O-Level Principles of Accounts 1 — Questions and Answers
Question 1: Which of the following correctly states the accounting equation?
- Assets = Liabilities + Capital (Correct answer)
- Assets = Liabilities - Capital
- Assets + Capital = Liabilities
- Liabilities = Assets + Capital
Correct answer: Assets = Liabilities + Capital
The fundamental accounting equation is Assets = Liabilities + Capital, showing that all assets are funded by either external obligations or the owner's equity.
Question 2: When a business purchases goods on credit from a supplier, which double entry is recorded?
- Debit Purchases, Credit Bank
- Debit Purchases, Credit Creditors (Correct answer)
- Debit Creditors, Credit Purchases
- Debit Bank, Credit Purchases
Correct answer: Debit Purchases, Credit Creditors
Purchasing goods on credit increases the Purchases account (debit) and creates a liability to the creditor (credit).
Question 3: Which source document is issued by a seller to a buyer for a credit sale?
- Purchase order
- Goods received note
- Sales invoice (Correct answer)
- Debit note
Correct answer: Sales invoice
A sales invoice is issued by the seller to the buyer as the source document for recording a credit sale in the books.
Question 4: What does a trial balance verify?
- That all transactions have been recorded correctly
- That total debits equal total credits in the ledger (Correct answer)
- That assets equal liabilities plus capital
- That the business has made a profit
Correct answer: That total debits equal total credits in the ledger
A trial balance verifies that the total of all debit balances equals the total of all credit balances, confirming arithmetical accuracy in the ledger.
Question 5: Which of the following accounts normally carries a credit balance?
- Asset account
- Expense account
- Drawings account
- Capital account (Correct answer)
Correct answer: Capital account
A capital account has a normal credit balance because it represents the owner's equity — an amount the business owes to its owner.
Question 6: Carriage inwards is included in which financial statement section?
- Profit and Loss account
- Trading account (Correct answer)
- Balance Sheet under current assets
- Sales account
Correct answer: Trading account
Carriage inwards is the cost of transporting purchased goods to the business and is included in the Trading account as it forms part of the cost of goods sold.
Question 7: A cash book serves as which type of accounting record?
- Only a ledger account
- Only a book of original entry
- Both a book of original entry and a ledger account (Correct answer)
- Neither a ledger nor a book of original entry
Correct answer: Both a book of original entry and a ledger account
The cash book is unique in that it functions simultaneously as a book of original entry (like a journal) and as a ledger account for cash and bank.
O-Level Principles of Accounts 1
Which of the following correctly states the accounting equation?