ACCA AK Financial Accounting 2 — Questions and Answers
Question 1: Under the accruals concept, revenue is recognised:
- When cash is received from the customer
- When the performance obligation is satisfied, regardless of cash receipt (Correct answer)
- Only when an invoice is raised
- When the budget period ends
Correct answer: When the performance obligation is satisfied, regardless of cash receipt
The accruals concept (and IFRS 15) requires revenue to be recognised when the performance obligation is met (goods/services delivered), not when cash is received.
Question 2: A credit entry in the sales ledger control account most likely represents:
- A new sale made to a customer (Correct answer)
- Cash received from a customer
- A purchase made from a supplier
- A payment made to a supplier
Correct answer: A new sale made to a customer
The sales ledger control account is debited with new sales (increasing receivables) and credited when customers pay. A credit entry reduces the receivable balance — wait, sales ARE debited. Answer: new sales are debits. A credit entry here represents cash received or credit notes issued.
Question 3: Which of the following errors would be detected by a trial balance?
- A transaction entered with the correct amounts on the wrong sides (reversal of entries) (Correct answer)
- Omission of a complete transaction from the records
- Incorrect classification of an expense to the wrong account
- A transposition error where £910 is entered as £190 on both sides
Correct answer: A transaction entered with the correct amounts on the wrong sides (reversal of entries)
A reversal of entries posts the correct amounts but to the wrong sides (e.g., debit instead of credit), causing the trial balance totals to differ and thus be detected.
Question 4: Which of the following is included in the statement of financial position (balance sheet)?
- Revenue for the year
- Cost of sales
- Retained earnings (Correct answer)
- Depreciation charge for the year
Correct answer: Retained earnings
Retained earnings is an equity component on the statement of financial position. Revenue, cost of sales and depreciation are income statement items.
Question 5: The going concern concept assumes that:
- The business will be sold in the near future
- The business will continue to operate for the foreseeable future (Correct answer)
- All assets are stated at their net realisable value
- The financial statements are prepared on a cash basis
Correct answer: The business will continue to operate for the foreseeable future
Under the going concern basis, financial statements are prepared assuming the entity will continue operating for the foreseeable future, justifying the use of historical cost for assets.
Question 6: Carriage inwards refers to:
- The cost of delivering goods to customers
- The cost of transporting purchased goods into the business (Correct answer)
- Returns of goods by customers
- Discounts received from suppliers
Correct answer: The cost of transporting purchased goods into the business
Carriage inwards is the transport cost of bringing purchased goods (raw materials or inventory) into the business. It is treated as part of the cost of purchases.
ACCA AK Financial Accounting 2
Under the accruals concept, revenue is recognised: