ACCA AK Financial Accounting (FA) Double Entry — Questions and Answers
Question 1: A business purchases office furniture for £3,000 on credit. What is the correct double entry?
- Debit Cash £3,000, Credit Furniture £3,000
- Debit Furniture £3,000, Credit Trade Payables £3,000 (Correct answer)
- Debit Trade Payables £3,000, Credit Furniture £3,000
- Debit Furniture £3,000, Credit Capital £3,000
Correct answer: Debit Furniture £3,000, Credit Trade Payables £3,000
When an asset is acquired on credit, the asset account (Furniture) is debited to reflect the increase, and Trade Payables is credited to reflect the liability owed to the supplier.
Question 2: Which of the following correctly describes the accounting equation?
- Assets = Liabilities − Equity
- Assets = Equity + Liabilities (Correct answer)
- Assets + Liabilities = Equity
- Equity = Assets + Liabilities
Correct answer: Assets = Equity + Liabilities
The fundamental accounting equation is Assets = Equity + Liabilities (or equivalently, Assets − Liabilities = Equity). This equation must always balance after every transaction is recorded.
Question 3: A customer pays £500 to settle an outstanding invoice. What is the double entry in the supplier's books?
- Debit Trade Receivables £500, Credit Cash £500
- Debit Cash £500, Credit Revenue £500
- Debit Cash £500, Credit Trade Receivables £500 (Correct answer)
- Debit Revenue £500, Credit Cash £500
Correct answer: Debit Cash £500, Credit Trade Receivables £500
When a customer settles an outstanding debt, Cash (asset) is debited to reflect the money received, and Trade Receivables (asset) is credited to remove the amount owed by the customer.
Question 4: A business pays rent of £2,000 for the month. What is the double entry?
- Debit Rent Expense £2,000, Credit Cash £2,000 (Correct answer)
- Debit Cash £2,000, Credit Rent Expense £2,000
- Debit Rent Expense £2,000, Credit Trade Payables £2,000
- Debit Capital £2,000, Credit Cash £2,000
Correct answer: Debit Rent Expense £2,000, Credit Cash £2,000
Paying rent is an expense. The expense account (Rent) is debited to reflect the cost incurred, and Cash is credited to reflect the outflow of money from the business.
Question 5: What is the purpose of a trial balance?
- To calculate the profit or loss for the period
- To verify that total debits equal total credits in the ledger (Correct answer)
- To prepare the statement of financial position
- To record adjustments for accruals and prepayments
Correct answer: To verify that total debits equal total credits in the ledger
A trial balance lists all ledger account balances to check that total debits equal total credits. It is an arithmetic check on the double entry system, though it will not detect all types of errors (e.g., errors of commission, compensating errors).
Question 6: A business owner introduces £15,000 of personal savings into the business. What is the double entry?
- Debit Capital £15,000, Credit Cash £15,000
- Debit Cash £15,000, Credit Capital £15,000 (Correct answer)
- Debit Drawings £15,000, Credit Cash £15,000
- Debit Cash £15,000, Credit Revenue £15,000
Correct answer: Debit Cash £15,000, Credit Capital £15,000
When the owner introduces capital, the business receives cash (debit Cash to increase the asset) and the owner's claim on the business increases (credit Capital to increase equity).
ACCA AK Financial Accounting (FA) Double Entry
A business purchases office furniture for £3,000 on credit.
What is the correct double entry?