 33,000

3. Desmond makes two sales of goods to customers—one for $800 (net price) and the other for
$1,200 (gross price). The sales tax rate is 20%.
How much sales tax does Desmond charge on these sales?
$333
$360
$373
$400

Activity 3

On 1 March, Darek sold goods to Jan. The goods had a list price of $1,000, excluding sales tax, which is
levied at 15% in the country where Darek and Jan live. The goods were dispatched on 1 March and Darek
issued the invoice on that date.

On 2 March Jan checked the goods and discovered that some of the items were broken. The broken items
had a value of $150 excluding sales tax. Jan called Darek, who was extremely apologetic and agreed to issue
a credit note for the faulty goods.
Show the journal entries that would be posted in Darek’s general ledger accounts:

● On the original sale

● On the issue of the credit note.

Activity 4

Maya bought some goods from Arushi for $750 plus sales tax at 25%. After receiving the invoice, Maya
discovered that half the products by value were faulty and sent them back, requesting a credit note. Arushi
agreed and issued a credit note for $375 plus sales tax.

Show the journal entries that would be posted to Maya’s general ledger accounts:

● On the original sale

● On the receipt of the credit note?

Activity 5

Complete the sales tax ledger account in respect of the following list of transactions for a period.

Narrative $

Sales tax on cash sales 1200

Sales tax on credit sales 300

Sales tax on credit purchases 750

Sales tax on cash purchases 120

Cash paid to tax authority 560

Amount due to tax authority at start of period 560

The Sales tax ledger will show the following after the above entries are made:
 DR Sales tax CR

Activity 6

Sunrise offers Moonlight a trade discount of 5% on all goods, in recognition of the fact that Moonlight is a
valued customer. Sunrise also offers a 3% settlement discount to all customers that pay within 30 days of the
invoice date.

On 1 March Moonlight ordered some goods from Sunrise with a list price of $1,000. The goods were
dispatched and invoiced the same day. Moonlight paid the invoice on 28 March.

Prepare the journal entries which would be posted in Sunrise’s general ledger for the initial invoice,
and for the receipt of the payment if:

(i) Sunrise expected Moonlight to take the settlement discount

(ii) Sunrise did not expect Moonlight to take the settlement discount.