O-Level Principles of Accounts 2

Question 1

How is gross profit calculated in the Trading account?

Accepted Answer

Sales minus cost of goods sold

Answer

Gross profit = Sales − Cost of Goods Sold; it reflects the profit from trading activities before deducting operating expenses.

Question 2

Where does accumulated depreciation appear in the financial statements?

Accepted Answer

Balance Sheet as a deduction from the fixed asset's cost

Answer

Accumulated depreciation is deducted from the cost of the fixed asset on the Balance Sheet to show its net book value.

Question 3

When a debtor is unable to pay and the debt is written off, where is this loss recorded?

Accepted Answer

As a bad debt in the Profit and Loss account

Answer

Bad debts are written off as an expense in the Profit and Loss account, reducing the net profit for the accounting period.

Question 4

Prepaid expenses are classified in the Balance Sheet as:

Accepted Answer

A current asset

Answer

Prepaid expenses represent amounts paid in advance for future benefits and are classified as current assets on the Balance Sheet.

Question 5

Which depreciation method allocates an equal charge to each year of an asset's useful life?

Accepted Answer

Straight-line method

Answer

The straight-line method calculates depreciation as a fixed amount each year, keeping the annual charge constant throughout the asset's useful life.

GCE O-Level Practice Test