AAT L2 Bookkeeping Transactions 3 — Questions and Answers
Question 1: Which of the following is a book of prime entry?
- The trial balance
- The statement of financial position
- The petty cash book (Correct answer)
- The statement of profit or loss
Correct answer: The petty cash book
The petty cash book is a book of prime entry where small cash transactions are initially recorded. The trial balance and financial statements are not books of prime entry — they are prepared from ledger account balances.
Question 2: A cheque received from a customer for £750 is dishonoured by the bank. What is the double entry to record this?
- Debit Bank £750, Credit Trade Receivables £750
- Debit Trade Receivables £750, Credit Bank £750 (Correct answer)
- Debit Sales £750, Credit Bank £750
- Debit Bank £750, Credit Sales £750
Correct answer: Debit Trade Receivables £750, Credit Bank £750
When a cheque is dishonoured, the original entry must be reversed. The customer still owes the money, so Trade Receivables is debited, and the bank balance is reduced by crediting the bank account.
Question 3: What is the correct VAT fraction used to extract VAT from a VAT-inclusive amount at the standard rate of 20%?
- 1/5
- 1/6 (Correct answer)
- 20/100
- 1/4
Correct answer: 1/6
When VAT at 20% is included in a price, the VAT fraction is 20/120 which simplifies to 1/6. For example, if the VAT-inclusive price is £120, the VAT element is £120 × 1/6 = £20.
Question 4: The balancing figure on a petty cash book that operates using the imprest system represents:
- Total payments made during the period
- The amount needed to restore the imprest
- The opening balance for the next period
- Both the amount to restore the imprest and the closing balance (Correct answer)
Correct answer: Both the amount to restore the imprest and the closing balance
In the imprest system, the closing balance equals the amount of cash remaining, and the restoration amount equals the total of payments made. The imprest is then topped up by this amount to bring it back to the original float.
Question 5: A sole trader's capital account would be credited when:
- The owner withdraws cash for personal use
- The owner introduces additional capital into the business (Correct answer)
- The business makes a loss
- The business pays a supplier
Correct answer: The owner introduces additional capital into the business
When the owner introduces additional capital, the capital account is credited because capital is a liability of the business to the owner. Drawings (withdrawals) would debit the capital or drawings account.
Question 6: Net purchases are calculated as:
- Total purchases plus carriage inwards
- Total purchases less purchase returns (Correct answer)
- Total purchases less sales returns
- Total purchases plus purchase returns
Correct answer: Total purchases less purchase returns
Net purchases = Total (gross) purchases minus purchase returns. Purchase returns reduce the total cost of goods purchased. Carriage inwards is added separately to calculate the cost of goods sold.
AAT L2 Bookkeeping Transactions 3
Which of the following is a book of prime entry?