CAT Paper 1, Recording Financial Transactions

Time allowed : 2 hours

Passing mark : 28 out of 50 ( 56 marks )
Mock Test : Preparing for Dec 2003 Examination
Question 1
Which of the following is not a means of making a payment from a bank account?
A. By debit card
B. By BACS
C. By credit card
D. By direct debit ( )

Question 2
The total of the Sales Ledger Control account should equal the total of:
A. The Purchase Ledger Control account
B. The individual trade creditors’ balances
C. The individual trade debtors’ balances
D. Credit purchases ( )

Question 3
A heating oil company allows its customers to deduct 2.5% from their bills if they pay within 30
days.
This is an example of
A A trade discount
B An early settlement discount
C A bad debt
D A cash transaction ( )

Question 4
Jacky works in a manufacturing company and is preparing his first set of accounts. He is
confused about the distinction between various items in the balance sheet.
Advise Jacky as to which of the following he should classify as current assets.
(i) stock
(ii) creditors
(iii) debtors
(iv) motor vehicle
A All four
B (i) and (iii)
C (i), (ii) and (iii)
D (ii), (iii) and (iv) ( )

Question 5
Beta Ltd, a credit customer of Alpha Ltd, returns faulty goods to Alpha Ltd.
Which document will Alpha raise to reduce Beta’s debt in respect of these goods?
A. Credit note
B. Purchase order
C. Debit note
D. Remittance advice ( )

Question 6
A salary expenses had been recorded as:
Debit Entertainment
 Credit Bank
This form of error is known as:
A Error of commission
B Error of omission
C Error of principle
D Compensating error ( )

Question 7
When a business had a return inwards from ABC Ltd , the accounting entries are:
Debit Credit
A Purchase Creditor- ABC
B Creditor-ABC Sales
C Debtor- ABC Sales
D Sales Debtor- ABC ( )

Question 8
A business has the following assets and liabilities:
Creditors $10,000
Debtors $20,000
Stock $5,000
Bank loan $6,000
Delivery Van $11,000
The capital is:
A $25,000
B $20,000
C $19,000
D $52,000 ( )

Question 9
Which of the following statement is false?
A Capital can be increase by introducing more capital
B Capital can be increased by making profit
C Capital can be increasing by drawing
D Capital will be decreased if the business incurred losses
( )

Question 10
Which of the following are not appropriate in ensuring the security of cash?
A Keeping cash in the drawer
B Employing security guards while depositing big sum of cash
C maintaining a policy of not keeping big sum of cash in the office
D Cash and cheques should be deposited into the bank as soon as possible
( )

Question 11
Which of the following would be included in a company’s wages and salary expense account?

1. Employees’ NIC
2. Employers’ NIC
3. PAYE deductions
4. Company pension contributions
A) 1 and 2
B) 2 and 3
C) 1 and 3
D) 2 and 4 ( )
Question 12
The accounting treatment of capital expenditure is to
A Charge it to current period expenses
B Capitalise as fixed asset and depreciate in subsequent years
C Capitalise as fixed asset and remain in the balance sheet at its cost
D Treat it as a liability ( )

Question 13
Which of the following is insufficient security measure?
A) To keep the daily float in the till to the minimum
B) To install security cameras at the cashiers’ locations
C) To require the banking in of cash to be at least $10,000, this is to ensure that the
number of trips will be minimized to reduce administration cost
D) To ensure EFTPOS ( )

Question 14
What journal entry would be posted if a sole trader starts off a business by introducing £12,000
savings and a car worth £5,000 into the business?
A Dr capital Cr motor vehicles, Cr bank
B Dr motor vehicles Cr capital, Cr bank
C Dr motor vehicles, Dr bank Cr capital
D Dr bank Cr motor vehicles, Cr bank
( )
Question 15
Sales ledger control account is located in the__________________
A) Sales ledger
B) Sales daybook
C) General ledger
D) Profit and loss account ( )

Question 16
At 1 Jan, the prepayment on rental account is $400, during the year, rental of $12,000 is paid and
the prepayment as at the end of the year is $500, what is the rental expense?
A) $11,900
B) $12,100
C) $12,000
D) $12,200 ( )

Question 17
Peter is employed at a rate of $60 per shift of 12 hours work, and will be entitled to a night shift
allowance of $15 per shift, plus a meal allowance of $2 per shift.
During the week, Peter worked two normal shift and two night shift.
How much will he be paid?
A $308
B $278
C $304
D $248 ( )

Question 18
Which of the following is a valid cheque?
A Crossed cheque
B Post dated cheque
C Stopped cheque
 D Expired cheque ( )

Question 19
The petty cash float is $500, there are a total of $260 worth of approved invoices in the petty
cashbox and a petty claim of $32 on transport claim pending approval. How much should there
be in the petty cashbox?
A) $292
B) $260
C) $240
D) $208 ( )

Question 20
Which of the following are not on the same side of the trial balance?
A) Cash in bank and cash in hand
B) Bank overdraft and creditor
C) Computer and vehicle expenses
D) Debtors and provision for doubtful debts ( )

Question 21
Kent is a production worker who is paid £4.00/hour for a 40 hour week. All overtime is paid at
two times, and Ken earns a bonus of £4 per 1,000 units of product produced above 5,000 units.
Last week, Kent produced 8,000 units and was paid a salary of £180. How many hours had Kent
worked last week?
A 40
B 42
C 38
D 41 ( )

Question 22
Which of the following is true?
A) Petty cash claims can be claimed by non employee
B) Petty cash can be used to pay salary
C) Approved petty cash vouchers plus petty cash balance should always equal to petty
cash float
D) If there is only small amount claimed during the month, petty cash need not be toped
up at the end of the month. ( )

Question 23
Which of this is the source document for sales daybook?
A) Credit note
B) Debit note
C) Sales Invoice
D) Purchase invoice ( )

Question 24
Ben is the salesman. David is the payroll clerk and Jane is the administration manager.
The most effective security procedure is for
A Ben to calculate his own sales commission and approved by David
B David to calculate Ben’s sales commission and approved by Jane
C Ben to calculate his own sales commission and approved by Jane
D Ben to claim his sales commission from petty cash ( )
Question 25
For the month of December the following figures have been extracted from the company’s
records concerning wages.
Employees’ NI £600
Gross basic wages £9,900
PAYE £2,000
Employer’s NI £900
What will be net salaries to be paid to the employees based on the above alone?
A £7,000
B £7,300
C £9,300
D £9,900 ( )

Question 26
Ben is a hawker who has just opened his own stall.
Which of the purchases below that Ben has incurred in his first week of trading are classified as
revenue expenditure?
(i) Payment of rental of $800
(ii) Installation of kitchen utensils, amount of $3,000
(iii) Insurance paid for the year
(iv) Renovation to his stall
A All of the above
B I and ii
C I and iii
D ii, iii, iv. ( )

Question 27
Which of the following is not likely to be paid by cheque?
A) Payment to creditors
B) Payment for repair to production machine
C) Salary
D) Purchase of computer ( )

Question 28
XYZ sells goods to DEF and also buys spare parts from DEF. At the end of the year, XYZ’s
account shows DEF as a Debtor of $8,000 as well as a creditor of $2,000.
What contra amount would be required in respect of DEF?
A $2,000
B $8,000
C $6,000
D $10,000 ( )

Question 29
A cash purchase of $500 was recorded as
Debit sales 500
Credit Bank 500
This is a form of
A) error of commission
B) error of omission
C) error of principle
D) compensating error ( )
Question 30
The following data were available:
Balance as the adjusted cashbook: $2,000
Uncredited cheque $400
Unpresented cheques $500

The balance as in the Bank statement will be:

A) $2,100
B) $1,900
C) $2,200
D) $1,800 ( )

Question 31
A company writes off, as irrecoverable, the balance due from one of its debtors. The effect of
this is that the company’s:
A assets and liabilities have both decreased
B assets and liabilities have both increased
C assets have decreased and expenses increased
D liabilities have increased and assets decreased. ( )

Question 32
Matthew instructs his bank to electronically transmit a single payment of £5,000 to his son’s
bank account.
Which method of payment is Matthew using?
A Direct debit
B Debit note
C Standing order
D BACS. ( )

Question 33
Henry who is employed as a trainee accountant has prepared the following trial balance.
Which item has Henry entered incorrectly?
£ £
Sales 700
Purchases 400
Rent payable 150
Capital 600
Wages 350
Sales returns 100
Drawings 300
A Sales
B Drawings
C Sales returns
D Capital. ( )

Question 34
Which of the following would not be recorded in the sales ledger control account?
A) Contra
B) Discount allowed
C) Discount received
D) Bad debt ( )
Question 35
Which of the following calculates the cost of sales?
A Sales + opening stock + purchases
B Opening stock + purchases - closing stock
C Opening stock - purchases - closing stock
D Sales + purchases - closing stock. ( )

Question 36
Bill receives a cheque from Ben for £750.
Which of the following is the relationship between Bill and Ben?
A Bill is a debtor and Ben a creditor
B Bill is a drawee and Ben is a payee
C Bill is a payee and Ben a drawee
D Bill is a payee and Ben is a drawer. ( )

Question 37
Helen has just opened her own toyshop. The following transactions have taken place during her
first week’s trading.
• Started the business by transferring £5,000 from her personal bank account to a business
account
• Transferred fixtures and fittings worth £1,000 from her house to the shop
• Paid a shop assistant wages of £200
• Withdrew £400 cash for her personal use
What is the balance on the business capital account after the above transactions?
A £5,000
B £5,400
C £5,600
D £5,800. ( )

Question 38
Which journal entries correctly record the credit purchase of office equipment from R Baldwin?
A Debit P Baldwin, Cr Office equipment
B Debit Cash, Credit Office equipment
C Debit Office equipment, Credit P Baldwin
D Debit Office equipment, Credit Cash. ( )

Question 39
Jackson sells electrical components to Addison at list price less 10% trade discount. Value
Added Tax (VAT/sales tax) is charged at the rate of 17.5% on the net selling price.
The following goods are sold on 12 September.
15 boxes of clips at £4 list price each
30 metres of fuse wire at £1.20 list price per metre
14 junction boxes at £1.50 list price per box
What will be the VAT inclusive total of the invoice?
A £ 89.62
B £105.30
C £123.73
D £137.48. ( )

Question 40
Nigel has made an error in his accounting system and recorded the introduction of capital to the
business as drawings.
Which book of original entry is Nigel most likely to record the correction of the error in?
A Sales day book
B Cash book
C The journal
D Purchase day book ( )

Question 41
Patricia is preparing some leaflets for a seminar she is presenting to small business owners. She
is explaining the importance of capital and revenue expenditure to them and using a list of
examples to highlight the differences.
Which of the following typical small business expenses would be classified as revenue
expenditure?
1 Purchase of computer equipment for accounting use
2 Payment of staff wages
3 Payment of business insurance
4 Monthly payments for accounting services
A 1, 2 and 4
B 2 and 4
C 1 and 4
D 2, 3 and 4. ( )

Question 42
At the beginning of the month there is a debit balance of £500 on a sales ledger account. During
the course of the month the customer’s purchases on credit are £10,000. He then returns £1,000
worth of them, and sends in a cheque for £4,250.
What is the balance brought forward on the account at the start of the next month?
A Debit £4,750
B Credit £5,250
C Debit £5,250
D Debit £5,000. ( )

Question 43
Which of the following is a function of an aged creditors’ list?
A To determine how much money has been spent on wages
B To identify the amount of money owed by credit customers
C To improve the efficiency of producing sales credit notes
D To identify outstanding debts payable to suppliers. ( )

Question 44
A bad debt written-off is subsequently recovered. What ledger entries are
made to record this?
(a) Debit Cash Account, credit provision for bad Debts Account
(b) Debit Recovery of Bad Debts Account, credit Cash Account
(c) Debit Cash Account, credit Recovery of Bad Debts Account
(d) Debit Cash Account, credit Provision of Doubtful Debts Account
( )

Question 45
The following information was taken from a sole trader’s accounts:
$
Capital 31 December 2000 56,000
Capital 1 January 2000 29,400
 Drawings 13,000
Additional capital brought in during 2000 4,000
What was his net profit for the year?
(a) $9,600 (c) $43,600
(b) $35,600 (d) $17,600 ( )

Question 46
Which of the following document is used to estimate the amount of provision required for
doubtful debts ?
A Creditors aging analysis
B Debtors aging analysis
C Sales ledger control account
D Debtors ledger control account ( )

Question 47
Ben operates a business buying and selling in cash, which of the following books of prime entry
are not required?
I) Cashbook
II) Sales daybook
III) Purchase daybook
IV) Sales return daybook
V) Purchase return daybook
VI) Petty cashbook
A I, II, III, and IV
B II, III, IV and V
C I and VI
D II and III ( )

Question 48
John receives a cheque from Bernard. Bernard’s Bank is XYZ Bank. XYZ Bank is a
_______________
A Drawer
B Drawee
C Payee
D None of the above ( )

Question 49
Which of the following is a characteristic of a banker’s draft?
A It can be stopped after issue.
B It is signed by the directors of the company making the payment.
C It is a secure form of payment for the recipient.
D Provides a cheap source of finance for high value purchases.
( )

Question 50
What is meant by a returned cheque?
A One which has been cancelled.
B One which has been stopped.
C One drawn, paid, processed and returned to the business.
D One drawn when insufficient funds exist for payment to be made.
( )