CAT Paper 1, Recording Financial Transactions

Time allowed : 2 hours

Passing mark : 56 marks
Question 1
Dawn receives a bank statement, which does not agree with her cash book balance. Which
of the following is not responsible for this difference?
A Cheques paid in, have not been credited
B The bank has charged overdraft interest
C A cheque sent to supplier has not been presented
D Furniture purchased for cash.

Question 2
Which of the following do not need accounting entries?
A Discount allowed
B Discount received
C Trade discount
D Cash discount

Question 3
Bad debts written off and bad debts recovered are shown in
A Balance sheet
B Trading account
C Profit and loss account
D Sales Day book

Question 4
John is the owner of the business, he put his personal van into his business. What is the
accounting entry?
Debit Credit
A) Vehicle Capital
B) Capital Vehicle
C) Vehicle expenses Capital
D) Capital Vehicle expenses

Question 5
Cash discount received is
A a revenue
B a capital
C debited to the Trading Account
D debited in the Cash Book
Question 6
Why would a cash discount be given?
A To allow a purchaser time to pay
B To obtain a quick settlement
C As an incentive to trade with the same tax
D As an incentive to buy in bulk.

Question 7
Which of the following is unlikely to appear on a sales invoice issued by Toh to Lim?
A Invoice number
B Name of the buyer
C Purchase price to Lim
D Selling price to Lim

Question 8
Which business transaction would result in the following?
Debit Sales Credit sales control account
A The purchase of goods on credit
B The return of goods from a customer
C The return of goods to supplier
D The sales of goods on credit

Question 9
A business has capital owned of $90,000 on 31 January 2008. During
February 2008 it sold goods costing $1,000 for $1,400. Damaged stock
costing $200 was written-off. What was the capital owned on 28 February
2008?
A $90,200
B $91,200
C $90,000
D $89,800

Question 10
Which one of the following is similar to a sole trader’s net worth in his
business on 31 December 2008?
A The owner’s equity on 31 December 2008
B The working capital on 31 December 2008
C The capital invested on 31 December 2008
D The value of his assets on 31 December 2008
Question 11
The following figures are available for the accounting year ended 31 December 2008:
$
Total cash sales 20,000
Total credit sales 82,000
Total returns inwards 2,000
Given that gross profit on turnover was 40%, calculate the cost of sales.
(A) $100,000 (C) $40,000
(B) $60,000 (D) $25,000

Question 12
Which would you NOT take into account in calculating working capital?
(A) Debentures
(B) Creditors
(C) Bank overdraft
(D) Debtors

Question 13
Furniture bought for resale by a furniture retailer is
(A) a revenue expenditure appearing in the Profit and Loss Account
(B) a revenue expenditure appearing in the Balance Sheet
(C) a capital expenditure appearing in the Balance Sheet
(D) expenditure to be shown in the Trading Account

Question 14 A business has the following assets and liabilities:

Creditors $12,000
Debtors $20,000
Stock $15,000
Bank loan $6,000
Delivery Van $15,000
The capital is:
A $32,000
B $38,000
C $44,000
D $47,000

Question 15
A business buys a machine for $40,000 and depreciates it at the rate of 10% per year. Using the
reducing balance method, what is the depreciation charge for the second year of the machine’s
use?
A $3,200 B $3,240
C $3,600 D $4,000
Question 16
A bad debt written-off is subsequently recovered. What journal entries are
made to record this?
A Debit Cash Account, credit provision for bad Debts Account
B Debit Recovery of Bad Debts Account, credit Cash Account
C Debit Cash Account, credit Recovery of Bad Debts Account
D Debit Cash Account, credit Provision of Doubtful Debts Account

Question 17
Total cash and cheques received from customers entered in the Sales
Ledger Control Account consists of
A all cash and cheques received from customers
B receipts from credit sales of the current period only
C receipts from sales on cash and credit terms
D receipt from trade debtors who have bought goods on credit

Question 18
The inclusion of the Debtors and Creditors Control Accounts in the ______________ enables the
Trial Balance prepared from it to balance.
A Sales Ledger C General Ledger
B Purchases Ledger D Cash Book

Question 19
The closing balance on the Sales Ledger Control Account represents
A total debtors C total sales
B total creditors D total debt of the business

Question 20
Which of the following is not an obligation of a bank towards its customers
A To use a professional level of care and skill.
B To provide confirmation of the balance on the account at any time at the request
of the Customer
C To provide a statement covering a period showing the transactions which have
occurred during that period
D To provide a statement detailing the profits the bank has made with the
money deposited.
Question 21
Which error will affect the Sales Ledger Control Account?
A A sale of $179, recorded in the Sales Journal, was posted to the customer’s
account as $197
B A cheque received from A. Jean was posted to S. Jean’s account
C Discount allowed was not posted from the Cash Book to the personal account
D The total in the Sales Journal was overcast
Question 22
Paul made an error in his recording. A receipt of $200 from a debtor was incorrectly debited to
the debtor’s account in his sales ledger. Sales Ledger balances totalled $11,700 but his Sales
Ledger Control Account showed a balance of $11,300. What is the correct value for George’s
debtors?
A $11,700 C $11,500
B $11,300 D $11,100

Question 23
Which error will affect the Sales Ledger as well as the Sales Ledger Control
Account?
A The Sales Day Book was undercast
B A return was not posted to a customer’s account
C Discount allowed of $1500 was recorded as $150 in the personal account
D An invoice was overlooked and completely omitted from the books

Question 24
The firm which uses and sells fixed asset, applies the concept of assets of giving a full year’s
depreciation even though asset was bought part of the way though the year. This concept of
depreciation is:
A Month to month basis
B Yearly basis
C Straight line
D Reducing balance.

Question 25

A Sales Ledger Control Account can serve as a check on the accuracy of the
Sales Ledger because
A they are prepared by different people
B the balance on the Control Account always matches the sum total of the Sales
Ledger balances
C the information for its construction is obtained from sources independent of the
Sales Ledger
D the information for its construction can be obtained rapidly

Question 26
The control accounts are prepared from totals obtained from
A Sales and Purchases Ledger
B Books of prime entry
C Trial Balance
D General Ledger
Question 27
What is the primary purpose of Control Accounts?
A To calculate sales and purchases
B To calculate total debtors and total creditors
C To control errors in the books
D To prepare the Trial Balance

Question 28
A Trial Balance showed:
Debtors $25,000
Provision for doubtful debts $ 1,100
The provision is to be maintained at 5% of debtors.
How would the provision be shown in the balance sheet?
A A liability of $1,100
B A deduction from debtors of $1,100
C A liability of $1,250
D A deduction from debtors of $1,250

Question 29
Ken operates a business buying and selling in cash, which of the following books of prime entry
is required?
I Cashbook
II Sales daybook
III Purchase daybook
IV Sales return daybook
V Purchase return daybook
VI Petty cashbook
A I and IV
B II, and III,
C IV and V
D V and VI

Question 30
Which of the following source document is issued by the purchasing company for a credit
purchase?
A Remittance note
B Purchase order
C Invoice
D Delivery note
Question 31
John receives a OCBC cheque from Mas Selamat. OCBC Bank is a:

A Drawer
B Drawee
C Payee
D None of the above

Question 32
The following information is available
Closing capital 300,000
Drawing during the year 28,000
Profit during the year 30,000
What is the opening capital at beginning of the year?
A $242,000
B $271,000
C $302,000
D $358,000

Question 33
Clinton is the accountant of ABC Ltd, he is concerned with the proper
operation of the petty cash.
Which of the following is not appropriate?
A Restricting the amount of claims to $100 per claim
B Surprise checks on the petty cash balance, book, voucher and receipts.
C Ensuring that the petty cash holder is properly trained
D Allow the petty cash holder to fill in the forms and sign on behalf of claimant who
are not familiar with the petty cash voucher to prevent making mistakes

Question 34
Which of the following is not true?
A Capital expenditure is for purchase of assets that can last for more than one year
B Stock held for resale should be regarded as a fixed asset if it can’t be sold after 1
year
C Computer is an example of fixed asset
D Insurance on fixed asset should be treated as revenue expenditure

Question 35
Which of the following accounts would provide cheque clearance service?
A saving account
B credit card account
C current account
D Loan account
Question 36
Bush wishes to buy goods from Obama Ltd. Which of the following is the most likely flow of
documents to complete the purchase?
A Purchase order, delivery note, goods received note, cheque requisition, invoice.
B Purchase order, delivery note, goods received note, invoice, cheque requisition.
C Goods received note, purchase order, delivery note, invoice, cheque requisition.
D Purchase order, goods received note, delivery note, cheque requisition, invoice.

Question 37
Which of the following is not an effective control measure?
A All payments should be authorised
B Cash float in the till should be minimised
C All receipts should be banked as soon as possible
D Any one of the three directors’ signature is required for the company’s cheque

Question 38
Comas is the accounts assistant in a firm which has a large fleet of motor vehicles. He is unsure
of the distinction between capital and revenue expenditure. Advise Comas as to which of the
following would be classified as revenue rather than capital expenditure.
(i) Purchase of a new delivery van.
(ii) Redecorating the transport manager’s office.
(iii) Paying the road fund licences for the fleet of vehicles.
(iv) Purchase for a new exhaust far a old van.
A all four expenses
B (ii), (iii) and (iv)
C (i) and (ii)
D (iii) only.

Question 39
Which of the following is not an effective security procedure?
A A key must be inserted in to the cash register before it will operate. Keys are held
by authorized personnel
B Cash is counted by a responsible person who works on the cash register.
C The cash reconciliation should be performed by a responsible person who neither
operates the cash register nor counts the cash.
D Cash should be banked as promptly as possible.
Question 40
Oliver has just started his company and is preparing his first set of accounts. He is confused
about the distinction between various items in the balance sheet.

Advise Oliver as to which of the followings should be classifed as current assets.

(i) stock
(ii) creditors
(iii) debtors
(iv) motor vehicles.
A All four
B (i), (ii) and (iii)
C (ii), (iii) and (iv)
D (i) and (iii).

Question 41
Which of the following is a current asset?
A current bank account with credit balance
B cash account with debit balance
C sales ledger account with a credit balance
D purchase ledger account with a credit balance

Question 42
San wants to write off some bad debts, which book of original entry will this
transaction be recorded in?
A The sales day book
B The cash book
C The journal
D The purchase day book.

Question 43
Which of the following staff needs closer supervision to ensure security of company’s property?
A AB, who is a receptionist
B AC, who is a production worker
C DD, who is a repair man
D PP, who is a cashier

Question 44
A repair to the office computer that costs $500 is likely to be paid:
A by cheque issued by the accounts department
B by the office staff, shared amongst themselves
C by the marketing manager
D from the petty cash
Question 45
Which is not true?
A Sales ledger control account should tally with the total balance in the sales ledger
B Accounts payable department is in charge of payments to creditors
C Sales ledger is a detailed list of all creditors
D Sales daybook must be updated in the nominal ledger as well as the sales ledger

Question 46
The book-keeper made two errors in recording the following:
(i) The Purchases Journal was undercast by $100.
(ii) A purchase priced at $250 was wrongly entered as $200 in the invoice.
At the close of the period, 31 December 2008, the balances from the
Purchases Ledger totalled $8,000. What would be the balance on the
Purchases Ledger Control Account on 31 December 2008 as a result of the
Two errors?
A $7,950 C $8,100
B $7,900 D $7,850

Question 47
Tom start a business paying $100,000 into a business bank account. How would this be
recorded?
A Debit: Creditor Credit: Bank
B Debit: Bank Credit: Creditor
C Debit: Capital Credit : Bank
D Debit : Bank Credit: Capital

Question 48
A business has capital owned of $100,000 on 31 January 2008. During
February 2008 it sold goods costing $1,000 for $1,400. Damaged stock
costing $200 was written-off. What was the capital owned on 28 February
2008?
A $100,200 C$100,000
B $101,200 D $99,800
Question 49
The following figures are available for the accounting year ended 31 December 2008:
$
Total cash sales 20,000
Total credit sales 82,000
Total returns inwards 2,000
Given that gross profit on turnover was 30%, calculate the cost of sales.
A $100,000 C $30,000
B $70,000 D $24,600

Question 50
Which of the following are on the same side of the trial balance?
A Creditor and cash in hand
B Bank overdraft and provision for depreciation
C Computer and sales
D Debtors and provision for doubtful debts