A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 14 - 15 of 93

Question 14

Question

MCQ▾

Purchase of goods from X for Cash should be Credited to:

Choices

Choice (4)

a.

Goods

b.

Cash

c.

Purchase

d.

X

Answer

b.

Explanation

Under cash basis accounting, incomes are not recorded unless they are received in cash. Similarly, expenses are recorded only when they are paid in cash. Thus, credit transactions are not recorded in the books of accounts until and unless cash is received or paid for such transactions. Thus, profit is merely the excess of actual cash receipts in respect of sale of goods and other incomes over actual payments in respect of purchase of goods, expenses on wages, salary, rent etc. Income or profit of a business is computed with the help of a Receipts and Payments Account. This basis is useful for professional people like lawyers, doctors, chartered accountants etc.

Question 15

Question

MCQ▾

$ 5000 received from Mohan whose account was written off as bad in the previous year should be credited to:

Choices

Choice (4)

a.

Bad debts A/c

b.

Bad debts recovered A/c

c.

Mohan՚s A/c

d.

Question does not provide sufficient data or is vague

Answer

b.

Explanation

Sometimes, it happens that the bad debts previously written off are subsequently recovered. In such cases, the following entry is passed-

Cash A/c Dr.

To, Bad debts recovered A/c

Care should be taken that the personal account of the debtor should not be credited because the debtor՚s account must have been credited while passing the entry for bad debts.

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