AAT L3 Advanced Bookkeeping 3 — Questions and Answers
Question 1: Which of the following errors would be corrected using a suspense account?
- An error of principle
- An error of omission
- A single-sided entry that causes a trial balance difference (Correct answer)
- An error of commission
Correct answer: A single-sided entry that causes a trial balance difference
A suspense account temporarily holds the difference when a trial balance disagrees, caused by single-sided or unequal postings. Once the error is found and corrected, the suspense account is cleared.
Question 2: Bank reconciliation is performed to:
- Check whether the business has a bank overdraft
- Agree the cash book balance with the bank statement balance by identifying differences (Correct answer)
- Calculate the total of outstanding invoices
- Prepare the year-end financial statements
Correct answer: Agree the cash book balance with the bank statement balance by identifying differences
Bank reconciliation identifies and explains differences between the cash book balance and the bank statement balance, such as outstanding lodgements, unpresented cheques, and bank errors.
Question 3: An outstanding lodgement on a bank reconciliation means:
- A cheque has been paid out but not yet presented to the bank
- A direct debit has not yet been recorded in the cash book
- A receipt has been recorded in the cash book but not yet credited by the bank (Correct answer)
- A bank charge has been omitted from the cash book
Correct answer: A receipt has been recorded in the cash book but not yet credited by the bank
An outstanding lodgement (also called a deposit in transit) is a receipt that the business has recorded in its cash book but which has not yet been credited on the bank statement.
Question 4: What is the double entry when a business receives a cash refund from a supplier?
- Debit Bank, Credit Sales
- Debit Purchases, Credit Bank
- Debit Bank, Credit Purchase Ledger Control Account (Correct answer)
- Debit Cash, Credit Capital
Correct answer: Debit Bank, Credit Purchase Ledger Control Account
A refund from a supplier increases the bank balance (debit Bank) and reduces the amount owed to suppliers — either clearing a credit balance or recording the refund against the purchases ledger control account (credit PLCA reduces with a debit, so a credit reduces the liability — wait: debit Bank means cash received, credit PLCA reduces the supplier balance/increases it if they owe us now).
Question 5: Irrecoverable debts (bad debts) written off are recorded as:
- Debit Irrecoverable Debt Expense, Credit Trade Receivables (Correct answer)
- Debit Trade Receivables, Credit Irrecoverable Debt Expense
- Debit Cash, Credit Trade Receivables
- Debit Irrecoverable Debt Expense, Credit Cash
Correct answer: Debit Irrecoverable Debt Expense, Credit Trade Receivables
When a debt is written off, the asset (trade receivables) is reduced (credit) and the expense (irrecoverable debt) is increased (debit) in the income statement.
Question 6: When bank interest is received and recorded in the cash book but has not yet been entered in the general ledger, what type of error has occurred?
- Error of transposition
- Error of omission (Correct answer)
- Error of principle
- Single-sided entry
Correct answer: Error of omission
An error of omission occurs when a transaction has been completely left out of the accounting records on one side; here the general ledger entry has not been made for the bank interest.
AAT L3 Advanced Bookkeeping 3
Which of the following errors would be corrected using a suspense account?