AAT L2 Bookkeeping Controls 3 — Questions and Answers
Question 1: A business has the following information: Bank statement closing balance £4,500 credit, unpresented cheques £800, outstanding lodgements £350. What is the adjusted bank balance?
- £4,050 (Correct answer)
- £4,950
- £5,650
- £3,350
Correct answer: £4,050
Starting with the bank statement balance of £4,500 (credit on the statement means a positive balance for the business), deduct unpresented cheques (£800) and add outstanding lodgements (£350): £4,500 - £800 + £350 = £4,050.
Question 2: An error of principle occurs when a transaction is:
- Recorded at the wrong amount
- Posted to the wrong person's account
- Posted to the wrong class of account (Correct answer)
- Omitted entirely from the books
Correct answer: Posted to the wrong class of account
An error of principle occurs when a transaction is posted to the wrong class (type) of account, violating an accounting principle. For example, debiting a vehicle repair to the motor vehicles asset account instead of the repairs expense account.
Question 3: The balance on the VAT control account shows a credit balance of £3,400. This means:
- HMRC owes the business £3,400
- The business owes HMRC £3,400 (Correct answer)
- There is an error in the VAT records
- The business has overpaid VAT
Correct answer: The business owes HMRC £3,400
A credit balance on the VAT control account means output VAT (on sales) exceeds input VAT (on purchases). The business has collected more VAT than it has paid, so it owes the net amount of £3,400 to HMRC.
Question 4: When clearing a suspense account, which of the following errors would require an entry to the suspense account?
- An error of omission
- An error of commission
- A casting error in the sales day book (Correct answer)
- A compensating error
Correct answer: A casting error in the sales day book
A casting (addition) error in the sales day book means an incorrect total was posted to the general ledger, causing the trial balance to be out of balance. This would require an entry to the suspense account to correct the imbalance.
Question 5: A bank statement shows a direct credit of £1,200 that has not been entered in the cash book. What entry is needed in the cash book?
- Debit £1,200 on the credit side of the cash book
- Debit £1,200 on the debit side of the cash book (Correct answer)
- Credit £1,200 on the credit side of the cash book
- No entry needed — it is a timing difference
Correct answer: Debit £1,200 on the debit side of the cash book
A direct credit (such as a BACS payment from a customer) has been received by the bank but not yet recorded in the cash book. The cash book needs to be updated with a debit entry (receipt) of £1,200.
Question 6: Compensating errors are:
- Two or more errors that cancel each other out so the trial balance still balances (Correct answer)
- Errors that are deliberately made to reduce tax
- Errors found during a bank reconciliation
- Errors in the memorandum accounts only
Correct answer: Two or more errors that cancel each other out so the trial balance still balances
Compensating errors are two or more errors of equal and opposite amounts that cancel each other out. For example, if debits are overstated by £100 and credits are also overstated by £100, the trial balance still balances despite both errors.
AAT L2 Bookkeeping Controls 3
A business has the following information: Bank statement closing balance £4,500 credit, unpresented cheques £800, outstanding lodgements £350.
What is the adjusted bank balance?