AAT L2 Bookkeeping Transactions 3

Question 1

Which of the following is a book of prime entry?

Accepted Answer

The petty cash book

Answer

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?

Accepted Answer

Debit Trade Receivables £750, Credit Bank £750

Answer

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%?

Accepted Answer

1/6

Answer

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:

Accepted Answer

Both the amount to restore the imprest and the closing balance

Answer

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:

Accepted Answer

The owner introduces additional capital into the business

Answer

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.

AAT Level 2 Practice Test

AAT Level 2 Practice Test

AAT L2 Bookkeeping Transactions 3